[Huawei Sanctions] "Q4 US Exports Begin in Earnest"... Samsung Followed by Korean Equipment Industry Also Gains Spillover Benefits

[Image source=Reuters Yonhap News]

[Asia Economy reporters Seulgina Jo and Hanjinju Han] "Huawei has already been completely excluded from the purchase consideration." "There is great anticipation for the second round of orders following Samsung Electronics' Verizon contract."

On the 15th (local time), as the U.S. officially enforced additional sanctions targeting China's Huawei, the most spotlighted company is Samsung Electronics, a 'latecomer in telecommunications equipment.' With the global telecommunications equipment market entering the 5G investment cycle, Huawei's position as the 'world's number one' is shaking, leading to expectations that Samsung will gain 'reflected benefits.' About 80 domestic 5G equipment parts companies supplying Samsung Electronics are also expected to benefit simultaneously. Exports of 5G equipment to the U.S. are expected to ramp up starting in the fourth quarter.

Samsung Electronics vs Nokia vs Ericsson 'Three-Way Battle' Reshaped by Huawei Sanctions

According to industry sources, starting with the world's largest mobile carrier Verizon, a trend has been detected among the U.S. and some allied countries to choose Samsung Electronics over Huawei in the 5G network construction process. A telecommunications equipment industry official said, "It has been confirmed that Huawei's position has become difficult not only in the U.S. but also in allied countries such as Canada, Australia, New Zealand, and Japan," conveying the atmosphere.

The U.S., which first excluded Huawei, has been actively investing in 5G networks since the second half of the year. After completing the auction for the 3.5 GHz band last month, it plans to hold an auction for the C-band in December. The industry highly anticipates that the U.S. telecommunications equipment market will be organized into a 'three-way battle' among Samsung Electronics, Nokia, and Ericsson due to the Huawei sanctions.

In particular, Samsung Electronics, which previously secured a Verizon 5G equipment contract worth about 8 trillion won, is expected to secure a large volume in the upcoming U.S. frequency auction in December.

An anonymous industry insider hinted, "The December C-band auction is the band that mobile carriers are most interested in," adding, "Huawei has been excluded, and there is a sentiment that Samsung Electronics could take over the volume that Nokia might lose due to its strained relations with U.S. carriers." Stephan Teral, an analyst at LightCounting Market Research, also predicted, "Samsung Electronics, which recently signed a contract with Verizon, will be the biggest beneficiary." According to market research firm Dell'Oro, Samsung Electronics' market share in 5G telecommunications equipment in Q1 this year was 13.2%, ranking fourth after Huawei (35.7%), Ericsson (24.6%), and Nokia (15.8%).

Samsung Electronics is conducting a 5G field test with Verizon, the largest mobile carrier in the United States. (Photo by YouTube)

Domestic 5G Equipment Industry Also Expected to Benefit Alongside Samsung Electronics' Reflected Gains

If major global companies that have been supplied telecommunications equipment by Huawei switch to Samsung Electronics with the 5G network build-out, the domestic telecommunications equipment industry is also expected to benefit. It is understood that nearly 90 domestic equipment parts suppliers, including KMW, Oisolution, and Seojin System, are currently supplying Samsung Electronics.

An industry official evaluated, "With the U.S. and Japan actively excluding Chinese-made equipment, the domestic telecommunications equipment industry has gained an opportunity to expand its global market share." The domestic parts ratio in 5G equipment reaches 40-60%.

Following the completion of the 3.5 GHz frequency auction in the U.S. last month, order contracts linking mobile carriers, equipment manufacturers, and parts suppliers are also being concretized. In Korea, from as early as the end of this month or early next month, order disclosures from domestic small and medium-sized equipment parts companies supplying Samsung Electronics, Ericsson, and Nokia are expected to increase. Considering that it usually takes about three months from the completion of frequency auctions to orders and exports, Korean-made 5G equipment is expected to be exported to the U.S. during the fourth quarter.

An equipment company official said, "I do not know about specific order contracts yet," but added, "Given the current trend, exports to the U.S. could start as early as the fourth quarter." Another company official explained, "The U.S. government has also announced investment plans related to the Rural Digital Opportunity Fund (RDOF) project to upgrade wired network infrastructure in rural areas, so 5G business opportunities are definitely increasing," adding, "Our local subsidiary is responding diligently."

According to Cape Investment & Securities, the scale of 5G investment in North America from 2019 to 2025 is expected to reach 360 trillion won, the second largest after Asia (440 trillion won). Not only the U.S., but also countries like France, Taiwan, Vietnam, and Thailand have been unveiling 5G investment plans one after another, attracting industry attention.

"Even Indirect Transactions Blocked" Strengthened U.S. Sanctions... Concerns Over Repetition of 'THAAD Retaliation' Targeting Korea

However, some cautiously raise concerns that China might respond with economic retaliation against Korea, which has cooperated with U.S. sanctions, similar to the past THAAD (Terminal High Altitude Area Defense) retaliation.

The additional sanctions effective from today prohibit supplying Huawei with products produced using U.S. equipment, software, or design technology 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. Violations can result in 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.

The 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." However, conversely, China is also likely to launch economic retaliation against countries that actively cooperate with U.S. sanctions.

Huawei is known to have stockpiled major chips and other inventory since late 2018 when the U.S.-China trade war intensified. However, it is unclear whether it has secured even the smallest components. Wu Qiaochao, chairman of Nanya Technology, pointed out, "If even one component is missing, assembling complete devices like base stations is difficult." The industry expects that even if Huawei secures low-cost substitutes to evade U.S. sanctions, its accumulated product competitiveness will inevitably decline.

The Nikkei Asian Review stated, "The world surrounding Huawei will change completely within 24 hours," naming Samsung, Ericsson, Nokia, and Fujitsu as beneficiary companies. The media added, "Companies that have purchased 5G equipment from Huawei must find alternatives."

However, some European carriers that have used Huawei equipment are cautious about excluding Huawei due to additional cost burdens when introducing new equipment. Irish carrier Eir stated, "Excluding Huawei will cause customers to bear enormous costs." Ren Zhengfei, Huawei's founder, emphasized in an interview with a foreign media outlet, "We can produce 5G equipment with our own technology," assuring that product supply will not be disrupted despite U.S. sanctions.