August 24, 2020 -- On August 17, the U.S. Department of Commerce announced the latest revisions to its Entity List, which now includes 38 additional Huawei subsidiaries. Suppliers are prohibited from providing semiconductor products and components manufactured with U.S. equipment and software to Huawei and its subsidiaries. TrendForce provides the following analyses on the impacts that the expanded sanctions against Huawei have on five tech industries, including semiconductors, memory products, smartphones, display panels, and 5G communications.
Although MediaTek is confirmed to be unable to ship its smartphone APs to Huawei following the August 17 announcement, MediaTek may subsequently look to other high-end smartphones as its target market in 2021 and raise its 5G AP market share. At the same time, Unisoc may become the AP provider of choice for Chinese smartphone brands’ entry-level models.
Huawei accounts for a relatively large revenue share for other companies, including RF IC manufacturer Richwave and China-based fingerprint sensor manufacturers Goodix and Silead. Of the above three, Richwave may continue shipping its new WiFi 6 products, which according to preliminary investigations do not contain U.S. technology, to Huawei following the latest restrictions. On the other hand, Goodix is expected to be affected to a larger degree since optical FoD (fingerprint-on-display) chips, which are part of its portfolio, are mostly outsourced to 8-inch fabs, making it difficult to eliminate U.S. technology from the manufacturing process.
Novatek and FocalTech are the chief suppliers of TDDI for Huawei. The latest trade actions will have a limited impact on Novatek, thanks its diverse clientele and product portfolio. FocalTech will be affected to a much higher degree in the short run due to its focus on China. Nevertheless, FocalTech may be able to compensate by capturing more orders from other Chinese clients.
TrendForce previously forecasted a 1.3% YoY revenue decline in 2020 for the CIS (CMOS image sensor) industry due to the poor sales performances of the smartphone and automotive markets, which are the primary markets for CIS applications, as a result of the COVID-19 pandemic. After the latest restrictions on Huawei by the U.S. government on August 17, TrendForce is now further increasing the forecasted decline in CIS revenue to 1.5% in consideration of Sony’s inability to ship its high-end camera modules to Huawei.
With regards to foundries, TSMC, SMIC, and Win Semi rank as the top three companies in terms of revenues from Huawei’s wafer input. Huawei has completely stopped placing wafer input orders at TSMC, while SMIC and Win Semi will also stop shipment to Huawei in accordance with U.S. sanctions.
Since most of the DRAM/NAND Flash supplied to Huawei are commodities, memory suppliers can ship these products to other clients instead. Stagnant inventory caused by the sanctions will thus have a limited impact on memory suppliers. Furthermore, Huawei’s demand for memory products is similar to that of Xiaomi, OPPO, and Vivo, which are all expected to take over Huawei’s market share in the future. As such, there will be no drastic changes to the strength of demand in the global memory market.
TrendForce maintains its forecast of 190 million units produced by Huawei in 2020 based on Huawei’s existing inventory and the assumption that some components can still be supplied to the company before September 15. However, should Huawei be completely prohibited from obtaining components containing U.S. technology after September 15, TrendForce will revise the forecast of Huawei smartphone production for 2021 down to about 30-50 million units, the key to which is whether Huawei will be able to access the necessary components. Xiaomi, OPPO, and Vivo are expected to cannibalize the majority of Huawei’s market share. But if suppliers are permitted to resume component shipment to Huawei after review, the smartphone brand can then be expected to manufacture more than 100 million units in 2021, albeit still a lower figure than previous forecasts.
Production capacity is plentiful for AMOLED panels. However, there are differences in technological capability among suppliers, so the closeness of the relationship that suppliers have with each of their respective clients varies. Given the reduction in Huawei’s panel demand, the competition among panel suppliers for clients could intensify, thereby accelerating the decline in AMOLED prices.
Following Apple, Huawei is the second largest user of LTPS panels among smartphone makers. Hence, a drop in Huawei’s demand would put pressure on suppliers of LTPS panels, as other Chinese smartphone brands might not be able to completely fill the demand gap due to their own product strategies.
5G Base Stations
Although the U.S. has issued sanctions against Huawei for some time now, the actual ban has been constantly delayed, in turn giving Huawei sufficient time to plan for the worst-case scenario where it can no longer obtain components from suppliers. Case in point, one of Huawei’s responses is the mass purchase of base station chips, which are products with long lifecycles. Huawei’s inventory of 5G base station chips is estimated to be sufficient until 2021. At the moment, Huawei uses its Tiangang chips, developed in-house, for baseband chips contained in its 5G base station AAU and BBU. These chips are manufactured with 7nm process technology and primarily by TSMC. If TSMC stops supplying these chips to Huawei as a result of U.S. sanctions, this will directly affect Huawei’s shipment of 5G base stations, leading to delays in Chinese mobile network operators’ 5G network deployment in 2020.
Huawei had been highly dependent on U.S. suppliers for base station components before it was first sanctioned by the U.S. government in 2019. After 2019, the company stepped up its effort to lower its dependence on U.S. suppliers for RF components, which are now mainly supplied to Huawei by Japan-based Murata and Sumitomo. On the other hand, Huawei’s optical communications supply chain will not be impacted by the latest sanctions, as it is largely independent of U.S. technology.