As we all know, on August 17, the U.S. Department of Commerce announced a new round of sanctions against Huawei. One is to further restrict Huawei’s ability to obtain U.S. technology, focusing on restricting chips designed by companies outside the United States using U.S. software; The addition of enterprises to the Entity List mainly involves HUAWEI CLOUD, bringing the number of HUAWEI enterprises under export control to 152. As the deadline for new U.S. sanctions on September 15 approached, Huawei’s supply chain began to experience a huge shock.

According to South Korean media reports, due to the impact of the U.S. government’s further strengthening of sanctions against Huawei, South Korea’s Samsung Electronics and SK Hynix (hereinafter referred to as “Hynix”) will stop providing storage to Huawei from September 15, when the ban is scheduled to take effect. class chip.

In response to the above information, the first financial reporter verified with the two companies, and both responded that “there is no content to respond.” Huawei has not confirmed the news.

However, the first financial reporter learned from a Korean chip industry source that according to the original US sanctions, two Korean companies had internal assessments that the use of US-made equipment was less than 50% and was not affected by the sanctions. However, due to the subsequent tightening of sanctions by the U.S. Department of Commerce, which extended the impact to all chip companies using U.S. equipment, software and designs, it finally decided to stop supply.

Huang Zhezhou, executive vice president of the Korea semiconductor Industry Association, told the first financial reporter that the current semiconductor industry system in South Korea is a development model for a small number of large companies to drive many small and medium-sized suppliers. If these chip giants cannot find a better than Huawei A more stable supplier will bring the Korean chip industry to a crisis as a whole and become a life-and-death test for these supply chain systems.

According to data released by Huawei, in 2019, Huawei purchased a total of 11.85 trillion won (about 68.3 billion yuan) of products from South Korean companies, mainly composed of chips, semiconductor products and displays, and this amount accounted for South Korea’s total investment in that year. Nearly 6% of China’s total exports of Electronic equipment.

South Korean chip supply faces disruption

“This revision will further restrict Huawei’s ability to acquire foreign chips, which will be subject to the same restrictions as U.S. chips as long as those chips are developed or manufactured with U.S. software or technology,” the Commerce Department said.

According to the reporter’s understanding, Huawei purchased some DRAM, flash memory and other storage chips from two Korean companies, Samsung Electronics and Hynix, and installed them in mid-range smartphones. Samsung Electronics is listed as one of Huawei’s “gold medal” suppliers. According to relevant financial reports, in 2019, Huawei was one of the top five customers of Samsung Electronics Semiconductor Division (DS Division). Samsung Electronics supplied Huawei with products such as smartphone memory chips and Display chips.

Hynix’s financial report shows that in 2019, the company’s sales to China accounted for nearly 50% of total sales for the first time, reaching 46.6%, which is also regarded as an important proof that the industries of China and South Korea have cooperation prospects and complementarity. . Huawei’s orders account for 9.5% of Hynix’s total annual orders.

South Korea’s Shinhan Securities analyst Li Xianye believes that in the short term, the performance of related companies such as Samsung Electronics, Hynix, and LG Display is unlikely to change significantly, but it will be reflected in the fourth quarter financial report. Especially in the context that the sales share of the two major Korean chip companies to China is still at a high level, if they cannot find “big customers” similar to Huawei, the performance and investor expectations of these companies may decline significantly. In turn, it will affect the upstream and downstream suppliers of equipment, and directly hit the export process of related industries in South Korea.

In addition, many local industry insiders in South Korea also expressed concern about the current situation.

The head of the Korea-China Industry Cooperation Group of the Korea Display Industry Association, which was just established this year, told Yicai.com that the respective advantages of Korea and China are very obvious, and trade protectionist measures can easily make the industries and consumers of the two countries hit together.

The impact affects the global semiconductor industry chain

“Previously, in the context of TSMC’s decision to cut off supply, Huawei and Samsung and other Korean companies have discussed supply cooperation, but later failed due to various reasons.” A person familiar with the matter told Yicai.com.

In addition to chips, the first financial reporter also learned that Samsung Display and LG Display will also stop supplying all display-related components to Huawei, including both display chips and Panel driver chips (Drive ICs) affected by sanctions. Also included are the panels themselves that are not affected by sanctions.

The person in charge of a Korean display company who requested anonymity told reporters that under normal circumstances, when exporting display panels for smartphones to overseas manufacturers, the panels and driver chips will be bundled at the same time. The driver chip is designed mainly by ARM in the United States, so it is difficult to find alternative products in the short term.

In the opinion of the analysis agency, the U.S. chose to take the “most extreme” way to open a Pandora’s box, which will affect the long-term trend of the global semiconductor industry chain.

The Boston Consulting Group (BCG) pointed out in a report released in March this year that U.S. restrictions on technology trade between China and the United States could end its leadership in the semiconductor field. If the United States completely bans semiconductor companies from selling products to Chinese customers, then Its global market share would lose 18 percentage points and its revenue would lose 37 percent, effectively decoupling U.S. technology from Chinese technology.

On September 3, local time, U.S. chip stocks fell sharply, Nvidia fell as much as 9.3%, and AMD, Broadcom, Qualcomm, Xilinx and Intel fell 8.5%, 6.1%, 5.5%, 5.3% and 3.6% respectively. The Philadelphia Semiconductor Index (sox), a key gauge of global semiconductor industry sentiment, fell 5.7% for the week, its worst day since mid-June.

Shen Jun-seok, chief representative of the Korea International Trade Association in Shanghai, also expressed his concerns. He said that South Korea’s exports of equipment and accessories to China exceeded 120 trillion won (about 692 billion yuan) last year. If the trade friction between China and the United States and the wave of trade protectionism continue, it is very likely that South Korean technology and equipment companies will be affected. A huge blow, even more than the 2008 global subprime mortgage crisis. Considering that most of the equipment enterprises are small and medium-sized enterprises with poor capital self-sufficiency, the instability of the market will affect the research and development process of these enterprises.

“For technology companies in South Korea, our association held an online seminar on Huawei’s sanctions. Originally, only dozens of people were expected to participate, but in the end, the number of participants exceeded 100. This is enough to show that South Korean technology companies are responsive to the U.S. measures. I was caught off guard and panicked.” Shen Zhunshuo said.

In addition, Huawei’s supply cut may affect the rollout of the 5G network that South Korea is advancing.

According to South Korean data, the three major operators in South Korea have completed the laying of 5G networks covering about 70% of the country. Among them, South Korean operator LG U+ has used Huawei equipment and has become Huawei’s largest 5G network equipment user overseas.

However, regarding the impact of the U.S. ban policy, LG U+ said in response to Yicai that it has little impact on the construction of the network because it has purchased enough equipment for 5G base stations.

How does Huawei continue to “sail”?

The reporter learned from inside Huawei that Huawei has prepared the “worst” plan for the external environment, abandoned “fantasy”, and continued to increase research and development to advance the business according to the established rhythm.

Internally, Huawei is forming various new companies to develop new businesses. Taking the screen as an example, Yu Chengdong, CEO of Huawei’s consumer business, recently issued the “Notice on the Establishment of Display Driver Products by the Terminal Chip Business Department” document, which shows that Huawei will set up a team in the field of display driver chips and components, including display driver FAE (on-site). Application engineer), display driver product management, display driver chip and component development department, etc.

Fan Boyu, an analyst at TrendForce, told Yicai.com that display driver IC chips cover large-size TVs and small-size mobile phones and watches, and any display screen needs to use driver ICs.

In the terminal business, Huawei will release the latest progress of the Hongmeng system and important products such as full-scenario terminal software at the Huawei Developer Conference held on September 10, and Huawei’s Hongmeng mobile phone will be officially released as soon as next year.

An insider of Huawei’s consumer business HMSCore platform told reporters earlier that Huawei will focus on building two ecosystems in the future, one is the hardware ecosystem, and the other is the service and application software ecosystem. The 5.0 version of HMS has fully opened Huawei’s core, end, Cloud capabilities.

From the perspective of the continuation of the terminal business, Huawei is making every effort to accelerate the patching of chips and the iteration of operating systems and mobile application software. The business of tablets, computers and watches outside the mobile phone business is also gradually expanding.

Huawei’s layout will allow it to obtain more stable income and controllability in the supply chain in the long run.

“If someone turns off the lighthouse, how can we sail?” Ren Zhengfei, the founder of Huawei, asked recently. This has become the most thoughtful topic in Huawei right now.