View from Manchester: US seeks to block Huawei's manufacturing access

Washington's latest shot in the US-China trade war seeks to stop the telecoms giant fabbing chips in Taiwan.

The China-US trade war has been intensifying in lockstep with the Covid-19 pandemic though it still came as a surprise when Washington took further steps against Huawei on Friday (May 15).

The Department of Commerce has “narrowly and strategically” extended measures against the Chinese telecommunications company so that they now cover its access to advanced chip manufacturing and the tools and software that go with it.

The extension will impede Huawei’s production of high-end processors through its HiSilicon subsidiary with a resulting domino effect on its end-products for consumers and telecoms infrastructure. Retaliation of some form by Beijing – possibly targeting Apple and other major US brands – is thought very likely though nothing specific has yet been levelled.

Commerce’s move means that Huawei henceforth requires a licence from Washington before its products can be made in any semiconductor fab anywhere that employs technology of US origin. While Huawei uses Taiwanese foundry TSMC for its most advanced devices, TSMC’s fabs depend on machinery from American companies such as Applied Materials and KLA.

The situation has broad similarities with what happened when Huawei was added to the US Entity List in 2019, restricting its direct access to US-linked exports. Then, the Chinese company’s use of Arm intellectual property was covered because even though Arm is UK-based and Japan-owned, some of its product development takes place in the US.

“Despite the Entity List actions the Department took last year, Huawei and its foreign affiliates have stepped-up efforts to undermine these national security-based restrictions through an indigenisation effort.  However, that effort is still dependent on US technologies,” said Commerce Secretary Wilbur Ross, repeating the Trump administration’s claim that Huawei represents a major risk of “malign activities contrary to US national security and foreign policy interests.”

The rhetorical response from the Chinese government was swift.

A spokesperson for the Ministry of Foreign Affairs said, “The US uses state power, under the so-called excuse of national security, and abuses export controls and other measures to suppress and contain companies from other countries, violating market principles and disregarding the basic rules of international trade.”

When it comes to a more concrete response, MOFA added that, “China will take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.”

Briefing analysts in Shenzhen earlier today (May 18), Huawei took a more cautious line as various partners experienced related share-price falls. Chairman Guo Ping said the move will have a “significant impact” that the company was still seeking to quantify, but nevertheless warned of “terrible” consequences for the tech sector as a whole.

Huawei has taken some steps towards mitigating the impact of US-China ‘decoupling’ in technology. For example, shortly before Commerce’s latest move, the company said that it has ramped production on a smartphone chip where all the design, manufacture and back-end work is or has been carried out by mainland companies. The Kirin 710A is being fabbed on a 14nm process at Shanghai-based foundry SMIC.

Japan’s Nikkei agency says that TSMC has stopped taking new orders from Huawei. The US ruling includes a 120-day grace period, but only to complete orders in place before Friday.

When Huawei was first added to the Entity List, TSMC said it did not believe its relationship with the company was covered. The direct targeting of the latest US measures closes what many in Washington saw as a loophole.

It is also likely TSMC will seek to avoid confrontation with the Trump administration after announcing last week that it plans to build a $12bn fab in Arizona. This will be its first inward investment in US manufacturing since the 8-inch WaferTech fab in Washington state that originally opened in 1998.

The Arizona project is comparatively modest by today’s standards – it will be a 12-inch fab running 20,000 wafers-per-month on a 5nm process – and will not break ground until 2021, after the next US presidential election. However, the capacity, process technology and location suggest that TSMC is looking to the federal government (and particularly the Pentagon) as a major customer. Even its statement announcing the plan contains a strong hint along those lines.

“This project is of critical, strategic importance to a vibrant and competitive US semiconductor ecosystem that enables leading US companies to fabricate their cutting-edge semiconductor products within the United States and benefit from the proximity of a world-class semiconductor foundry and ecosystem,” it says.

GlobalFoundries, the chipmaker that includes IBM’s old fab capacity, had been Washington’s preferred supplier but said in 2018 that it was to stop production beyond the 14nm process node.

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