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U.S. Sanctions Against Huawei Could Impact Smartphone Industry Positively And Negatively
High inventories of semiconductors in China means it will take some time for any impact to become apparent. The U.S. government has passed new rules that seem destined to shake things up in the smartphone industry. While the rules may have been implemented with China's Huawei in mind, they could also have consequences for Huawei's competitors and suppliers.
The latest moves by the U.S. government have far-reaching implications for many companies in several industries. In theory, Huawei's inability to manufacture new products could open up an opportunity for competitors to gain some market share. Apple and Samsung could be among the likely winners. Both could regain market share they lost to Huawei in previous years. But the gains for the latter could be offset by a drop in semiconductor sales to Huawei in the short term. Another potential beneficiary could be Qualcomm, the top supplier of smartphone SoCs. Qualcomm has seen shipments of Snapdragon chipsets slump in recent years. Partly as a result of a shrinking market for smartphones compete against those from Qualcomm. In Huawei's absence, Chinese OEMs such as OPPO, vivo and Xiaomi expect to increase sales, giving sales at Qualcomm a boost since it supplies chips to all three.
Google could benefit from Huawei's predicament as Huawei has been working on replacements for Google Mobile Services and Android in the form of Huawei Mobile Services and Harmony OS respectively. Google relies primarily on advertising for most of its revenue. Having access to as much of the global population as possible through its apps helps in this regard. The removal or exclusion of its apps on smartphones is not a positive development for Google as is the case with recent smartphones from Huawei. The fewer Huawei smartphones there are, the better it is for Google. Not only does it open up room for Google's Pixel smartphones in the market, but it ensures that Google's software remains ubiquitous on mobile devices.
Huawei is heading for challenging times, if it isn't there already. But there's some disagreement as to the severity of the situation Huawei finds itself in and the company's ability to overcome the challenges it faces. The viewpoint from China seems to be that Huawei will be able to solve its supply chain issues, although it will take some time.
U.S, equipment is essential for the manufacture of semiconductors, but not everyone from China seems to agree. As far as China is concerned, it's possible to set up semiconductor production lines with equipment from Japan, South Korea and China (although China has less thana 1% market share in semiconductor equipment.
Huawei would get a life line and US companies, Applied Materials, KLA and others would not see the benefits of Huawei's absence, but Huawei would become a more formidable competitor due to having access to a non-US supply chain.
It's no longer business as usual for Huawei. The company can no longer count on the supply of semiconductors from its traditional suppliers as of September 15, unless they get approval from the U.S. government. The prospect of not having enough supplies spells trouble for Huawei and its ability to compete in the marketplace. Some people go so far as to predict the demise of Huawei as a viable entity.
A number of companies could benefit if Huawei is no longer able to compete. But whether or not that happens could be swayed by two issues. The first relates to how much chip inventory Huawei and related parties have access to. China's imports of semiconductor chips has greatly increased in recent years, especially in the run-up to sanctions from the U.S. government. Some of it is very likely to have been used to increase inventories. A previous article covers this issue in greater detail.
Huawei could be sitting on enough inventory that could last for quite some time, although it's a point of debate as to how much it really has access to. Nevertheless, Huawei will eventually run out of inventory unless it gets resupplied. It's only a matter of when and not if. But what it does mean is that it may take a while before it becomes clear whether or not Huawei can produce enough products for the market. Companies may have to wait some time before they see a noticeable impact in the market.
The second issue is the more important one. China has to come up with its own production facilities for semiconductors without having to rely on the U.S. Having extra stocks of semiconductors gives you time to make alternative arrangements, but cannot be a permanent solution. Huawei needs access to new semiconductor production lines that do not include U.S. equipment. These would not fall under U.S. sanctions.
Even with the miniscule market share, Chinese optimists believe that its domestic suppliers of polishing, lithography, etching, implantation, deposition, cleaning and inspection equipment will be incentivized by the Chinese government to develop replacements unique US equipment, but it will take time.
For Huawei, time is of the essence. Since it only has access to a finite amount of chips, alternate production lines need to be up and running before inventory runs out. Whether or not China is able to do this in a timely fashion will shape the road ahead. The bet for US companies is that the Chinese will be too slow to make a difference, but President Xi Jinping has already set the stage with the dual circulation policy
Huawei itself has stayed unusually calm as recent public events included roadmaps, which go into further details as to the company's future plans. In it Huawei makes it clear that it intends to continue competing in the smartphone industry and has no intention of withdrawing as some have suggested. Job postings are another sign that Huawei is not only not taking a step back, but moving forward. Hiring new employees does not make sense if a company thinks it's about to go out of business.
Bottom line, while there are quite a few industry watchers predicting the imminent demise of Huawei as a result of the latest U.S. sanctions, the final outcome has yet to be determined. Sanctions could turn out to work in favor of U.S. companies in the long run, but there's no guarantee that is how it will play out. U.S. tech companies may not necessarily post gains at the expense of Huawei. Previous predictions concerning Huawei's demise have shown to be premature.
High inventories of semiconductors in China means it will take some time for any impact to become apparent. The U.S. government has passed new rules that seem destined to shake things up in the smartphone industry. While the rules may have been implemented with China's Huawei in mind, they could also have consequences for Huawei's competitors and suppliers.
The latest moves by the U.S. government have far-reaching implications for many companies in several industries. In theory, Huawei's inability to manufacture new products could open up an opportunity for competitors to gain some market share. Apple and Samsung could be among the likely winners. Both could regain market share they lost to Huawei in previous years. But the gains for the latter could be offset by a drop in semiconductor sales to Huawei in the short term. Another potential beneficiary could be Qualcomm, the top supplier of smartphone SoCs. Qualcomm has seen shipments of Snapdragon chipsets slump in recent years. Partly as a result of a shrinking market for smartphones compete against those from Qualcomm. In Huawei's absence, Chinese OEMs such as OPPO, vivo and Xiaomi expect to increase sales, giving sales at Qualcomm a boost since it supplies chips to all three.
Google could benefit from Huawei's predicament as Huawei has been working on replacements for Google Mobile Services and Android in the form of Huawei Mobile Services and Harmony OS respectively. Google relies primarily on advertising for most of its revenue. Having access to as much of the global population as possible through its apps helps in this regard. The removal or exclusion of its apps on smartphones is not a positive development for Google as is the case with recent smartphones from Huawei. The fewer Huawei smartphones there are, the better it is for Google. Not only does it open up room for Google's Pixel smartphones in the market, but it ensures that Google's software remains ubiquitous on mobile devices.
Huawei is heading for challenging times, if it isn't there already. But there's some disagreement as to the severity of the situation Huawei finds itself in and the company's ability to overcome the challenges it faces. The viewpoint from China seems to be that Huawei will be able to solve its supply chain issues, although it will take some time.
U.S, equipment is essential for the manufacture of semiconductors, but not everyone from China seems to agree. As far as China is concerned, it's possible to set up semiconductor production lines with equipment from Japan, South Korea and China (although China has less thana 1% market share in semiconductor equipment.
Huawei would get a life line and US companies, Applied Materials, KLA and others would not see the benefits of Huawei's absence, but Huawei would become a more formidable competitor due to having access to a non-US supply chain.
It's no longer business as usual for Huawei. The company can no longer count on the supply of semiconductors from its traditional suppliers as of September 15, unless they get approval from the U.S. government. The prospect of not having enough supplies spells trouble for Huawei and its ability to compete in the marketplace. Some people go so far as to predict the demise of Huawei as a viable entity.
A number of companies could benefit if Huawei is no longer able to compete. But whether or not that happens could be swayed by two issues. The first relates to how much chip inventory Huawei and related parties have access to. China's imports of semiconductor chips has greatly increased in recent years, especially in the run-up to sanctions from the U.S. government. Some of it is very likely to have been used to increase inventories. A previous article covers this issue in greater detail.
Huawei could be sitting on enough inventory that could last for quite some time, although it's a point of debate as to how much it really has access to. Nevertheless, Huawei will eventually run out of inventory unless it gets resupplied. It's only a matter of when and not if. But what it does mean is that it may take a while before it becomes clear whether or not Huawei can produce enough products for the market. Companies may have to wait some time before they see a noticeable impact in the market.
The second issue is the more important one. China has to come up with its own production facilities for semiconductors without having to rely on the U.S. Having extra stocks of semiconductors gives you time to make alternative arrangements, but cannot be a permanent solution. Huawei needs access to new semiconductor production lines that do not include U.S. equipment. These would not fall under U.S. sanctions.
Even with the miniscule market share, Chinese optimists believe that its domestic suppliers of polishing, lithography, etching, implantation, deposition, cleaning and inspection equipment will be incentivized by the Chinese government to develop replacements unique US equipment, but it will take time.
For Huawei, time is of the essence. Since it only has access to a finite amount of chips, alternate production lines need to be up and running before inventory runs out. Whether or not China is able to do this in a timely fashion will shape the road ahead. The bet for US companies is that the Chinese will be too slow to make a difference, but President Xi Jinping has already set the stage with the dual circulation policy
Huawei itself has stayed unusually calm as recent public events included roadmaps, which go into further details as to the company's future plans. In it Huawei makes it clear that it intends to continue competing in the smartphone industry and has no intention of withdrawing as some have suggested. Job postings are another sign that Huawei is not only not taking a step back, but moving forward. Hiring new employees does not make sense if a company thinks it's about to go out of business.
Bottom line, while there are quite a few industry watchers predicting the imminent demise of Huawei as a result of the latest U.S. sanctions, the final outcome has yet to be determined. Sanctions could turn out to work in favor of U.S. companies in the long run, but there's no guarantee that is how it will play out. U.S. tech companies may not necessarily post gains at the expense of Huawei. Previous predictions concerning Huawei's demise have shown to be premature.
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