Who Stole 5G Technology? Huawei ban has huge impact on semiconductor industry

NOTE:  There are no U.S. cellular equipment manufacturers.  The only two in the west are Ericcson and Nokia- both based in Europe.  However, U.S. based Qualcomm has been developing 5G silicon and is the only 5G (fabless) semiconductor vendor in the U.S.  They will likely have an IMT 2020 compliant chip set as the company regularly attends ITU-R WP 5D meetings.  The only other 5G merchant market semiconductor company we know of is Taiwan based MediaTek.  Samsung and Huawei have developed 5G silicon but are using it ONLY for their own devices- not sold to merchant semiconductor market.

The only U.S. semiconductor companies that we know of that make their own chips are Intel and Micron.

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IHS Markit says Huawei fall- out on memory market is huge:

Huawei in recent years has carved out prominent positions in the global smartphone and mobile infrastructure markets (not to mention fiber optics infrastructure and IT markets).  In 2018, Huawei rose to take second place in the smartphone business, with 206.1 million shipments, according to the IHS Markit Smartphone Intelligence Service. This put it just slightly ahead of Apple, at 204.7 million.

In 2017, the company  became the leader in the worldwide mobile infrastructure equipment market, surpassing Ericsson. Huawei has retained the top position and rose to account for nearly one-third of the market, with a 31 percent share of global revenue in 2018, as reported by the IHS Markit Mobile Infrastructure Intelligence Service.

Huawei’s market position has translated directly into purchasing power, with the company ranking as the world’s fourth-largest OEM semiconductor buyer in 2018.  Huawei spent $15.9 billion on semiconductors in 2018, according to the IHS Markit OEM Semiconductor Spending & Design Activity Intelligence Service. Memory represents a considerable slice of that spending, with the company buying $1.7 billion worth of DRAM and $1.1 billion worth of NAND flash memory for the year.

In the memory business, the wireless communications market was the second-largest global market for DRAM in 2018, following computer platforms, with revenue of $21.3 billion. Wireless was also the second largest market for NAND flash memory after computers, with revenue of $14.6 billion in 2018.   HDD and solid-state drive (SSD) products enjoy major usage in the enterprise segment where Huawei operates. The enterprise market generated 72.8 million HDD unit shipments in 2018, while SDD demand amounted to 34 million, according to the IHS Markit HDD and SDD Storage Intelligence Service.  For Micron and Western Digital, the revenue lost because of the ban is not likely to be replaced easily or quickly.

IHS-Markit says No Winners:

While the ban was ostensibly designed to penalize Huawei and benefit the U.S. tech industry, the reality is the pain will be felt by companies on both sides of the Pacific, affecting key U.S. suppliers along with Huawei.​

6 thoughts on “Who Stole 5G Technology? Huawei ban has huge impact on semiconductor industry

  1. This tech blog is chock full of little known yet important facts. Especially, that Huawei spent $15.9B on semiconductors last year and that they are the #1 maker of global wireless telecommunications equipment.

    What really blows one’s mind is there are no cellular network equipment makers in U.S and only two in Europe. Both are enumerated in this IEEE techblog post and will surely benefit from Huawei’s political problems.

    What does that tell you for the future of U.S high tech equipment design and manufacturing?

    Lots of credit to this blogger for his research on the topic, which reveals U.S semiconductor and memory market vendors will be severely hurt by the Huawei ban. Or is Huawei a bargaining chip (a pawn?) in the U.S. – China trade war?

  2. S&P has warned that the United States’ Huawei ban is more likely to hit US suppliers to Huawei than telcos that will have to spend more money post-ban.

    In its report, S&P said the ban could force Beijing to boost Chinese technology investment and reduce reliance on foreign suppliers.

    “In turn, this could heighten competition in the technology sector and potentially lower the long-term growth prospects of US technology firms,” the report said.

    S&P highlighted component suppliers such as Micron, Qorvo, and Lumentum had approximately 15% of their revenue exposed to Huawei, along with Qualcomm which has exposure in the range of 5% to 10%.

    “In the next one to two years, we believe US semiconductor firms will take the biggest hit because many of them count Huawei as a key customer,” S&P said.

    “The ban adds a headwind to an industry in the middle of a correction due to weak demand after a strong 2018, above-average inventories both at manufacturers and in the supply chain, and elevated tariffs on Chinese imports under the current US-China trade dispute.”

    “If reports of a 5G gap are true, operators in markets facing Huawei restrictions could theoretically see higher equipment spending or delays in 5G implementation. But given the lack of value-added, 5G-ready use case applications, our forecast for 5G investment and customer appetite is bearish, so any incremental increase cost or delay should be nonmaterial to the ratings.”

    Even in markets where Huawei has decent penetration, like Europe and Africa, the report said there would be minimal impact from banning the Chinese vendor.

    “Due to slower consumer technology adoption and weaker fixed-mobile prospects, we think scaled European 5G deployment will lag that in the Asia-Pacific and US, meaning that we expect rollouts to proceed at a restrained pace until monetizable use cases emerge,” it said.

    “This should help to minimise the costs and delays stemming from Huawei equipment restrictions. European governments are still debating Huawei bans.”

    On Apple, S&P said it does not believe Cupertino has the capacity to move its manufacturing out of the Middle Kingdom in the intermediate term.

    “Though we believe the short-term consequences for technology and telecom companies are manageable, the long-term stakes, particularly for tech, could be decisive,” S&P Global Ratings credit analyst Mark Habib said.

    “The consequences for telecom are likely to vary from country to country and largely relate to longer-term 5G investment decisions, which give operators more time and options for managing the fallout.”

    See: US-China tariffs hit Taiwanese tech industry

    At the recent Computex event in Taiwan, a number of component manufacturers told ZDNet they are in the midst of moving manufacturing out of mainland China and onto the island.

    In good news for the Chinese giant, last week the Institute of Electrical and Electronics Engineers reinstalled approval for Huawei employees to participate in its processes.

    Huawei has filed a motion seeking to have the section of the US’s National Defense Authorization Act 2019 (NDAA) affecting it be dismissed as unconstitutional. That section enforces a ban on US federal agencies and their contractors from using Huawei equipment due to security concerns.

    In the motion, Huawei argues that section 889 of the NDAA specifically targets Huawei, saying the legislation disrupts the company’s existing contracts; stigmatises the company and its employees as supposed tools of the Chinese government; and seriously threatens the company’s ability to do business in the US.

    “They are using every tool they have, including legislative, administrative, and diplomatic channels. They want to put us out of business,” Huawei chief legal officer Song Liuping said in a statement made last month.

    https://www.zdnet.com/article/s-p-warns-huawei-ban-will-hit-us-tech-long-term/

  3. U.S. companies have NO meaningful presence in the 5G cellular equipment business. Also, it is hard to make a convincing private-investment case in US-based cellular equipment industry, especially when the industry is several years behind several global telecom equipment companies e.g. Huawei, Ericsson, Nokia, Samsung, and ZTE.

    The Trump administration has singled out the Chinese company Huawei, charged it with stealing U.S. intellectual property, and being a national security (spying) threat. The latter claim is probably because Huawei is presumed to be significantly owned by the Chinese government. While the U.S. administration has restricted sales to Huawei by U.S. companies and urged U.S. allied countries to suspend all business engagements with Huawei, it has not provided any particular evidence to substantiate its charges against the Chinese company.

    This blog makes a clear case that banning Huawei, in all likelihood, would be a lose-lose proposition. Short of conclusive proof of US charges I don’t believe the Huawei ban will stand over time.

  4. Exhaustion of LTE will push migration towards 5G: Nokia
    Romita Majumdar from Mumbai (Bombay), India. Business Standard

    The internet data boom and rising consumption of content and related services will eventually lead 4G LTE resources to exhaust, leaving operators no choice but to adopt 5G networks, said Alexander Tikhonov (vice-president and global head of customer solutions architects at Nokia).

    Last week, Nokia confirmed its position with 42 commercial 5G deals (more than any other wireless telecom equipment vendor has announced) in place with operators around the world, 22 with named customers such as T-Mobile, Telia Company, and Softbank. Including these deals, Nokia’s 5G deals, trials and demos total over 100 5G customer engagements to date.

    “The data consumption (in India and globally) is video centred on internet devices at very high quality. That will exhaust LTE spectrum at a point in time in near future, that is, between 2021 and 2023 as per studies across most countries. And they will need to shift to 5G to satisfy consumer demand,” said Tikhonov.

    According to a recent Assocham-PwC report, data consumption in India will grow from 7.2 million MB in 2017 to 1.09 billion MB (megabytes) in 2022, growing at a compound annual growth rate (CAGR) of about 72.6 per cent. While internet penetration is increasing in India, with mobile internet penetration set to reach 56.7 per cent in 2022, from a mere 30.2 per cent in 2017, with video-on-demand driving usage.

    In fact, according a Nokia report last year, video streaming constitutes up to 75 per cent of the data traffic. According to telecom experts, the humongous video streaming levels is also a reason for rising network congestion (even for voice services) in the country.

    While incumbent telecom operators like Bharti Airtel and Vodafone Idea (VIL) have been up in arms against 5G spectrum auction in the near future due to a financial crunch in the sector, Reliance Jio has been quite vocal about going ahead with 5G trials.

    Bharti Airtel hopes that the Centre will bring down the proposed base price for the 5G auctions for the company to consider participating in the airwave sale. In a recent investor conference call Gopal Vittal, chief executive officer of Bharti Airtel, said that since 5G requires large quantity of spectrum and investments in the range of ~50000-55,000 crore and “clearly these are prices we can’t afford as they are exorbitant, we hope the government will bring down pricing and then we will look seriously at 5G”.

    While spectrum cost is a concern, telecos are also bidding on data usage as a means to grow revenue and usage over voice services.

    Airtel currently has 115 million data subscribers compared, to 306 million of Reliance Jio and 146 million of Vodafone Idea. Airtel, however, has the highest data usage at 11 GB per subscriber per month, compared to 10.9 GB for Jio and 8.8 GB for Vodafone Idea.

    “ With 4G penetration for Bharti Airtel and Vodafone Idea still at 25-30 per cent of the subscriber base, limited use cases of 5G at present, and a nascent 5G ecosystem, we believe it will be negative for operators to spend over $7 billion on a project offering limited returns,” noted Deepti Chaturvedi, research analyst at CLSA, in a note to investors.

    Further, with 275MHz spectrum available in 3.4-3.6GHz band and only three operators in play, there is enough supply. So, even if Reliance Jio bids in current auctions, incumbents led by Bharti Airtel can purchase spectrum in subsequent auctions.

    Deferring purchase will likely also lead to a cut in price of spectrum. Historically, the govt has cut spectrum prices by 30-40 per cent if it saw no demand in the previous auction, Chaturvedi wrote.

    Operators in South Korea, Japan and China have been granted 100-200MHz spectrum each in the 3.5-3.7GHz band for 5G services. Over past few months, commercialisation of 5G has also started with Korean operators introducing 5G plans and Samsung launching the first commercial 5G smartphone.

    In USA, Verizon launched its mobile 5G service called 5G Ultra Wideband in April in a couple of cities and plans to expand this to another 20 cities in 2019.

  5. The long term impact on Western Digital and Micron could be significant, losing such a big customer as Huawei. Thus their stocks are generally down. This could hurt this segment of the US market and put more pressure for China to develop its own supply of NAND and DRAM chips. As is often the case, embargo and trade restrictions often do more damage than create benefit.

    1. Tom, Thanks for your comment which I strongly agree “embargo and trade restrictions often do more damage than create benefit.” Look at the fallout on Broadcom which last week announced revenues would be $2B lower due to the U.S. Huawei ban and license required to sell them any silicon or software.

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