Huawei is reportedly reducing or cancelling orders to major suppliers for components that go into its smartphones and telecom equipment, following the blacklisting of its products in the U.S., according to Nikkei.
The cuts could total as much as 30% of orders and are likely a continuing sign that the U.S. crackdown on the company is hitting it where it hurts: its production and financials.
This puts Huawei at risk of losing its leading market share, as the industry approaches 5G wireless going mainstream. And the company's main competitors, Ericsson and Nokia, are likely licking their chops in close pursuit of the company's top spot.
Taiwan Semiconductor confirmed that orders from Huawei have declined since it was hit with the U.S. ban. TSMC Chairman Mark Liu said: "For us, we do see demand from Huawei decreasing but we could not tell what's the reason behind this."
"We see that the demand from a local high-end smartphone company is going down globally," he continued, likely alluding to Huawei.
Additionally, Taiwan-based Auras Technology, a top supplier of cooling modules for Huawei devices, said one of its "Chinese customer's" orders were affected, without naming Huawei individually. A representative at a Huawei supplier that makes power-related components said that the Chinese company had suspended some orders.
The source said: "We are seeing Huawei canceling some key component orders for their base-station business beginning in June, while it also notified us that it will suspend parts orders for their smartphone business after the summer. We don't know the exact reason for the suspension and have no idea whether that could resume, but it may be that they cannot receive all the necessary materials for production after the U.S. ban."
Matthew F.C. Miau, chairman of MiTAC-Synnex Group, which counts Huawei as one of its clients, said: "They told me that they have preparation for this, but I am not sure whether they are just refusing to lose. The U.S. does not allow them to use [American technology] and this is a serious matter."
The company has downgraded its forecast for total smartphone shipments in the second half of 2019 by "about 20% to 30%".
Additional suppliers worldwide must also comply with the new U.S. regulations if they are indirectly shipping U.S. technologies to Huawei. "Suppliers are receiving different ranges of order adjustments," a source told Nikkei.
They continued: "Suppliers mainly for markets outside of China were affected the most, while some suppliers that help Huawei in its home market actually benefited from the rising demand amid patriotic sentiment."
Huawei has said that its production levels remain normal and sources close to the company downplayed the "adjustments" to its component orders. Huawei reportedly was preparing for the U.S. crackdown 6 months ago when its CFO was arrested in Canada. At the time, the company reportedly "stockpiled crucial chips and other components, building up a three-month to as much as 12 months" backlog.
It now appears unclear whether or not the reduction in part orders signals an immediate fall of production or just the company tapping into its backlog.
Meanwhile, the U.S. ban may be having wider ranging effects than Huawei planned for. In addition to the hardware ban, Google has suspended Android updates and Gmail, while U.S. chip design tool provider Synopsys has also stopped providing crucial software updates.
At the same time, wireless operators in Japan, Taiwan and the U.K. have pulled launches of new Huawei smartphones. This has resulted in continued pressure on the company's handset business, a segment in which overseas sales account for 50% of revenue.
The U.S. ban has also resulted in lower consumer confidence in Huawei's products.
Remus Hsu, an analyst at Market Intelligence & Consulting Institute said: "We do find operators globally become more reluctant to place new orders to buy Huawei's 5G telecom equipment, as they are now uncertain whether Huawei could continue to deliver products that it promised without U.S. support."
Hsu said Huawei could fall behind Ericsson and Nokia in market share this year. Huawei currently has 28% global share, with Ericsson at 26% and Nokia at 18%. He said: "The more worrisome thing is for next year, as most carriers are really concerned whether Huawei could still ship and work on their next generation of products."
Stephane Teral, executive director and a telecom infrastructure analyst at IHS Markit, said: "U.S. vendors now have to figure out where on earth they can find a large customer like Huawei. It's harmful for everyone. I think Huawei has been preparing for this catastrophic event for a long time and will be able to navigate through the turbulence. Huawei will likely lose market share but may be able to stay No. 1 helped by the dynamics of its home market."
As we pointed out days ago, Huawei does indeed have a long and illustrious track record of corporate espionage and theft. And in an amusing interlude, late on Monday night, Huawei again said it is willing to sign "no-spy" agreements with countries, something which many have suggested would not be offered if Huawei's track record and current operations were within the confines of the law.