US blocks chip supplies to Chinese Huawei Technologies

 The Trump administration has moved to block global chip supplies to blacklisted telecoms equipment giant Huawei Technologies, spurring fears of Chinese retaliation and hammering shares of US producers of chipmaking equipment.

Huawei 5G

A new rule, unveiled by the Commerce Department, expands US authority to require licences for sales to Huawei of semiconductors made abroad with US technology, vastly expanding its reach to halt exports to the world’s No. 2 smartphone maker.

“This action puts America first, American companies first, and American national security first,” a senior Commerce Department official said in a telephone briefing on Friday.

News of the move against the firm hit European stocks as traders sold into the day’s gains, while shares of chip equipment makers like Lam Research and KLA Corp fell around 5 and 3 per cent, respectively, in US trading.

The reaction from China was swift, with a report on Friday by China’s Global Times saying Beijing was ready to put US companies on an “unreliable entity list,” as part of countermeasures in response to the new limits on Huawei.

The measures include launching investigations and imposing restrictions on US companies such as Apple, Cisco Systems and Qualcomm, as well as suspending purchase of Boeing airplanes, the report said, citing a source.

The Commerce Department’s rule, effective on Friday but with a 120-day grace period, also hits Taiwan Semiconductor Manufacturing Co, the biggest contract chipmaker and key Huawei supplier, which announced plans to build a US-based plant on Thursday.

TSMC said on Friday it is “following the US export rule change closely” and working with outside counsel to “conduct legal analysis and ensure a comprehensive examination and interpretation of these rules.”

The department said the rule is aimed at preventing Huawei from continuing to “undermine” its status as a blacklisted company, meaning suppliers of US-made sophisticated technology must seek a US government licence before selling to it.

“There has been a very highly technical loophole through which Huawei has been in able, in effect, to use US technology with foreign fab producers,” Commerce Secretary Wilbur Ross told Fox Business News on Friday, calling the rule change a “highly tailored thing to try to correct that loophole.”

The company was added to the Commerce Department’s “entity list” last year due to national security concerns, amid accusations from Washington that it violated US sanctions on Iran and can spy on customers. Huawei has denied the allegations.

“This is a licensing requirement. It does not necessarily mean that things are denied,” the official said, adding that the rule gives the US government greater “visibility” into the shipments. “What are done with those applications, we’ll have to see … Each application will be judged on its merits.”

After essentially barring Huawei from buying from US suppliers, the Commerce Department granted licences to some of Huawei’s biggest US partners to continue to sell to the company, while also allowing smaller rural telecoms to continue to purchase Huawei equipment to keep their networks up and running.

Huawei, which needs semiconductors for its smartphones and telecoms equipment, has found itself at the heart of a battle for global technological dominance between the United States and China, whose relationship has soured in recent months over the origins of the deadly coronavirus.

But for now, most chipmakers rely on equipment produced by US companies like KLA, Lam Research and Applied Materials , which did not respond to requests for comment.

While some of the complex tools required to make chips come from companies outside the United States, such as Japan’s Tokyo Electron and Hitachi and the Netherlands’ ASML, analysts say it would be difficult to put together an entire tool chain for making advanced semiconductors without at least some American equipment.

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