A worker packs up new smartphone devices at the end of the production line at Huawei’s production campus on April 11, 2019 in Dongguan, China.
Kevin Frayer | Getty Images
Chinese technology giant Huawei has enough inventory to sustain its smartphone and 5G networking equipment businesses for most of the rest of the year, according to brokerage and investment firm CLSA.
Amid elevated U.S.-China trade tensions, Washington last week added Huawei to a blacklist that curbs its ability to do business with American firms. That restriction was partially eased days later, in an effort to minimize disruption for the Chinese telecommunications giant’s partners, but most experts warn the company now faces significant uncertainty.
For now, Huawei’s smartphone business has five to six months’ worth of inventory, and its 5G networking equipment business has nine to 12 months’ worth of supplies, going by CLSA estimates, Sebastian Hou, investment analyst at CLSA, told CNBC on Friday.
“For the rest of the year, I think the company should be fine on smartphones and networking equipment,” he said. “In the short term, they still have enough inventory to weather through this period, but the inventory will be used up eventually. So how these trade talks will progress in the next few months is still pretty critical to (its) future survival.”
Notably, Hou said that Huawei subsidiary HiSilicon, which designs chips for Huawei equipment, has been increasing its capability in the last few years and is able to supply 80% to 90% of Huawei’s needs.
In fact, HiSilicon’s capabilities are “stronger than most may know,” said a CLSA research report from Hou and others dated May 20.
Ultimately, Huawei’s survival is highly dependent on whether Taiwan Semiconductor Manufacturing Company — the world’s largest contract chipmaker — can keep doing business with it. In fact, TSMC is “crucial” to Huawei, that report said.
“No matter how great HiSilicon’s chip designs are, it cannot live without TSMC, as TSMC manufactures all HiSilicon’s advanced chips. This means TSMC is critical to Huawei’s survival and Trump’s plan to block Huawei and China.”
For now, TSMC has said that its shipments to Huawei are not affected by the U.S. action to curb the Chinese firm’s access to American technology.
In a bid to reduce its reliance on U.S. suppliers, Huawei has in recent years invested in its own chip technology, especially for smartphone processors and 5G chips.
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But, according to Hou, the bottom line is that Huawei “still lacks some critical tech that we believe is highly dependent on the U.S.”
He explained in the CLSA report that TSMC uses American equipment and intellectual property to manufacture customer chips, and then re-exports those technologies. If American-originated technology exceeds 25% of the product, then TSMC is subject to U.S. Export Administration Regulations and will need an American license to supply Huawei.
Based on CLSA calculations, equipment with American origins accounts for between 15% to 20% of TSMC’s sales to HiSilicon, and so is safe for now, the report said.
“But if the U.S. is more subjective or has a different definition there would be risk TSMC cannot ship,” CLSA warned.
