Huawei asks Samsung, SK Hynix for supply stability

Chinese telecommunications giant Huawei asked Samsung and SK Hynix to affirm the status of their memory chip supply deals, reports Bloomberg. The conglomerate made the request in response to new White House export controls that have affected its other vendor relationships.

Huawei reportedly spends $8.1 billion to buy NAND and DRAM from the two South Korean manufacturers every year.

Why Huawei Wants Assurances from its Memory Chip Suppliers

In May 2019, the U.S. Department of Commerce placed Huawei on its “Entity List,” which meant U.S.-based corporations could no longer sell their products to the Chinese telecom. Although leaders from Intel, Micron, and Qualcomm asked President Trump to reconsider the move, the trade ban stayed in place. As a result, the telecom’s sales took a significant hit as it scrambled to replace American components and software.

Last week, the government agency issued new rules requiring corporations using U.S. software or technology to obtain a license to sell semiconductors to the Sino brand. Since Commerce Secretary Wilbur Ross said his firm instituted new restrictions to prevent Huawei from exploiting a “technical loophole,” trade exemptions are unlikely to be forthcoming.

As they are South Korean companies, Samsung and SK Hynix are not subject to the White House’s recent trade bans. However, Huawei’s concern that new restrictions affecting its memory chip supply reportedly prompted it to reach out to its partners. TechCrunch states TSMC has already stopped taking orders from the Chinese company in light of the Commerce Department mandate.

Since Samsung and SK Hynix produce 70 percent of the world’s DRAM chips, Huawei would be hard-pressed to replace them as suppliers.

What Happens Next with Huawei?

At this point, it is hard to gauge what will happen next with Huawei.

On the one hand, neither of the firm’s memory chips partners are keen to lose $10 billion in revenue. On the other, neither company wants to lose its ability to do business in the United States. Presumably, Samsung and SK Hynix will engage in negotiations with their Washington contacts before making any big decisions.

Besides, Huawei’s prospects are not as gloomy as they might appear. When the corporation lost access to U.S. mobile processors, it tasked its HiSilicon chip-making arm with manufacturing all of its handset CPUs. In the first quarter of 2020, the conglomerate’s chipset division became China’s number one smartphone semiconductor producer.

The Sino company also posted record revenue in 2019 despite having its supply chain disrupted.

As such, Huawei has demonstrated the ability to thrive in the face of major global supply chain disruption. After an initial downturn caused by its new circumstances, the conglomerate could go one to affirm its resiliency.