In May, the U.S. Commerce Department banned the sale of any semiconductors made with U.S. software to China’s 5G behemoth Huawei Technologies. Now, that company’s stockpile of chips essential to its telecom business is dwindling, likely to run out by early 2021. According to sources, Huawei executives have yet to come up with a solution and, without one, the U.S. move is on track to disrupt China’s $500 billion 5G rollout. In the long-run, it could also sideline that country’s goal of dominating 5G globally

Bloomberg reports that, “the latest curbs are the culmination of a concerted assault against China’s largest tech company that began years ago, when the White House tried to cut off the flow of American software and circuitry; lobbied allies from the U.K. to Australia to banish its network gear; even persuaded Canadian police to lock up the founder’s daughter.”

The U.S. sanctioned Huawei by placing it on the Entity List, but that has failed to curb Huawei’s growth. This latest ban, however, is proving to be a serious obstacle.

Huawei has its own internal chipmaking unit, HiSilicon, created 16 years ago to research artificial intelligence inference chips. But every chipmaker in the world “needs gear from American outfits like Applied Materials to fabricate chipsets.” Jefferies analyst Edison Lee wrote that the Foreign-Produced Direct Product Rule (DPR) “focuses on HiSilicon-designed chips” and “the DPR could quash HiSilicon and then Huawei’s ability to make 5G network gears.”

If the Commerce Department strictly enforces the DPR, “HiSilicon can no longer take its designs to TSMC or any foreign contract manufacturer.” Forrester Research principal analyst Charlie Dai said that, “HiSilicon won’t be able to continue its innovation any further until it’s able to find alternatives through self-development and collaboration with local ones, which will take years to mature.”

Elsewhere, Bloomberg notes that, “Huawei Technologies owns the most patents on next-generation 5G technology, ensuring the Chinese company will get paid despite Trump administration efforts to erase it from the supply chain.” Research firms GreyB Services and Amplified AI “identified the inventions most closely connected to the 5G standards and found that six companies owned more than 80 percent — Huawei, Samsung Electronics, LG Electronics, Nokia Oyj, Ericsson and Qualcomm,” the latter the only U.S.-based company.

“Even if they hire some other company to build the 5G infrastructure, they still have to pay the Chinese company because of the intellectual contribution to develop the technology,” said GreyB Services director Deepak Syal.

The study looked at “about 6,400 inventions declared ‘essential’ to 5G by their owners that had active patents … as of Dec. 31, 2019.” A team of 25 researchers whittled that list down to 1,658 patents that are “core” to 5G. So far, Huawei has collected $1.4+ billion in licensing revenue and “paid some $6 million to other companies.”

Related:
Huawei Founder Ren Zhengfei Takes Off the Gloves in Fight Against U.S., The Wall Street Journal, 6/6/20
Senate Faults Oversight of Chinese Telecom Companies in U.S., The New York Times, 6/9/20