Hours after agreeing to build a fab in US TSMC will stop selling to Huawei- Repercussions will reverberate through all tech: Semis, semi equip, chip customers, all collateral damage.
It has been reported by Nikkei and other sources that TSMC has stopped taking orders from Huawei in order to comply with US export controls.
This comes literally hours after TSMC agreed to build a fab in the US. While this does not impact chips in the production process or already ordered it does stop new business . The Commerce initiative sets a hard deadline of September 14th to cut off business. This suggests that Huawei likely has at least 3-4 months or so before the impact will start to limit business. They likely have been stockpiling chips in anticipation of such a move.
A “virtual” death sentence for Huawei-
Much like we saw Jinhua die almost over night after the supply of US technology was stopped, it is clear that Huawei will no longer be competitive in the market against either Apple or Samsung in mobile phones and severely hampered in their network equipment side.
While Huawei will obviously try to shift chip production to Chinese suppliers and SMIC to fabricate the chips, SMIC is hindered in that it is several generations behind TSMC and its supply of EUV tools from ASML has also been cut off by the US.
It will take a while for the impact to be felt as Huawei has stocked up and chips are still in process but in a few months time those supplies will dry up and leading edge product will become unavailable.
We don’t think that this is a negotiating ploy by the current administration…it feels too real this time. Even though there is time to negotiate yet another deal, we don’t see the administration relenting before November as they want to be seen as hard on China both in retribution for Covid and less than successful trade deals.
Every US chip company will get hurt
Every US semiconductor Company from Intel and Qualcomm down to the smallest analog maker will be negatively impacted as China will go so far out of its way to avoid “buying American”. Without doubt they will use inferior, trailing technology from inside China or other sources rather than rely on unreliable US made components that could be shut off at any moment.
China can’t turn to Samsung
Even though Samsung’s foundry division would love to get Huawei’s business, it isn’t going to happen. Number one, Samsung is obviously a competitor to Huawei in the handset business and number two, Samsung would never risk its semiconductor production to US sanctions, which is its life blood and the vast majority of its profitability.
This is of course aside from the fact that South Korea is very reliant on the US versus North Korea
US chip equipment sales to China will be cut
We were amazed that both KLA and AMAT blew off the embargo risk to China as if it was nothing by saying that they will just ship equipment from another country…no big deal…we can easily get around the restrictions. It was even more amazing that allegedly intelligent analysts on the call didn’t question this and just accepted it.
While shipping US know how, technology and IP from another country where the last screw is installed in the equipment may comply with the letter of the law as it stands today (which is unclear at best) its obviously in clear, blatant opposition of the spirit of the law which is to deny US technology to companies that supply Huawei (read that as any China based chip company).
This loophole will be closed and may already be closed if you read documents from the commerce department.
Semiconductor equipment sold by AMAT, KLA & Lam, among others, even if manufactured, in whole or in part, outside the US , still clearly contain “US software & technology” which is the key target of restrictions by the US commerce department. The target of the restrictions is not where its made but what it contains…..
This means that semiconductor equipment companies entirety of business with China, ranging from 25% to 50% of revenues in some cases is at risk. This also includes sales to multi nationals who have a fab in China (including Intel, Samsung and others) not just indigenous fabs.
TSMC was forced to choose sides and picked the US
Like two primary school dodge ball teams choosing players for their side going after the best player available, TSMC was stuck in the middle and didn’t want to upset either the US or China. The US stepped up the pressure by threatening to cut off TSMC’s “oxygen” in the form of semiconductor equipment and TSMC quickly capitulated by not only announcing a fab in the US (even though its a token, show fab) but much more importantly blowing off their second biggest customer after Apple…Huawei. All of this knowing full well that this would turn into a major political football with China being a short sail away from Taiwan.
Its not like TSMC (or Taiwan for that matter) had much choice. Either embrace the US fully or just surrender today to China and hand over the keys to the island and the fabs to the “barbarians at the gate”.
Others will be forced to choose sides as well. The US dodgeball team already has the Dutch and sooner or later Japan and Korea chip companies will have to choose sides. Israel is already there. The US has already been playing a “warm up game” in pressuring foreign countries on Huawei made networking gear.
The stocks and the fallout—–both ugly
Chip companies have a huge amount of business in China as China makes 70% of the worlds electronics goods. Apple is a top target, Boeing, even Tesla could be targeted.
Semiconductor equipment companies will lose business not shipped by Sept 14th and more in the long term as China steps up its efforts to be independent.
The impact won’t be felt in the June quarter, nor the September quarter but the December quarter will be off a cliff.
In a perverse way, near term business will actually be up significantly as Chinese companies rush to get any chips and equipment into the country before the Sept 14th deadline. This means June and September could be better for Chinese business than expected.
Long term damage has already been done. Lots of losers….
Unfortunately, even if the US and China could patch things up by some miracle, which isn’t happening any time soon, the long term damage has already been done.
China will rightfully triple down on becoming chip independent from the US and US companies will lose more business than ever.
Right now US/China tensions are very high but we are the two largest trading partners in the world and still do billions in business per day.
This will trickle down through Taiwan, the South China sea, Europe, Africa and beyond.
The global economy needs this like another hole in its head after getting whacked by Covid.
This increases our view that the fall is going to be very, very ugly for chips due to both the trickle down of the economic slowdown coupled with China trade problems….the “double, super duper, whammy”