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Huawei turns to ‘Plan B’ on chip strategy after US blacklisting Ban could accelerate Chinese high-tech research and development US companies will have to obtain a licence from Washington to sell technology to Huawei © AP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Share Save Save to myFT Louise Lucas in Hong Kong and Nian Liu and Yuan Yang in Tianjin YESTERDAY Print this page293 Huawei’s chipmaking arm said it had turned its “Plan Bs into Plan As overnight” a day after the Trump administration raised the prospect of a US ban on export of parts and components to the Chinese telecoms group. The Shenzhen-based company is already largely shut out of selling into the US market and has been ramping up its self-sufficiency — along with other Chinese tech groups — since Washington imposed a similar export ban on smaller rival ZTE last year. That in turn has stoked what some critics describe as the unintended consequence of Washington’s actions: pushing Chinese tech companies to accelerate their own capacity rather than tamping them down. In an internal memo to employees seen by the Financial Times, He Tingbo, chief executive of HiSilicon, Huawei’s wholly owned semiconductor subsidiary, wrote: “All the spare tyres we have built have turned to Plan A overnight.” HiSilicon chief executive He Tingbo described the US plan as an 'insane decision' © HiSilicon Ms He added: “Today, the circle of destiny turns to this extreme and dark moment, the Superpower has mercilessly interrupted the technical and industrial system of global co-operation, made the most insane decision, put Huawei into the Entity List with no founded basis.” HiSilicon, which has 7000 employees, came into focus about four years ago when it began making chips for smartphones. Last year, the unit produced more than $7.5bn worth of chips, rotating chairman Eric Xu told Reuters. The US Department of Commerce on Wednesday said it would put Huawei on its so-called Entity List, meaning that US companies will have to obtain a licence from Washington to sell technology to Huawei. At the same time, US president Donald Trump signed an executive order declaring the US telecoms sector faced a “national emergency” — giving the commerce department the power to “prohibit transactions posing an unacceptable risk” to national security. US chipmaker Qualcomm, which earns around 5 per cent of its revenues from Huawei, saw its share price drop 4 per cent to close at $82.81 in New York on Thursday despite a broadly positive market. Shares in Broadcom, another supplier, fell 2.3 per cent to $297.29. When ZTE was hit by an export ban last year, after violating penalties meted out for sanction-busting sales to Iran, it was forced to shut down production for several months. Chinese tech company executives described the move as a “wake up” call that the US could terminate their supply of vital components — and ramped up their efforts to increase self-reliance. Recommended Artificial intelligence China’s high-technology revolution extends to the factory floor Alibaba is developing superfast quantum computers and aims to have its first artificial intelligence chips on the market next year. Several homegrown companies, including Shenzhen-based Cambricon Technologies, have also sprouted to develop AI chipsets. The resetting of the corporate landscape — both in China and in the US, where chipmakers are also fretting about the impact of losing a big buyer — is coming as the trade wars and Huawei-specific moves prompt a rethink on supply chains. At the heart of the US-China spat, which embraces concerns over so-called spying “backdoors” in Huawei equipment, intellectual property theft and trade imbalances, many see a broader fear in Washington of China’s rising tech prowess. Huawei rotating chairman Ken Hu wrote in a memo sent to employees on Thursday that the company had expected difficulties with the US “many years ago” and had invested heavily in research and development as a precaution. “[We] can ensure that in extreme cases the company’s operations will not be much affected,” Mr Hu said. However, analysts say that although Huawei’s HiSilicon may be China’s most advanced chip designer, it relies on Taiwan’s TSMC to make its chips and would thus suffer if the US put pressure on Taiwan to abide by its sanctions. The software that HiSilicon uses to design chips — electronic design automation (EDA) software — is also supplied by US companies, which would have to cut off services to HiSilicon, leaving the company with either outdated or no software to continue designing future chips. More importantly, HiSilicon only designs a fraction of the chips that Huawei requires for its phones and telecoms equipment, and is not able to provide core components, such as the logic chips made by Intel and other US suppliers.
