[Huawei Sanctions] Samsung and SK Seek Huawei Alternatives, "Actually an Opportunity"

Electronics Industry Seeking New Partners... Xiaomi, Oppo, Vivo from China in Consideration
Long-term Opportunities May Arise for Our Electronics Industry

[Asia Economy reporters Joeslgina and Changhwan Lee] As the US's additional sanctions on Huawei took effect on the 15th, domestic companies have placed Chinese smartphone firms such as Xiaomi, Oppo, and Vivo at the top of their priority list as new trading partners to replace Huawei, and have stepped up their marketing efforts.

According to the electronics industry on the 15th, domestic electronics companies such as Samsung Electronics, SK Hynix, and Samsung Display, which had large-scale transactions with Huawei, are holding internal meetings daily to discuss response measures to the Huawei situation.

The industry most affected by Huawei is semiconductors. Huawei is the second-largest buyer of Korean semiconductors globally, following Apple.

As a company competing for the top two market shares in the global smartphone market and the number one in telecommunications equipment, Huawei requires a large amount of semiconductors. It is estimated that last year, Huawei purchased electronic components such as semiconductors and displays worth 13 trillion won from Korea.

With Huawei's sales halted starting today, damage to our companies is inevitable. Accordingly, our companies are strengthening contact with customers to quickly find buyers to replace Huawei.

Currently, leading potential buyers to replace Huawei include Chinese smartphone manufacturers Xiaomi, Oppo, and Vivo. The industry expects these companies to mainly take over Huawei's market share in the global smartphone market, including China.

Market research firm Strategy Analytics (SA) forecasted that Huawei's market share in the global smartphone market will plummet from 15.1% this year to 4.3% next year. Due to difficulties in procuring parts caused by US sanctions, Huawei is expected to face the risk of being completely pushed out of the market.

Consequently, the market shares of other companies will rise. Xiaomi is expected to increase from 10.0% to 12.1%, while Oppo and Vivo are projected to rise from around 9% to 10%. Apple and Samsung Electronics are also expected to gain some indirect benefits.

Most smartphone companies, including Apple, Xiaomi, Oppo, and Vivo, already purchase and use Korean-made memory semiconductors from Samsung Electronics and SK Hynix. As their market shares increase, it is anticipated that more of our products will be sold, offsetting the decline in Huawei's sales.

A semiconductor industry official said, "The US sanctions on Huawei have not come suddenly but have been ongoing for several years, so our companies have already been preparing alternatives by increasing contact with substitute trading partners. While there may be short-term damage, the long-term impact may not be significant."

◆Huawei sanctions could instead become an opportunity for the telecommunications industry

There are also forecasts that the Huawei sanctions could become an opportunity for our companies. Expectations are particularly high in the telecommunications industry regarding the 5G mobile communication business.

In the industry, starting with the world's largest mobile carrier Verizon, there is already a trend in the US and some allied countries to choose Samsung Electronics over Huawei in the process of building 5G networks.

The US, which was the first to exclude Huawei, completed the auction for the 3.5 GHz band last month and will conduct the C-band auction in December. The industry highly anticipates that the US telecommunications equipment market will be structured as 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 US frequency auction in December.

An industry insider hinted, "The C-band auction in December is the band that mobile carriers are most interested in. Huawei has been excluded, and there is a mood that Samsung Electronics could take over Nokia's volume, which has distanced itself from US carriers."

This is also positive news for the domestic telecommunications equipment industry. It is estimated that nearly 90 domestic equipment parts suppliers, including KMW, Oisolution, and Seojin System, supply Samsung Electronics.

After the US frequency auction concluded last month, order contracts linking carriers, equipment manufacturers, and equipment parts suppliers are also being finalized. In Korea, from as early as the end of this month or early next month, announcements of orders won by domestic small and medium equipment parts suppliers delivering to Samsung Electronics, Ericsson, and Nokia are expected to continue.

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 US within the fourth quarter.

However, some concerns are cautiously raised that, similar to the past retaliation over the Terminal High Altitude Area Defense (THAAD) system, China might respond with economic disadvantages against Korea, which has aligned with US sanctions.

The additional sanctions taking effect today mainly prohibit supplying Huawei with products produced using US equipment, software, or design technology without prior approval from the US Department of Commerce.