[Huawei Sanctions] "Supply Chain Cut Off... Smartphone Business Survival Also Uncertain"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Joselgina] "The worst-case scenario is Huawei's exit from the smartphone market. (Taiwan TF International Securities)" "It will rapidly lose its foothold even within China. (Japan Nomura Securities)"

On the 15th (local time), with the implementation of additional U.S. sanctions targeting China's Huawei, a tectonic shift in the global smartphone market is inevitable. Following Google's Android OS, semiconductor supply routes from global companies such as Samsung Electronics and SK Hynix have now been cut off.

Immediately, there are dozens of semiconductor chips installed in Huawei smartphones. Since there is virtually no area?from related software to parts and equipment?that U.S. technology does not reach, it is expected that Huawei's position will become increasingly narrow. On the other hand, global smartphone market competitors such as Samsung Electronics, Apple, and Xiaomi are expected to gain indirect benefits.

Direct Hit to Huawei: "Market Share to Plummet to 4% in 2021"

China's GF Securities forecasted that unless U.S. sanctions are eased, Huawei's global smartphone shipments, which were 240 million units last year, will sharply decline to 195 million units this year and 50 million units next year.

Market research firm Strategy Analytics (SA) also projected Huawei's smartphone shipments to drop from 190 million units this year to 59 million units in 2021. SA expects that the chipsets Huawei stockpiled in preparation for the U.S.-China trade war will be fully used up around 2021. Accordingly, the current market share of around 15% is expected to fall to the 4% range.

Instead, the void left by Huawei is expected to be quickly filled by Samsung Electronics, Apple, Xiaomi, and Oppo. Due to the impact of U.S. sanctions, Samsung Electronics' shipments are estimated to increase from 265.5 million units this year to 295 million units next year, and Apple's shipments from 102.7 million units to 235.7 million units in the same period. Huawei also acknowledged that chip supply shortages and other factors will negatively affect its future smartphone sales.

Donny Teng, an analyst at Nomura Securities, said, "Huawei's smartphone business faces great uncertainty," and predicted, "It will lose its foothold even within China." The Chinese market has been a region where Huawei maintained strength despite U.S. sanctions. Major market research firms expect that in China, entry-level models will be replaced by Xiaomi, Oppo, Vivo, and Realme, while flagship models will be substituted by Samsung Electronics and Apple.

The tectonic shift caused by the U.S.-led anti-Huawei campaign is already underway. In the second quarter, Huawei's sales in the European smartphone market fell by 16%. Meanwhile, Samsung Electronics and Xiaomi's sales rose by 20% and 48%, respectively. Market research firm Canalys analyzed, "Samsung Electronics has established itself as a stable alternative card following Huawei's exclusion." German news channel Tagesschau quoted industry insiders saying, "Xiaomi's strategy is very simple: the new Huawei." This implies that Xiaomi and others will quickly replace Huawei smartphones, which have been known for their cost-effectiveness.

[Image source=EPA Yonhap News]

Sanctions Blocking Even Indirect Transactions... "Even If Alternative Items Are Found, Competitiveness Will Decline"

The additional sanctions effective from this day prohibit supplying products produced using U.S. equipment, software, or design technology to Huawei without prior approval from the U.S. Department of Commerce. This is a strong measure that effectively stops transactions with third countries following the U.S. The penalties for violations include up to 20 years imprisonment, fines of $1 million per case, and the risk of becoming a U.S. target, prompting busy movements among companies worldwide.

Nihon Keizai Shimbun analyzed, "Even if Huawei is not a direct trading partner, if it is known to be the 'end user,' it is subject to violation of the U.S. Export Administration Regulations (EAR)," adding, "The purpose is to cut off indirect transactions."

This inevitably delivers a direct blow to Huawei's main business. This is why foreign media reports have repeatedly stated that the U.S. administration has effectively issued a death sentence to Huawei. Huawei is known to have stockpiled major chips and other inventory since late 2018 when the U.S.-China trade war intensified, but it is unclear whether it has secured detailed components such as advanced displays and camera lenses. Uchiachow, chairman of Nanya Technology, explained, "If even one component is missing, it is difficult to assemble complete devices such as smartphones and base stations."

There is a high possibility that Huawei will secure low-cost alternative items to evade U.S. sanctions. However, the industry expects that in this case, Huawei's accumulated product competitiveness will inevitably decline. Nikkei Asian Review reported, "Within 24 hours, the world surrounding Huawei will completely change," and added, "The rise it has maintained over the past decade as the world's largest telecommunications equipment company and smartphone manufacturer will come to a halt."