Death by a thousand cuts is the sentence the US has pronounced on Huawei. Its latest sanctions against the Chinese telecoms equipment group, which it accuses of spying, include blacklisting 38 affiliates in 21 countries. Without vital supplies of foreign chips, Huawei appears doomed. It is not suffering alone.
Shares of suppliers including Taiwan’s MediaTek and Novatek and China’s Sunny Optical fell as much as 10 per cent on Tuesday. Of them, MediaTek stands to lose most. The chipmaker came to Huawei’s rescue after Taiwan Semiconductor Manufacturing Company cut off shipments.
MediaTek, which gets most of its sales in China, had expected Huawei orders to increase more than fourfold this year. Gross margins improved to 43 per cent in the second quarter. Shares were at historic highs of 37 times trailing earnings. The stock of Sunny Optical, which supplies cameras for Huawei smartphones, were trading at 36 times.
The latest measures from Washington would severely limit Huawei’s production of smartphones and next-generation 5G network equipment. Together these produce 90 per cent of revenues.
Huawei had about Rmb160bn ($23bn) of inventory at the end of last year, equivalent to just a few months’ supply of some components. Some essential 5G chips will run out as early as next year.
With Huawei’s survival in doubt, many countries face losing access to equipment for installing new 5G networks and servicing legacy systems. Huawei is the cheapest option among rivals that include Nokia, Ericsson and Samsung. Critics say low prices helped the private business disseminate technology useful to spies.
Conspiracy theories cut both ways. China was on track to dominate the global 5G market. Not any more. The sanctions leave the US better placed to catch up.
The Trump administration is doing a ham-fisted job of dissecting Huawei out of the tech supply chain. When the surprise surgery hurts so many businesses and investors outside mainland China, it is a bad advertisement for the technological dominance the US seeks.
The Lex team is interested in hearing more from readers. Please tell us what you think of new US sanctions in the comments section below.
Source: Economy - ft.com
