Commentary on Political Economy

Tuesday 18 August 2020

CURTAINS FOR HUAWEI

 

Asia chipmaker stocks dive after Huawei ‘death sentence’

The new sanctions require companies to obtain a licence before selling Huawei any microchip made using US equipment or software © Reuters

Billions of dollars in market value was lopped off Asia’s listed chipmakers after the US announced new sanctions on Huawei, which one analyst billed a “death sentence” for the Chinese telecoms group.

Taiwan’s MediaTek fell 9.9 per cent on Tuesday while Hong Kong-listed hardware makers Sunny Optical and AAC Technologies dropped as much as 11.5 and 5.3 per cent, respectively. All three provide technology components to Huawei.

The sell-off came after the Trump administration on Monday announced strict new limits on the sale of any US-made chips to Huawei, which will restrict the Chinese company’s access to components such as those needed for 5G mobile networks. The US has accused Huawei of technology theft and breaching sanctions, while urging allies not to use its equipment.

“The US government has passed a death sentence on Huawei,” said Dan Wang, an analyst at Gavekal Research. “Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year.”

The new sanctions, announced by US commerce secretary Wilbur Ross, require companies to obtain a licence before selling Huawei any microchip made using US equipment or software. Licences will be required even if Huawei is not the end customer and only plays an intermediate role in the supply chain.

The US government is completely locking down Huawei and leaving it no alternatives

Sebastian Hou, CLSA

Previous sanctions had allowed the production and sale of chips made with US technology to Huawei so long as they were not designed by the Chinese company or its subsidiaries.

Analysts said MediaTek, which makes chipsets for smartphone companies, are particularly exposed to the new sanctions. The company had positioned itself as a substitute supplier to Huawei following earlier sanctions.

“The US government is completely locking down Huawei and leaving it no alternatives,” said Sebastian Hou, head of technology research at CLSA, who added that the Chinese group’s mobile business was in danger without supply from MediaTek.

MediaTek said in a statement following the close of Taiwan stock exchange on Tuesday that the change to US export controls would have “no major impact on the company's short-term operating conditions".

Roland Shu, an analyst at Citi, said MediaTek might actually benefit if Huawei’s smartphone business was hit as a result of the sanctions, as that might boost the market share of local competitors like Oppo, Vivo and Xiaomi. The three smartphone companies are reliant on MediaTek chipsets.

“In the event that Huawei were to be forced out of the smartphone market and other Chinese . . . [and] peers take its shares, MediaTek’s total shipment could increase,” Mr Shu said.

Shares in Huawei rivals were buoyed by news of the sanctions. Samsung Electronics, the world’s biggest maker of smartphones and computer chips, climbed as much as 3.3 per cent in Seoul while a Shenzhen stock exchange index of semiconductor companies added 1.5 per cent.

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