The U.S. president said at the Group of 20 summit in Osaka that he would probably allow American companies to sell nonsensitive goods and technology to Huawei, the world's top telecom equipment provider and the global No. 2 smartphone maker. The incomplete lifting of restrictions, which previously barred all transfer of U.S. technology to Huawei, was a condition for restarting stalled trade negotiations between Washington and Beijing.

 

The comments spurred a sharp surge in the shares of Huawei's Asian vendors on Monday as suppliers, investors and market watchers saw indicators of hope for a sector that has been clouded by a lackluster global outlook.

 

Key camera lens maker Largan Precision and display driver integrated circuit provider Novatek both saw their shares go up by 10%. Chinese metal casing provider Shenzhen Everwin Precision Technology and touch and camera module supplier O-film Technology also jumped some 10%. Shares of Taiwan Semiconductor Manufacturing Co., a key Huawei mobile processor producer, advanced virtually 4%, while Sony, Huawei's crucial Japanese image sensor provider, also rose more than 2%.

 

It was unclear how far the restrictions would be relieved or whether or not Google would now be able to sell its Android operating system services to Huawei, without which its smartphones will be drastically handicapped in the global market.

 

But sources familiar with Huawei's plans said the Chinese company would build up its aim to be self-reliant even if all the restrictions are gradually lifted. The smartphone maker had set an intense goal to grab 50% of the Chinese mobile market by next year, up from the current 34% in the January-March quarter, one source said. This would put intense pressure on domestic opponents such as Oppo, Vivo and Xiaomi together with international competitors such as Apple. In the meantime, Huawei had asked its procurement team to qualify new suppliers beyond the U.S. suppliers and to speed up development of chips and technologies to replace U.S. supplies, the people said.

 

Richard Yu, Huawei's consumer electronics group CEO, confirmed his company is establishing its own mobile operating system, dubbed HongMeng, which could be available as soon as this year. Many Huawei suppliers voiced relief at the reprieve but remained careful about the long-term. 'What Trump said about Huawei is good news for suppliers and the Chinese company,' said an executive of a Huawei smartphone component supplier. 'We have decided to go ahead with the capacity expansion plan for the Chinese client.'

 

However, the executive said his company's original capacity advance for Huawei would be slight and that the company would continue monitoring the U.S. government's stance. 'It is better not to be too optimistic about the Huawei situation, as the devil is in the details,' the executive said. 'Who knows if Trump will change his mind again?'

 

Huawei founder Ren Zhengfei on Saturday said in an interview with Canada's Globe and Mail that his company has been increasing staff - from 188,000 to 194,000 people - to cope with the challenges following Washington's ban.

 

The U.S. crackdown 'is not a death threat to us,' he said. 'But you asked how many holes [technical vulnerabilities] are there? I think there are thousands of holes and each one requires many people to fix.' The comment was taken from an interview transcript uploaded to a Huawei employees interaction platform. 'If some small, apparently minor component is missing on your circuit board, you may have to redesign the entire board,' Ren said. 'And that involves quite a workload.'

 

Beforehand, Ren had predicted the U.S. blacklist to wipe out around $30 billion of Huawei's revenue this year and next, while smartphone sales in the overseas market had plunged 40%. But the founder downplayed over the weekend the impact of $30 billion as a 'small number' for Huawei, and the company's overall performance and resilience so far have been much better than expected.

 

The Chinese company had stockpiled three months to a year worth of key components in preparation for a U.S. clampdown. This came after its CFO, Meng Wanzhou, was charged in Canada in December, as the Nikkei Asian Review first announced. An identical ban charged on Huawei's smaller domestic peer ZTE last year increased alarms inside the Chinese tech giant, sources said.

 

Huawei spent some $70 billion around the world for component procurement in 2018, while around $11 billion went to U.S. companies like Qualcomm, Intel and Micron Technology along with to many smaller players such as Qorvo, Skyworks and Xilinx. Many of these suppliers were wary that the U.S. blacklisting could also backfire on American players. The Semiconductor Industry Association, whose members include Intel, Qualcomm, Qorvo, and Skyworks, on Saturday said the industry welcomes the uplifting results over the meeting between Trump and Xi in Osaka. 'We are encouraged the [trade] talks are restarting and additional tariffs are on hold and we look forward to getting more detail on the president's remarks on Huawei,' SIA President and CEO John Neuffer said in a statement.

 

Many American companies started again their loads to Huawei prior to the Trump-Xi meeting after they reviewed the new trade rule. The SIA on June 21 said in a news release that while its members are complying with the U.S. regulations 'it is now clear some items may be supplied to Huawei consistent with the Entity List and applicable regulations.'

 

Micron Technology, a key memory chip supplier to Huawei, lately told investors that it has restarted some product shipments to the Chinese client in the past few weeks. Intel also restarted shipments to Huawei, The New York Times reported. On May 16 the U.S. government added Huawei to the so-called Entity List, which blocked U.S. companies and those foreign suppliers that used more than 25% of American technologies to trade with the Chinese company. Many U.S. companies such as Google, Qualcomm and Advanced Micro Devices confirmed they had to stop shipments to Huawei soon after the U.S. blacklisting.

 

Some global mobile operators such as KDDI, SoftBank, and EE even delayed product launches of new Huawei smartphones, while German chipmaker Infineon terminated shipments to Huawei from the U.S. SoftBank founder Masayoshi Son said U.K.-based chip intellectual property provider ARM Holdings, which his company bought in 2016, was studying whether its products contained more than 25% of U.S. technologies. 'We think Trump's remarks would give Huawei some breathing room while the Chinese company continues to seek ways to get rid of U.S. suppliers,' said Chiu Shih-fang, a veteran tech analyst at Taiwan Institute of Economic Research.

 

And yet, the U.S. government is not assumed to unexpectedly go beyond Huawei's smartphone business in greenlighting exports, Chiu said. 'Although we think the lift of a part of the ban could help improve a bit of the overall market outlook, we don't expect it could give a great boost for the overall lackluster electronics and smartphone market. There are still a lot of uncertainties,' the analyst said. In a statement to the Nikkei Asian Review, Huawei acknowledged the 'U.S. President's comment related to the company' but declined to comment further. Google did not respond to a request for comments.

 

Source: TRONSERVE