Global high-tech industry faces headwinds

US government's restrictions could hit earnings in the United States and Asia, hold up launch of 5G networks, says UBS

For the US semiconductor company Qorvo Inc, May 16 was a disaster. Its shares plunged by more than 7 percent after the US government banned Huawei Technologies Co from doing business with US companies without special government approval.

Qorvo derived as much as 15 percent of its revenue from Huawei in its past fiscal year. The US government's decision to add Huawei to its "Entity List" means Qorvo can't supply products to the Chinese company, one of its most important clients.

The US radio frequency chipmaker has seen its shares fall almost 14 percent in the past month and recently cut its revenue outlook for the quarter ended in June from $780-$800 million to $730-$750 million, a decline of 6.3 percent from the midpoint.

Qorvo's revenue outlook adjustment reflects how the US government's ban on Huawei is affecting US companies, given the complex interdependence of the global supply chain.

As the world's largest telecom gear maker and the world's second-largest smartphone vendor, Huawei has a sprawling presence in the global sector.

Data from Huawei show that it procured around $70 billion worth of components and services from its 13,000 suppliers worldwide last year, with roughly $11 billion coming from US suppliers.

Moreover, among a list of 92 core suppliers Huawei unveiled last year, 33 of them are from the US, including tech heavyweights Intel Corp, Qualcomm Inc, and Micron Technology Inc.

According to the Financial Times, the US government crackdown on Huawei is putting so much pressure on the semiconductor sector that chip companies' shares faced a big monthly drop. The Philadelphia Semiconductor Index, which tracks companies that design, distribute and manufacture semiconductors, has fallen significantly in the past month.

The impact on US semiconductor companies is so big that the Semiconductor Industry Association, an industry group that represents US leadership in semiconductor manufacturing, design, and research, expressed its views on the US government ban on Huawei.

John Neuffer, president and CEO of the Semiconductor Industry Association, said in a statement that the association wants the US government to ease restrictions further following the US administration temporarily granting a license to Huawei.

The US Commerce Department said on its website on May 21 that it had issued a 90-day license to allow Huawei to purchase US technology in order to maintain existing networks and provide software updates for existing Huawei handsets.

Neuffer said the association hopes to work with the US administration to broaden the scope of the 90-day license so that it does not undermine the industry's ability to compete globally, and ensures the economic security of an industry that is the backbone of US technologies in key areas such as artificial intelligence, quantum computing, and next-generation telecommunications.

Swiss investment bank UBS also said in a research report that the US government's restrictions on Huawei would hold back earnings in the tech sector and the launch of 5G networks across the world.

Assuming the current US government's restrictions stay in place, UBS estimated that US tech players' earnings would decline by a low-singledigit percentage, given the close business connections of US companies with Huawei.

The Asian tech sector would see mid-single-digit percentage losses, though the impact would be neutral for Europe's tech industry, the bank predicted.

Moreover, lengthy restrictions on Huawei could slow the global rollout of 5G networks. "These developments increase the likelihood telecom providers take a wait-and-see approach on the dispute before making 5G purchases for their next generation networks," the report added.

The financial institution pointed out that the impact on the global supply chain would be contingent on "the length and severity of restrictions imposed on Huawei."

Lyu Tingjie, a telecom professor at Beijing University of Posts and Telecommunications, said any harm to Huawei will have broader ripple effects across the global tech arena and beyond, simply because of the company's huge size and its technological prowess in 5G.

Also, as the US companies are inextricably involved in the global technology supply chain, a slower rollout of 5G around the world will affect their businesses as some of the most important US tech champions are looking to the superfast wireless technology for a major surge in orders and revenue, Lyu said.

For instance, without good 5G networks, consumers won't buy new phones that contain chips from Qualcomm and Micron. They won't generate data that need to be crunched by processors made by Intel, Nvidia Corp and Advanced Micro Devices Inc.

US tech companies are also worried about such an outcome, especially as Washington is considering cutting off access to US components or software for more Chinese tech companies including five video surveillance firms.

According to a report from Bloomberg, Microsoft Corp warned in a written submission to the US Department of Commerce that export controls being considered by Washington risked isolating the US from international research collaborations and "could thwart US interests."

General Electric Co and Alphabet Inc are also worried that the proposed restrictions, related to technologies seen as essential to competitiveness, could actually impede them from competing in lucrative markets, while reducing the US capacity to innovate, Bloomberg reported.

Ren Zhengfei, CEO of Huawei, summed up the close connections between Chinese and US tech companies in an interview with Chinese media in late May.

"US suppliers have offered us strong support for years. When I heard that they were scrambling against time to prepare goods for us (ahead of the ban), I was reduced to tears," Ren said.

"Our friendship with them was formed years or decades ago and the ties cannot be cut off just by an administrative order," the 74-year-old senior executive said.

masi@chinadaily.com.cn

(China Daily Global 06/06/2019 page9)