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Huawei says Qualcomm has applied for a license to sell it chips

The logo of Chinese company Huawei at their main U.K. offices in Reading, west of London, on January 28, 2020.

Daniel Leal-Olivas | AFP via Getty Images

Huawei said that Qualcomm has applied for a license to sell it chips and will use them in smartphones if permission is granted by the U.S. government. 

China’s Huawei was put on a U.S. blacklist last year that restricted American businesses from selling products to the Chinese phonemaker. U.S. companies, including Qualcomm, were required to get a license from the government to export goods to companies on that list. 

Then in May this year, Washington amended a rule to require foreign manufacturers using U.S. chipmaking equipment to get a license before being able to sell semiconductors to Huawei. The U.S. government tightened this rule in August, a move which could lead to a “near-total” cut-off for Huawei from key semiconductor. 

Huawei designs its own smartphones chips called Kirin, via its HiSilicon subsidiary. But Kirin is manufactured by Taiwanese contract chipmaker Taiwan Semiconductor Manufacturing Company. From Sept. 15, TSMC was no longer able to supply chips to Huawei. 

“The U.S. has been continuously attacking us … and that has posed great challenges to our production and our operation,” Guo Ping, rotating chairman at Huawei, said on Wednesday. “We got the last batch of chipsets in middle of September, we are still evaluating more details.”

Guo said that the company has “sufficient stock” of chips for its business to business divisions, which would include its networking equipment. He did not comment on how much stock is left for its smartphones.

Due to the U.S. sanctions, Huawei has very few options when it comes to procuring the chips it needs now. 

Qualcomm has been lobbying the U.S. government to allow it to export chips to Huawei, according to a Wall Street Journal report in August. The U.S. chip giant argued in a presentation seen by the WSJ that the export restrictions will hand billions of sales to Qualcomm’s competitors. 

I’ve noticed Qualcomm has applied for a license to export products to Huawei from the U.S. government and if they get the license we are willing to continue to procure from them and use their chipsets in our smartphones

Guo Ping

rotating chairman of Huawei

During the company’s second quarter earnings results last year, CEO Steve Mollenkopf blamed the export restrictions on Huawei for weakness in its numbers at the time. 

Huawei has more recently used its own Kirin chip in its smartphones. But now that it cannot get those semiconductors, Qualcomm could fill the gap if it gets an export license. That would be a big boost for Qualcomm’s business. 

“Qualcomm has always been a very important partner of Huawei. Over the past decade and more, Huawei has been procuring chipsets from Qualcomm. I’ve noticed Qualcomm has applied for a license to export products to Huawei from the U.S. government and if they get the license we are willing to continue to procure from them and use their chipsets in our smartphones,” Guo said. 

Qualcomm was not immediately available for comment when contacted by CNBC. 

Meanwhile Intel has been granted a license by the U.S. to sell certain products to Huawei, according to Reuters

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Department of Commerce Huawei chip rule could deal ‘lethal blow’: Analyst

A Huawei logo is displayed at a retail store in Beijing, China on May 27, 2019.

Fred Dufour | AFP | Getty Images

Huawei could face a “near-total” cut-off from key semiconductors after the U.S. tightened restrictions on the Chinese firm’s ability to obtain critical components, according to one group of analysts.

The latest rule could be a huge blow for the technology giant, which was already facing limited options to procure the chips it needs.

If Huawei isn’t able to get access to the components it needs, billions of dollars of revenue is on the line from across its entire business.

“The U.S. moves represent a significant tightening of restrictions over Huawei’s ability to procure semiconductors. That puts into significant jeopardy its ability to continue manufacturing smartphones and base stations, which are its core products,” Dan Wang, technology analyst at Gavekal Dragonomics, a research firm, told CNBC.

Huawei was not available for comment when contacted by CNBC. 

The details

In May, Washington amended the foreign-produced direct product rule (FDPR) requiring foreign manufacturers using American chipmaking equipment to get a license before they’re able to sell semiconductors to Huawei. 

On Monday, the Department of Commerce took further action. It added 38 Huawei affiliates onto a blacklist called the Entity List. American companies are restricted from doing business with companies on the Entity List. 

And Washington further amended the FDPR to include instances where U.S. software or technology is the basis for a foreign-produced item that will be used in the “production” or “development” in any part, equipment or component produced, purchased or ordered by any Huawei entity on the blacklist.

The amended rule will apply when any Huawei entity on the blacklist acts as a “purchaser, intermediate consignee, ultimate consignee, or end-user.”

These designations are important as they essentially increase the scope of what comes under U.S. sanctions.

‘Lethal blow’

Huawei designs its own line of Kirin chips which go into its smartphones. It also designs a line of chips called Ascend which go into servers for its data centers that its fast-growing cloud computing division relies on. 

But the actual manufacturing is done by Taiwan’s TSMC, which has already said that it will no longer ship chips to Huawei from mid-September.  

After the initial amendment to the FDPR in May, Huawei was already facing very limited options in procuring chips.

The most viable, according to experts, was buying from Taiwanese firm MediaTek, which produces so-called “off the shelf” chips for smartphones that Huawei could buy. Obtaining semiconductors from Chinese firm Unisoc was also an option. As was potentially moving production to SMIC, China’s largest contract chipmaker.

However, all options had serious issues. For example, SMIC uses U.S. equipment to make chips while it is also significantly behind TSMC in terms of technology.

But the latest move by the Department of Commerce is one of the toughest moves against Huawei yet and threatens to narrow the company’s options even further. 

“The move is the latest and potentially most serious effort by the U.S. government to choke off the company’s ability to obtain advanced semiconductors for all of its business lines,” Eurasia Group said in a note on Monday.

“A worst-case scenario, which appears increasingly likely, could amount to a near-total cutoff of semiconductors to Huawei, dealing a lethal blow to China’s most important global technology company.”

Business could ‘unravel’ 

The effect on Huawei could be severe, targeting some of its most important business. Last year, Huawei’s consumer division, which includes smartphones and laptops, brought in sales of 467.3 billion yuan or $66.93 billion in 2019 and accounted for over 54% of total revenue. 

Washington’s latest rule change could directly hit that. 

Huawei might have enough chips to ride out the rest of the year but 2021 could be difficult.

“The new US ruling makes it even harder for Huawei to source adequate smartphone chips for 2021,” Neil Mawston, executive director of wireless device strategies at Strategy Analytics, told CNBC by email. 

Eurasia Group said that Huawei has been stockpiling chips which “might allow it to remain in business, but these are not likely to last more than a year or so.” The analysts note that there is also a risk of customers ditching Huawei technology. 

“Huawei’s customer base may also have determined they need to move to a different supplier, meaning the company’s business could quickly unravel,” Eurasia Group noted. 

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