Samsung, SK Hynix to Drop Trades with Huawei | Wibest Broker

South Korea’s top manufacturers of semiconductors are to suspend all transactions with Chinese firm Huawei. This is in compliance with the latest U.S. sanctions against the company being accused of spying and stealing technology.

Samsung and SK Hynix are to stop selling components to Huawei as the Trump administration tightens sanctions on the phone maker. According to Korean news outlets, the companies will suspend trade on September 15th. It’s the day a new set of rules limits dealing with the Chinese telecommunications equipment company.

This move that begins next Tuesday could hurt sales for both firms. These sanctions were introduced in August, following a string of other restrictions implemented since 2019. 

Unless companies obtain special approval, these non-American companies are banned from selling components that were developed with US technology.

This poses a serious threat to Huawei, as it may no longer be able to make its Kirin chipsets. In contrast,it’s business is valuable to many other companies, as it recently became the top-selling smartphone manufacturer. 

TSMC, a Taiwanese chipmaker, reportedly suspended sales to Huawei this May. This was after an earlier round of restrictions, which the Chinese smartphone manufacturer called those rules arbitrary and pernicious.

The decision from South Korean companies comes after TSMC had said it will halt processing new orders from Huawei.

The Chinese government has funded a domestic semiconductor company called SMIC. It has been offered as an alternative supplier for Huawei, but the Trump administration has also threatened sanctions against it.

This has led the Chinese Foreign Ministry to accuse the US of blatant hegemony. The company now has fewer and fewer options for sourcing parts for its phones.

Qualcomm, an American chipmaker, has reportedly lobbied the Trump administration to lift restrictions and let it sell to Huawei.

South Korean Firms Expect a Significant Drop in Sales

Huawei’s response to the global ban of semiconductor shipments has been to buy up as much inventory as possible. This is ahead of sanctions, which are to go into full effect in mid-September. 

Huawei’s buying spree drove up the spot price of DRAM or dynamic random-access memory, creating windfall profits for chip suppliers. This was according to Taiwanese research firm DRAMEXchange.

South Korean firms are expecting a significant drop in sales. SK Hynix reported a total of $13.3 billion in revenue for the first half of 2020. 

More than 40% or $5.5 billion of that amount, was earned through exports to China. Many Chinese firms purchase the South Korean chips in order to supply Huawei’s production lines for smartphones and computer tablets.

On Aug. 17, the United States imposed additional sanctions against Huawei. It described the company as an arm of the Chinese Communist Party’s surveillance state.

The sanctions require third-country suppliers to cease trade. This is unless prior approval is received from Washington, according to the U.S. Department of Commerce.

The US government argues that Huawei infrastructure poses a national security threat. It argues that Huawei has engaged in trade secret theft and violated sanctions against Iran. 

It’s part of a larger trade war between China and the Trump administration. It is one that’s more recently focused on social media services like TikTok and WeChat. 

However, the increasingly restrictive Huawei bans could reshape the smartphone and chip market. 

The latest U.S. policy applies to tech companies that use U.S. technology among its parts and components. Reports say prices of memory chips are expected to trend downward after Sept. 15.