Huawei Suffers Further US Sanctions: The final nail in the coffin

September 1, 2020

3 min read

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What's going on here?

US regulators have closed a loophole in the restrictions on Huawei that were announced in May of this year, preventing Huawei from producing handsets with US technology or equipment. Experts believe this may be the final nail in the coffin for the company.

What does this mean?

The feud between China and the US on the subject of Huawei has been on-going for almost a decade and shows no sign of being resolved (to read more about this, click here). On Monday 17 August the US tightened restrictions on Huawei by closing a loophole that allowed the company to buy off-the-shelf computer chips if they were not custom made to its designs. Companies around the world are now no longer allowed to sell chips to Huawei at any stage of the transaction without a license if the chips have been made using US software or equipment. 

Due to the dominance of US tools in certain aspects of chipmaking, this restriction is essentially a blanket ban on chip sales to Huawei. The company has stated that its smartphone inventories are rapidly depleting. With the new restrictions in place, Huawei will struggle to replenish its stocks of smartphones and lose its market power.

What's the big picture effect?

The ongoing feud has had far-reaching effects on the semiconductor industry and on international relations between China and the US. Semiconductors, also referred to as “chips”, are essential components used to conduct currents in phones, computers and appliances. 

MediaTek, a Taiwanese chip manufacturer, will be one of the worst affected companies after Huawei. The original restriction prevented Huawei from producing its own semiconductor chips with US technology and equipment. Huawei had planned to switch its smartphones from chips designed in-house to chips produced by MediaTek to get around the ban. The ban did not specify that outsourced chips could not be sold to Huawei if they had been produced using US technology or equipment. The newly revised restriction, however, states that companies selling chips to Huawei need to have a licence which raises the cost of selling to Huawei, acting as a deterrent. The day after the revised restriction was announced MediaTek’s shares dropped by 10%. 

The restrictions are also hitting US manufacturers. Intel and Qualcomm are predicted to suffer billion-dollar losses in sales revenue to Huawei. Qualcomm has argued that this loss in revenue would reduce its ability to fund the development of new technology, ultimately harming the United States’ position as a technology world leader.

Relations between the US and China are deteriorating even further. Zhao Lijian, a spokesperson for China’s foreign ministry argued that the sanctions against Huawei are “undisguised bullying” and that the US was “stretching the concept of national security and abusing state power”. Beijing has been reluctant to retaliate so far in order to preserve the innovation and economic benefits brought to China by US companies. However, the pressure to respond to US sanctions is certainly mounting.

The collateral damage from the restrictions have certainly shaken up the semiconductor market and are threatening Huawei’s existence. It remains to be seen whether Huawei can bounce back from the latest restrictions or find another loophole, and whether Beijing will retaliate to the sanctions. This really may be the final nail in the coffin for plucky Huawei.

Report written by Emily Noble

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