Samsung, SK, LG to suspend ties with Huawei
A woman visits the Huawei P40 Pro+ stand at the IFA consumer technology fair in Berlin amid COVID-19, Sept. 3. Reuters-Yonhap
By Kim Yoo-chul
By Baek Byung-yeul, Kim Yoo-chul
After U.S. Secretary of State Mike Pompeo's request for countries to join Washington's move to restrict the direct or indirect use of U.S. technology by Huawei, its top Korean suppliers are rethinking their partnerships with the Chinese tech company.
Pompeo said in a press statement Aug. 17 that Washington urges its allies and partners to join its anti-Huawei campaign.
“The Department of State strongly supports the Commerce Department's expansion of the Foreign Direct Product Rule, which will prevent Huawei from circumventing U.S. law through alternative chip production and provision of off-the-shelf (OTS) chips produced with tools acquired from the United States,” Pompeo said in the statement.
The Commerce Department also added 38 Huawei affiliates to its Entity List, which identifies foreign parties prohibited from receiving certain sensitive technologies, while allowing Huawei's Temporary General License (TGL) to expire.
The United States has provided ample time for affected companies and people ― primarily Huawei customers ― to identify and shift to other sources for equipment, software and technology and wind down their operations, the statement said, adding, that time was up.
A few weeks after the statement, industry officials said Huawei's top Korean suppliers ― Samsung Electronics, SK hynix, Samsung Display and LG Display ― were rethinking their partnerships with the Chinese firm and suspending sales of memory chips and high-end smartphone panels for use in its consumer products.
“Amid the tightening rules on Huawei by the Trump administration, there's no option but to temporarily suspend the sale of components to Huawei,” a high-ranking industry executive told The Korea Times.
Huawei buys “billions of dollars” of memory chips and display panels annually from Samsung Electronics, SK hynix, Samsung Display and LG Display. The suspension of trade will be effective from Sept. 15, the day a new set of rules limits dealing with the Chinese company.
“It's just impossible for Samsung and SK hynix to completely cut their partnerships with Huawei given the significance of the trade volume,” the senior executive said. “But because the Huawei issue is a political one, the Korean suppliers will be breaking ties with Huawei, possibly terminating their contracts with the Chinese tech company.”
In response to the possibility of cutting off Huawei, Samsung said it cannot confirm client-related issues, a stance reiterated by SK hynix. Samsung Display and LG Display said they will follow moves taken by the two chipmakers.
The key question is how the Huawei issue will affect prices in the memory chip and display industries as price moves are considered the key barometer of profitability for the Korean firms.
“Part of the strength in the first half of this year in terms of chip prices was driven by changes from the pandemic, but an important addition was inventory built up by companies in China that were worried about trade restrictions,” technology analyst Jim Handy said. “This year COVID-19 and the trade war have made forecasting more difficult. I expect DRAM (dynamic random-access memory) prices to go down unless the trade war tensions increase. This would create a temporary increase.”
Also in the display industry, the increasingly restrictive Huawei bans could reshape the sector as Samsung Display and LG Display, the world's top display suppliers, are expected to clear their inventories possibly below market price.
“Because Huawei is using premium displays for its high-end gadgets from Samsung and LG Display, the disruption will gravely affect panel price moves,” an LG official said.