US Commerce Department tightens restrictions on American semiconductors

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August 17—The U.S. Department of Commerce announced it tightened access to American semiconductors to keep them out of the hands of firms on its blacklist, like Huawei. In May, the government agency issued rules which caused the Shenzhen-based smartphone maker to lose access to a crucial supplier.

The new regulations bar the telecom from buying chips made using U.S. software or technology without a license.

Why the Commerce Department Issued New Export Control

The U.S. government first took action to prevent Huawei from getting access to American technological resources last May. The ban prompted Google, Intel, Broadcom, and other companies to end their relationship with the conglomerate. However, the firm continued to gain access to U.S. chips via legal loopholes and deals with foreign enterprises.

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In response, the Commerce Department extended the ban this May to all company’s dealing with American technology. The agency’s newly issued export controls require Huawei to get a license to buy off-the-shelf tech derived from U.S. innovations from third-party sellers. In addition, the department mandated firms attempting to sell the conglomerate U.S. technology must first gain Washington’s consent.

The Commerce Department also added 38 Huawei subsidiaries to its Entity List, meaning those firms cannot do business with an American company without approval.

The Taiwanese Semiconductor Manufacturing Company (TSMC), manufacturer of the conglomerate’s high-end mobile CPUs, stopped taking its orders because of the export controls. Earlier this month, Huawei executive Richard Yu said his firm is running out of processors for its premium handsets. In light of the new Commerce Department rules, it is unlikely to acquire more in the near-term.

Huawei’s Next Steps

Given the hard-line taken by the U.S. government, Huawei probably will not be able to secure consent to buy wafers from its old partner. The company will likely have to make its well-regarded Kirin chipsets with Chinese providers going forward. The brand reportedly inked new component supply deals with Shanghai Microelectronics and Semiconductor International Manufacturing Corporation (SMIC), but those manufacturers lack TSMC’s technological prowess.

That said, SMIC founder Richard Chang Rugin recently said he’s “optimistic” about his company’s ability to produce cutting-edge chipsets. In July, Seeking Alpha reported the firm could begin mass-producing 7nm chips as early as 2021. While not top of the line, 7nm wafers would support the latest version of Kirin architecture.

The Chinese brand also raised $7.57 billion on the Shanghai Stock Exchange, so it has research money to burn.

At present, Huawei’s best course of action is to produce mid-range 5G handsets for consumers in the Chinese market. Doing so will provide it with a steady stream of revenue, at least in the short-term. But in the long-term, it needs a non-American manufacturer to produce high-performance chipsets to remain competitive.

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