It is well known that Huawei is reshaping its supply chain to exclude U.S. technology/product restrictions due to U.S. restrictions. Previously, Huawei insiders said that this process is difficult, but it is by no means impossible. The latest news is that Huawei has placed new demands on its suppliers to move production capacity into China. Japan’s Nikkei News reports that Huawei has made a request to foreign semiconductor suppliers. These suppliers have to complete most of its expansion or capacity transfer within China by the end of 2020.
In semiconductor chips development, we have different segments including design, manufacturing, packaging, and testing. At present, design and manufacturing are basically in Europe, America, Japan, South Korea, Taiwan, and other regions. Companies can not easily move these processes in a short time. Huawei now hopes that the final process of packaging and testing will be available in China. Furthermore, it will also require PCB manufacturing to be in China as much as possible.
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In addition to asking foreign suppliers to increase production capacity in China, Huawei is also actively fostering Chinese suppliers. Taking packaging and testing as an example, it is reported that Huawei sent more than 100 technicians to China’s largest packaging and testing plant last year to assist its opponents. However, there are reports that the current progress is not as smooth as Huawei expects.
New requirements by Huawei to suppliers already active
According to reports, Huawei’s new requirements for its suppliers are already active. The Chinese manufacturer will no longer validate suppliers unless they are willing to increase capacity in China. Alternatively, if they do not want to increase production capacity in China, they can cooperate with production in the country. The sources noted that Huawei’s strategy in the supply chain is to boost localization. In addition, suppliers with capacity in China will receive primary support from Huawei.
Does Huawei have what it takes to make such demand from suppliers? Let’s look at where the Chinese manufacturer stands in the smartphone market. In China, it is the largest smartphone manufacturer. Globally, it is the second-largest smartphone manufacturer, behind only Samsung. In 2019, the company shipped about 240 million smartphones despite the U.S. restrictions. Looking at Huawei’s capacity, it is not a company that a supplier will want to lose. In fact, losing Huawei for some companies will mean going under.
These new laws wouldn’t have been necessary if the U.S. did not extend the reach of its ban. The Chinese manufacturer is only responding to the actions of the U.S. government. This whole brouhaha is taking another dimension.