TSMC Halts Acceptance of New Orders from Huawei
The authors are analysts of NH Investment & Securities. They can be reached at kyuha.lee@nhqv.com and hwdoh@nhqv.com, respectively. -- Ed.
According to press reports, TSMC has halted its acceptance of new orders from Huawei. If true, after Sep 14, Huawei will face new challenges in manufacturing smartphones with its own AP chips. As such developments are likely to weaken Huawei’s product competitiveness, SEC’s smartphones look well-positioned to benefit.
TSMC halts acceptance of new orders from Huawei
According to Japanese press reports, TSMC has halted its acceptance of new orders from Huawei in consideration of US export sanctions against China. If such reports are accurate, AP and modem chips produced by TSMC are unlikely to be shipped to Huawei from Sep 14. As of 2019, Huawei’s deployment of its own AP (designed by Hisilicon, a wholly-owned subsidiary) stood at 73.6%, the second-highest level after that of Apple (100%).
We note that due to US-China trade disputes, in May 2019, Huawei lost access to Google Mobile Services (GMS). As a result, Huawei’s European market share fell to 19.3% (-5.6%p) in 2Q19, while that for Samsung Electronics (SEC) climbed to 35% (+2.7%p), the highest portion since 2017. This time around, SEC should benefit to an even greater extent, as in addition to Huawei’s loss of GMS, its AP competitiveness is likely to suffer alongside potential disruptions to production. We expect companies with significant sales portions towards SEC, such as SEMCO, MCNEX, and Partron, to benefit over the mid/long term.
Huawei likely to choose SMIC as alternative to TSMC
On the one hand, SEC’s foundry appears to have much to gain from TSMC’s suspension of accepting new orders from Huawei. At the same time, however, SEC is likely to face its own difficulties in taking orders from Huawei, as the firm also relies on US-made semicon equipment to some extent. It is highly likely that Huawei will choose Chinese SMIC as an alternative to TSMC, unless it turns to AP and modem chips developed by other companies. While its process remains at the 14nm scale, with support from the Chinese government, SMIC’s technological capabilities could strengthen going forward.