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China Will Remember the U.S. Huawei War for a Generation

Only an idiot would believe that the U.S. is blocking TSMC manufacture of Huawei cell phone chips because of security fears. This is a commercial rivalry. The U.S. wants to put China’s leading technology company out of business.

We will fail, of course, at a price far higher than D.C. understands. The U.S. is ready for China’s immediate countermeasures, even if Apple’s stock price falls $hundreds of billions. But the long-run price will be devastating.

Giant German companies have been quietly turning away from U.S. components just in case they become the next target of U.S. wrath. When I discovered that last year, I wrote The unbelievably high cost of the war against Huawei.

This escalation means any sensible multinational manufacturer will do what is necessary to avoid becoming a pawn in battles between the U.S. and our perceived enemies. Volkswagen, Mercedes, Toyota, Honda, and BMW sell millions of cars in China. They’d be fools to be dependent on U.S. electronic parts. Their managers are not fools. They will quietly find other suppliers in Europe or Asia.

Huawei spends $20 billion a year on research and development. They can and have replaced almost everything sourced from the U.S. That’s why the U.S. is going after Huawei’s one external bottleneck, Taiwan’s TSMC. TSMC and Samsung are the only plants in the world, capable of producing advanced 5G chips.

Huawei Smartphone Components Supplier Share in Percent / By Value: excluding displays / Source: Fomalhaut Techno Solutions

It will be several years before the Chinese can catch up in chip manufacturing, especially with the U.S. blockading Chinese purchases of chipmaking equipment, including EUV machines from the Netherlands. But they will find a way.

Huawei is a $120 billion company, larger than Cisco, Nokia, and Ericsson combined. It has $35 billion cash in the bank, more than enough to tide it over until it can bypass the U.S. It is a national champion that China will protect by any means necessary.

In a year, Huawei went from almost nothing to a world-class manufacturer of the crucial cellphone radio frequency parts. It is now making optics for some of the most advanced fiber systems.

98% of the parts in Huawei phones can already be sourced outside the U.S. Mediatek, Samsung, and UNISOC can provide an alternate source of 5G phone chips. Huawei has already shifted major orders from TSMC to SMIC in China, which is rapidly expanding.

Harmony/Hong Meng is already a decent substitute for Google’s Android. It can’t run all the Android apps, which is hurting sales in Europe, but that will be fixed, possibly in months.

Every schoolchild in China learns about the “unequal treaties” imposed by Britain, Germany, and America after the Opium Wars. Most Americans don’t know our ignominious history. Everyone in China does.

By Dave Burstein, Editor, DSL Prime

Dave Burstein has edited DSL Prime and written about broadband and Internet TV for a decade.

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Excellent analysis Anthony Rutkowski  –  May 22, 2020 4:43 PM

As harmful to the U.S. as your analysis indicates, the ultimate harms go far further on every level.  The only benefit is the pandering to Trump’s ego.  Just as his stupidity if not depravity have cost millions their lives in the Pandemic, so has he harmed the U.S. telecommunications capabilities and global marketplace opportunities.

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