Anxiety about supply shortages arose in Chinese shops selling Huawei smartphones after the imposition of a new U.S. ban on the provision of technology to the company.
At its headquarters in Shenzhen, Huawei Technologies Co., Ltd. said it is unaffected by the ban – for now. “Manufacturing continues at its normal rate,” spokesman Joe Kelly said, adding that Huawei sales are on the rise in China.
But retailers in Beijing reported signs of shortfalls Wednesday, a sign of the blows the Chinese technology giant is absorbing from the United States in a deepening battle between the world’s two largest economies. At one Huawei shop, new supplies used to arrive in two or three full boxes. “More recently, the phones come in a box that’s only half-full,” a salesperson said. “So you can tell the difference.”
The Globe and Mail is not identifying the salesperson because they were not authorized to speak to the media.
Huawei has halted group sales of its phones, the vendor said, adding that the devices are likely to grow more difficult to find.
“Nobody knows how many phones there are in Huawei’s major warehouse. What we can see is that the number of phones sent here is smaller and smaller.”
Sales clerks gave similar accounts at a half-dozen stores selling Huawei phones in Beijing, including four company locations.
“All I can say is that if you want to buy in the next few weeks, it’s no problem. But I can’t make any promises for the long term,” said another Huawei store salesperson in the capital.
The Globe also spoke with vendors in Shenzhen, at the sprawling Huaqiangbei market, where reseller prices for Huawei phones had already risen by some 200 yuan, or $40, last week.
On Tuesday, the United States enacted a ban that prohibits any company from selling semi-conductors that rely on U.S. hardware or design software to Huawei.
The new measure, considered a potential death blow for parts of Huawei’s business, has brought to a halt flows of critical equipment to the company. In Japan, where companies supplied an estimated US$14.4-billion in parts to Huawei last year, firms such as Sony, Kioxia and Renesas Electronics stopped shipments Tuesday, Nikkei reported.
It’s not clear how the company can replace those supplies, and it’s likely Huawei has already begun to throttle back shipments in hopes of prolonging the length of time it has phones available, said Mo Jia, an analyst with research firm Canalys.
“They want to extend their lifespan and to win more time in the future to negotiate with the U.S. government,” he said.
Analysts point to the possibility of a relaxation of the U.S. ban to benefit American Huawei suppliers such as Qualcomm.
But barring such a change, industry experts believe Huawei will run out of components for smartphones and 5G networks by early next year.
Huawei, which does not disclose its inventory levels, has few options. Though China is a global leader in many types of manufacturing, it remains far behind the cutting edge of semi-conductor technology. Shanghai-based Semiconductor Manufacturing International Corp. uses a 14-nanometer process, a 2014 technology that has been eclipsed by non-Chinese firms many times over.
U.S. firms also dominate electronic design automation, which is used to create new microchips. As a result, concerns about U.S. technology bans have prompted price increases for other products such as computer graphics cards, such as those on sale in Shenzhen’s electronic markets.
“There isn’t much companies can do to cope with the U.S.,” said one vendor, who gave his name only as Mr. Fang. Consumers will be the biggest losers, he said.
But the U.S. moves against Huawei have been helpful in illuminating Chinese shortcomings, said Yan Jiaju, who sells LED lights.
“Without having this battle, it’s very possible that we’d keep relying on overseas technologies and never be able to understand where our weaknesses lie,” he said.
In hopes of shielding the country from such vulnerability, the Chinese government and investors have poured money into the semi-conductor industry. “Science and technology are an important magic weapon to deal with international shocks,” the Guangdong Institute of Science and Technology wrote in a recent opinion article published by the People’s Daily. In May, Huawei said it had increased research and development spending by 30 per cent, because of what rotating chairman Guo Ping called “the extreme limitation and restrictions on our access to technologies.”
But even Chinese experts have warned that quick solutions are unlikely, given the complexity of such technologies and capital required to build an industry in which China has not been a dominant player. “The possibility of starting something new from scratch is scant,” Wei Shaojun, dean of the department of micro- and nano-electronics at Tsinghua University, said in July.
Unpublished research by Douglas Fuller, a technology expert at City University of Hong Kong, suggests it could take Huawei five years to find suitable Chinese alternatives to U.S. electronic design automation software. Without such tools, “Huawei will not be able to design chips effectively for the immediate future,” wrote Prof. Fuller, the author of Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development. Still, he notes that workarounds to the ban are possible, either by hacking software licences or through shell companies that could provide Huawei indirect access to the tools it needs.
Replacing U.S. chip-making equipment could take two years – perhaps less, he said. Building new fabrication lines free of U.S. technology might take two years, assuming hefty Chinese government financial support for such an undertaking.
His conclusion: “These constraints will most likely knock down Huawei but will not knock Huawei out of the telecommunications industry.” And the restrictions could also do long-term damage to U.S. suppliers. Prof. Fuller cited an example of a Japanese firm that told Chinese buyers “American equipment could not be trusted because it carried political risk,” a sales pitch that had the virtue of being “the truth.”
With a report by Alexandra Li
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