Market Overview

US Considers Blocking Huawei From Working With US Companies

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US Considers Blocking Huawei From Working With US Companies

The U.S. is planning to implement changes into the law that would block the access of Huawei and other Chinese firms to American chip technology.

What Happened

High-level meetings, set to be held this week or the following one, will discuss measures aimed at curbing the export of American chips and chip technology to Huawei and other Chinese companies. Reuters quoted sources saying that these measures are up for discussion, but their approval is “far from certain.” 

Global manufacturers of semiconductors will have to obtain required licenses if they want to use American technology to make chips for Huawei. The Commerce Department is putting together changes to rules to ensure that the chip makers comply. According to the Wall Street Journal, these measures target China’s technological advancement and may well be viewed by Chinese companies as a threat.

Why It Matters

Measures under discussion will impact not only Chinese companies but also those outside of the country. Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), which is the largest contract chipmaker worldwide according to Reuters and makes chips for Huawei’s HiSilicon arm, would also be hit by the new rules. The Taiwanese chipmaker is already under pressure to manufacture chips in the U.S.

Global semiconductor sales are projected to be $409 billion in 2019, a 12.8% decrease from 2018 figure of $468.8 billion, according to World Semiconductor Trade Statistics figures. The US was an industry leader in semiconductors and held half of the world's market share in 2018 with $209 billion in sales, Semiconductor Industry Association data shows.

The Trump administration’s restrictions on Chinese firms may create question marks on whether the U.S. can continue to dominate the semiconductor sector.

China announced last year that it would create a $29 billion fund to reduce its dependency on American semiconductor technology. China is the world’s largest semiconductor importer. 

What Else Is There

On Friday, U.S. authorities had charged Huawei with racketeering and conspiracy to steal state secrets. Huawei had denied these allegations and alleged that these were attempts to kill competition.

Price Action 

TSMC shares had closed at 1.14% lower at $58.19. The stock traded 0.086% higher at $58.24 in the after-hours on Friday.

 

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