28 Aug

Chipmakers in Focus as Trump Feels Huawei Pressure

WRITTEN BY Sneha Nahata

Several companies have reportedly applied to the US Department of Commerce for licenses to sell US goods to China’s Huawei Technologies. Reuters reported on August 27 that over 130 US suppliers, chipmakers, software companies, and other companies have submitted applications for non-security sales to Huawei.

US companies to push Trump to sell to Huawei

Notably, Huawei is a critical customer for US semiconductors, including Qualcomm (QCOM), Intel (INTC), and Micron Technologies (MU). These companies supply chips and other components to Huawei, which is the world’s leading smartphone maker.

While Intel supplies server chips and processors for Huawei’s laptops, Qualcomm provides modems and other processors. These US chipmakers have reportedly generated revenues of around $11 billion in 2018 by selling components to Huawei. In fiscal 2018, Qualcomm’s revenues reached $22.7 billion, Micron’s revenues were $30.4 billion, and Intel’s 2018 revenues reached $70.8 billion.

Chipmakers, as well as other US companies, are seeking President Trump’s approval for sale exemptions to Huawei. Let’s look at the backstory around the trade ban on Huawei and see whether Trump might approve Huawei sales amid the ongoing trade war with China.

Huawei trade ban

In May, President Trump imposed a ban on US firms, restricting them from trading with Huawei. Trump added that his administration would also add 70 Huawei affiliates to its trade blacklist. The trade ban resulted from the escalating US-China trade war.

Soon after the announcement, US tech giants Alphabet’s (GOOGL) Google, Qualcomm, Broadcom, and Intel decided to stop doing business with Huawei. Google’s restricted business with China’s telecom giant would make it difficult for Huawei to sell smartphones outside China. Plus, Huawei would find it challenging to sell phones without the Google Play Store and other Google apps.

Trump has serious concerns regarding Huawei and considers it a security risk to the US, particularly related to 5G deployment. Notably, China’s tech company has surpassed US companies in launching 5G technology.

During his June 29 speech, Trump stated that he would allow some US companies, including Google and Qualcomm, to resume selling products to Huawei. Trump also mentioned that he wants the affected US companies to deal with China’s telecom company, but without risking national security. Since June 29, the Trump administration hasn’t granted any licenses to these US companies for sales to Huawei.

License approval for Huawei remains pending

However, Trump’s August 9 statement caused some confusion. His remarks reportedly meant that the US would not do any business with Huawei. Trump’s comments accompanied his announcement of an additional 10% tariff on Chinese goods worth $300 billion, which would start in September. However, a White House official later clarified that Trump is still assessing US companies’ requests for sales to the Chinese handset maker.

On August 19, the Trump administration granted a 90-day temporary extension to US companies to sell components to China’s Huawei. The 90-day reprieve gave temporary relief to these semiconductor and tech US companies. Although these companies would be allowed to repair and maintain Huawei’s existing handsets and networks, the license approvals remain pending.

Uncertainty due to the escalating trade war

The trade war skidded sideways on August 23, as China imposed new tariffs on US goods in retaliation to Trump’s additional 10% tariffs. China announced new tariffs in the range of 5% to 10% on $75 billion of US goods.

China’s announcement rattled the US economy and sparked a significant sell-off in the broader markets. Via tweet, Trump ordered US companies not to trade with China and wanted them to start looking for an alternative to China immediately.

Trump escalated the trade war by intending to raise the current trade tariffs from 25% to 30% on $250 billion worth of imported goods from China, starting in October. Trump also decided to hike the earlier tariff rate by an additional 10%–15% on $300 billion of Chinese goods.

Moreover, Trump has plans to implement 15% tariffs in September, instead of the previously planned December start date. These latest volleys in the tariff war have exacerbated the market’s uncertainty and sparked fears about the global economy.

On the upside, Trump stated at the G-7 meeting in France that China asked to renew its trade talks with the US last weekend. The resumption of these critical trade talks raised hopes among US companies that they could receive exemptions to sell goods to Huawei soon.

Experts reportedly believe the renewed US trade talks could lead to license approvals for sales to Huawei to begin next month. Notably, Trump and China’s President Xi Jinping are scheduled to have a meeting next month on trade terms, although no date has been disclosed.

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