In the first few weeks of 2019, 20 engineers from Huawei Technologies arrived in the riverside town of Jiangyin in eastern China on a secret mission. They took up stations at the state-backed Jiangsu Changjiang Electronics Technology, China’s largest chip packaging and testing company, where they went to work upgrading the facilities and increasing the site’s capacity, ahead of a production surge in the autumn.
“These Huawei staff are on-site almost seven days a week, from day to night, nitpicking and reviewing all the details … demanding strictly that the local company meets global standards as soon as possible,” one chip industry executive familiar with the situation told the Nikkei Asian Review. “It’s honestly like preparing for wartime.”
All across Asia, companies in the computer chip industry were receiving similar messages from Huawei: Boost your production, and we will buy your product. In a slowing global market, Huawei made a commitment that was impossible to resist: The company guaranteed up to 80% utilization rates for the next two years to potential and current suppliers.
Spooked by the arrest in December 2018 of its chief financial officer, Meng Wanzhou — daughter of the company’s founder and CEO, Ren Zhengfei — and anticipating an escalation from the White House, Huawei activated a plan to decouple itself from its U.S. suppliers by pushing fellow Asian companies to speed up and scale up.
By May, when the U.S. announced strict new limits that all but prevented American companies from selling technology to Huawei, the Chinese telecom giant was already on a war footing. Others in China have followed its lead, preparing to move wholesale away from their reliance on U.S. technology in what could become a permanent “de-Americanization” of the Chinese tech industry.
“We see a clear trend of Chinese companies decoupling from U.S. suppliers,” said Scott Lin, senior vice president of WPG Holdings, the world’s biggest semiconductor distributor. “After all, no one wants to be suddenly cut off from supplies.”
Now that these plans are in motion, Lin said, “there is no turning back.”
Warning signs
Ren, a former engineer from China’s People’s Liberation Army, founded Huawei in the southern industrial city of Shenzhen in 1987. From its roots as a tiny manufacturer of networking switches, the company has grown to become a global leader in telecom and a national champion in China. Huawei is now the world’s largest supplier of telecom equipment, with operations in 170 countries. In 2018, it overtook Apple to become the world’s second-biggest smartphones manufacturer. It now employs 194,000 staff, with annual revenues of more than $105 billion — comparable with Google’s parent company, Alphabet.
That size makes it a huge market for suppliers of components and software. Huawei’s annual procurement budget is around $70 billion. The company spends $15 billion every year on semiconductors alone; only Apple and Samsung Electronics spend more. In 2018, it bought more than 200 million displays and hundreds of millions of camera lenses.
A lot of those components come from the U.S. In 2018, Huawei procured $11 billion worth of goods from American suppliers. Qualcomm, Intel and Texas Instruments supply Huawei with various types of chips; Skyworks Solutions and Qorvo provide high-end radio frequency technology; Synopsys and Cadence Design Systems provide chip-design tools; Google and Microsoft supply software. Further down the supply chain, chemical companies such as Applied Materials, Corning, 3M and Dow Chemical sell their products into other enterprises that help Huawei to develop advanced panels and build semiconductors……more here