Huawei turns to ‘Plan B’ on chip strategy after US blacklisting

Huawei’s chipmaking arm said it had turned its “Plan Bs into Plan As overnight” a day after the Trump administration raised the prospect of a US ban on export of parts and components to the Chinese telecoms group.

The Shenzhen-based company is already largely shut out of selling into the US market and has been ramping up its self-sufficiency — along with other Chinese tech groups — since Washington imposed a similar export ban on smaller rival ZTE last year.

That in turn has stoked what some critics describe as the unintended consequence of Washington’s actions: pushing Chinese tech companies to accelerate their own capacity rather than tamping them down.

In an internal memo to employees seen by the Financial Times, He Tingbo, chief executive of HiSilicon, Huawei’s wholly owned semiconductor subsidiary, wrote: “All the spare tyres we have built have turned to Plan A overnight.”

HiSilicon chief executive He Tingbo described the US plan as an ‘insane decision’ © HiSilicon

Ms He added: “Today, the circle of destiny turns to this extreme and dark moment, the Superpower has mercilessly interrupted the technical and industrial system of global co-operation, made the most insane decision, put Huawei into the Entity List with no founded basis.”

HiSilicon came into focus about four years ago when it began making chips for smartphones. Last year the unit produced more than $7.5bn worth of chips, rotating chairman Eric Xu told Reuters.

The US Department of Commerce on Thursday said it would put Huawei on its so-called Entity List, meaning that US companies will have to obtain a licence from Washington to sell technology to Huawei.

At the same time, US president Donald Trump signed an executive order declaring the US telecoms sector faced a “national emergency” — giving the commerce department the power to “prohibit transactions posing an unacceptable risk” to national security.

When ZTE was hit by an export ban last year, after violating penalties meted out for sanction-busting sales to Iran, it was forced to shut down production for several months.

Chinese tech company executives described the move as a “wake up” call that the US could pull the rug from under their supply of vital components — and ramped up their efforts to increase their own self-reliance.

Alibaba is developing superfast quantum computers and aims to have its first artificial intelligence chips on the market next year. Several homegrown companies, including Shenzhen-based Cambricon Technologies, have also sprouted to develop AI chipsets.

The resetting of the corporate landscape — both in China and in the US, where chipmakers are also fretting about the impact of losing a big buyer — is coming as the trade wars and Huawei-specific moves prompt a rethink on supply chains.

At the heart of the US-China spat, which embraces concerns over so-called spying “backdoors” in Huawei equipment, intellectual property theft and trade imbalances, many see a broader fear in Washington of China’s rising tech prowess.

Huawei rotating chairman Ken Hu wrote in a memo sent to employees on Thursday that the company had expected difficulties with the US “many years ago” and had invested heavily in research and development as a precaution.

“[We] can ensure that in extreme cases the company’s operations will not be much affected,” Mr Hu said.




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