Semiconductor Industry Worried About Supply Chain Impact of Tighter Huawei Restrictions

Last week's tightening of U.S. restrictions on Huawei (see 2008170043) took the semiconductor industry by surprise, and many in the sector worry about short-term supply chain disruptions due to the new measures, said industry officials and experts we canvassed. Many said they think the initial restrictions in May were sufficient, expressing frustration that the Commerce Department's Bureau of Industry and Security didn't seek industry feedback before imposing the new requirements. Though chipmakers are bracing for short-term complications, officials said they're also concerned about the long-term impacts of a U.S. national security policy that seems to continually target U.S. industry, even if indirectly. “We're now encouraging customers in China to move away from U.S. technology and semiconductors,” one semiconductor industry official said. “Why would they in the future use U.S. technology if they’ll be subject to all these rules?” The new rule expanded on a May policy that further restricted non-U.S. companies from selling chips using U.S. technology to Huawei. Officials said semiconductor supply chains will inevitably be impacted, but many remain unsure how broadly the impacts will be felt. The scope of the restrictions will depend on how strictly Commerce Department officials review license applications, which can range from case-by-case reviews to presumptions of denial. Much depends on whether Commerce "is serious about implementing this new rule literally,” said Alen Lin, a technology industry expert and analyst with Fitch Ratings. “If they do that, it does effectively cut off Huawei from any type of semiconductors.” Even though companies are still assessing the impact, industry officials expect many more chipmakers to be affected by the new restrictions than by the measures issued in May. Officials thought those requirements worked in targeting Huawei, which is why some said they were surprised when BIS issued more restrictions last week. “We were caught off guard,” one semiconductor industry official said. “We thought the original May rule was working. The objective seemed to have been achieved.” But Commerce Secretary Wilbur Ross said Huawei was working with third parties to evade the restrictions, necessitating the tougher measures. The US-China Business Council said it's “deeply concerned” about the risk of “overly broad” restrictions resulting from the rule. It could lead to “unintended consequences … that deliver a bonanza of new business to our competitors while doing nothing to improve national security,” USCBC spokesperson Doug Barry said. He said more communication between government and industry would help: “The Trump administration needs to listen carefully to the industry perspective and learn more about their business models.”