Dec 3, 2021 - Technology
Column / Signal Boost

Huawei sanctions snarled chip supply chains

Illustration of a warning sign featuring the Huawei logo

Illustration: Sarah Grillo/Axios

The largely successful U.S. effort to hobble China's Huawei has benefitted a host of other tech companies — from smartphone makers such as Apple and Xiaomi to chipmakers like Qualcomm to network vendors including Nokia and Ericsson.

Yes, but: The massive disruption to the industry furthered an industry wide mismatch between supply and demand, exacerbating the global chip shortage.

International sanctions on Huawei, promoted by the U.S., had a two-fold effect, according to Neil Shah, a partner at market analysis firm Counterpoint Research.

  • "Firstly, Huawei sucked in most of the components supply to help its smartphone business survive for the next twelve months," Shah said, with Huawei gobbling up most of the available short-to-mid-term capacity.
  • That, in turn, pushed mobile competitors to race to book orders even though the overall smartphone market has been relatively flat.
  • And that left other industries, such as automotive, unable to secure needed chips when their business rebounded.

Catch up quick: U.S. efforts to limit Huawei's business began years ago, but accelerated during the Trump Administration. Before then, efforts against the firm — whose close relationship to China's government, U.S. policymakers believe, makes it a security threat — largely centered on keeping Huawei out of major American telecom networks.

  • Under Trump, there was a massive effort to keep other countries, especially European allies, from using Huawei gear to build their 5G networks.
  • Huawei's cellphone business was further decimated by a ban that kept it from getting key components, such as software and chips, from U.S. companies.

The big picture: The result of the moves was a collapse of Huawei's market share in phones, even in China.

  • The company, which had been selling 50 million phones per quarter and was a leader in China and Europe, saw its sales drop to 7 million per quarter globally by the third quarter of this year, according to Counterpoint Research.
  • Huawei’s global market share plunged from a peak of 17% in March 2020 to just 2% in Sep 2021, per Counterpoint.

Between the lines: The resulting shake-up benefitted nearly everyone else in the market to some degree, but had an outsized benefit for some of the biggest players in tech.

  • In phones, Chinese device maker Xiaomi was a big winner, gaining not just in China, but also scooping up a large chunk of Huawei's business in Europe, where Huawei had been a key premium brand.
  • Huawei's phones were powered to a large degree by its homegrown processors. Its rapid decline in the high end of the phone market largely benefitted Qualcomm, while Taiwanese chipmaker MediaTek scooped up even more of the low-end phone market, where it has already been growing.
  • In networking gear, arguably Huawei's most important business, the company remains a significant player — especially in the developing world, where its low prices are especially important. But its losses in Europe and other advanced markets helped bolster rivals Ericsson and Nokia.

The other side: Huawei remains a giant company. Even with sales down by nearly a third, the company still posted revenue of 455.8 billion yuan ($71.5 billion) for the first nine months of 2021.

  • In a statement to Axios, Huawei VP Glenn Schloss acknowledged that the company's business has been "significantly disrupted" by U.S. sanctions.
  • "We know also from other Chinese purchasers that the semiconductor market experienced distortions from the Trump Administration's sanctions which contributed to the overall difficulties and eventual shortages in supply chains involving chipsets," Schloss said.
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