ARM supply halt deals fresh blow to Chinese tech giant Huawei

By Paul Sandle
Workers are seen near the booth of Huawei Technologies Co under construction at the venue of China International Big Data Industry Expo in Guiyang, Guizhou province, China May 22, 2019. Picture taken May 22, 2019. REUTERS/Stringer

By Paul Sandle

LONDON (Reuters) - British chip designer ARM halted relations with Huawei [HWT.L] to comply with a U.S. blockade of the company, potentially crippling the Chinese telecom company's ability to make new chips for its future smartphones.

Huawei, like Apple Inc and Qualcomm, uses ARM blueprints to design the processors that power its smartphones. It also licenses graphics technology from the Cambridge-based company which is owned by Japan's SoftBank Group Corp.

In another blow to the Chinese tech giant, Japanese conglomerate Panasonic Corp on Thursday joined the growing list of global companies which have said they are disengaging with Huawei, the world's second-largest seller of smartphones and the largest telecom-gear maker.

Panasonic, which makes components used in smartphones and assembly lines, said it had stopped shipments of some components to Huawei. The Japanese firm will still sell some components to Huawei, a point it made clear on its China website.

But ARM's move will have a much bigger impact on Huawei's ability to do business, particularly in the smartphone sector where the Chinese firm vies with Samsung Electronics Co Ltd for global leadership. ARM's chip designs contain technology of U.S. origin and are the backbone of Huawei handsets.

The United States last week blocked Huawei from buying goods made from 25% or more of U.S.-originated technologies or materials, accusing the firm of being a vehicle of Chinese state power and a potential threat to national security.

The sanctions are a major escalation in the bruising trade war between China and the United States.

While the Chinese company denies the allegations, other countries such as Australia and New Zealand also have blocked the Shenzhen-based firm from bidding for critical contracts due to national security concerns.

Washington is lobbying Britain not to use Huawei's products, and on Thursday a South Korean newspaper reported similar pressure was being placed on Seoul. China is South Korea's biggest export market.

The U.S. blacklist has already jeopardised Huawei's ties with Alphabet Inc's Google, which provides the Android operating system and services like Gmail, as well as hardware partners.

The U.S. government temporarily eased the restrictions on Tuesday by granting Huawei a 90-day licence to buy U.S. goods, in a bid to minimise disruption for its customers.

The Chinese company has remained defiant, saying it has the technology to replace supplies cut off by the ban - a claim analysts have contradicted.


COMPLIANCE

TSMC, the world's biggest contract chipmaker, said on Thursday its shipments to Huawei were not affected by the U.S order. Japanese daily Nikkei, citing a Murata Manufacturing representative, said the company's business had not been affected by the ban.

"At the moment, we anticipate that there should be no major change when it comes to our chip shipment and technology support," TSMC spokeswoman Elizabeth Sun said at the company's 2019 Technology Symposium in Taiwan.

The BBC reported on Wednesday that ARM had instructed employees to halt "all active contracts, support entitlements, and any pending engagements" with Huawei.

"ARM is complying with the latest restrictions set forth by the U.S. government and is having ongoing conversations with the appropriate U.S. government agencies to ensure we remain compliant," an ARM spokesman said in a statement.

"ARM values its relationship with our longtime partner HiSilicon (Huawei's chip arm) and we are hopeful for a swift resolution on this matter."

Huawei said it valued its close relationships with its partners, but recognised the pressure some of them were under "as a result of politically motivated decisions".

"We are confident this regrettable situation can be resolved and our priority remains to continue to deliver world-class technology and products to our customers around the world," a company spokesman said.

British mobile operators EE and Vodafone both said on Wednesday they had dropped Huawei smartphones from the imminent launch range of their 5G networks.

SoftBank's low-cost mobile brand, Ymobile, and other Japanese telcos have said they will delay the launch of Huawei smartphones due to go on sale on Friday.



(Reporting by Michael Holden and Paul Sandle; additional reporting by Alistair Smout in London, Yimou Lee in Taipei, Makiko Yamazaki and Sam Nussey in Tokyo; Editing by Jonathan Oatis, Sayantani Ghosh and Stephen Coates)