/Billions of tech revenue in Asia are at risk due to U.S. restrictions on Huawei, S&P says

Billions of tech revenue in Asia are at risk due to U.S. restrictions on Huawei, S&P says

Billions of dollars in tech revenue are at risk across Asia Pacific following the most recent United States restrictions on Chinese smartphone maker Huawei, ratings agency Standard and Poor’s said in a report this week. 

President Donald Trump’s administration introduced a new rule in May that requires foreign companies using U.S. chipmaking equipment to obtain an American license in order to sell certain semiconductors to Huawei or its affiliates. There is no indication that the U.S. will grant those licenses anytime soon. 

For its part, Huawei needs those semiconductors in order to produce its smartphones and telecommunication equipment. 

The U.S.-China confrontation puts about $ 25 billion in revenue at risk across the Asia Pacific technology companies rated by S&P that do business with Huawei, according to S&P Global Ratings.

The new restrictions could affect as much as 15% to 20% of revenues, or around $ 7 billion, of foundry companies such as Taiwan Semiconductor Manufacturing Co. and Semiconductor Manufacturing International Corporation â€” China’s largest contract chipmaker.

Huawei â€” one of the world’s largest smartphone makers and a top telecommunications equipment manufacturer â€” is in the middle of a fight between the United States and China for global technological dominance. 

A man wearing a face mask uses his mobile phone as he walks past a Huawei store in Beijing on May 16, 2020.

Wang Zhao | AFP | Getty Images

Even before the new licensing rules in May, Huawei was put on the so-called “entity list” last year which restricted American firms from doing business with the Chinese firm without seeking permission from the government. Washington says the tech company’s activities pose a risk to the national security and foreign policy interests of the U.S.

Other firms in the region could experience a secondary hit to the tune of another $ 18 billion indirectly due to their exposure to firms that are on the U.S. blacklist alongside Huawei, according to the S&P report. 

“These expanded rules in particular hit chipset production (foundries) companies that use certain U.S. technology or manufacturing equipment,” Clifford Kurz, credit analyst at S&P Global Ratings, said in a statement. 

“Without a license from the U.S. government, such companies will be unable to provide services directly to Huawei without facing restrictions themselves,” he added. 

Washington has accused Huawei of including security vulnerabilities in its hardware that could be used for espionage by Beijing. The U.S. has moved further to urge its allies to exclude the tech firm from building their next generation of high-speed mobile internet known as 5G. Huawei has denied allegations it colludes with Chinese intelligence.  

“We anticipate operational upheaval as Asia-Pacific tech firms adjust to a ramping up of restrictions on Huawei’s access to U.S. technology, however, the ultimate revenue and credit ratings effect may be moderate,” S&P said.

For TSMC, it would be due to strong demand for chipsets that can offset the loss of Huawei’s orders, the report said. A shift of Chinese customers to domestic suppliers will likely benefit SMIC, it added.

For its part, Beijing could step in with potential financial and operational support for Huawei and other affected companies while there may be some retaliatory measures restricting the sale of U.S. technologies in China, S&P noted, adding the effect of that on Asia Pacific firms will likely be minimal.

Tensions between the two economic powerhouses heightened further last week, after China ordered the U.S. consulate in the city of Chengdu to cease operations. That was in retaliation for Washington’s decision to close China’s consulate in Houston, Texas.

For its part, Huawei overtook Samsung to become the top smartphone player in the world by shipment volume in the April-June quarter, according to research firm Canalys. Analysts have cast doubts over whether the Chinese tech giant will be able to hold on to its lead as most of Huawei’s sales in the second quarter came from China. 

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