U.S.-China Cold War Hits Semiconductor, Telecom Industries

The tech Cold War between the U.S. and China is doing more than disrupting manufacturing: it’s costing a fortune, particularly for the telecommunications and semiconductor industries, in which President Trump has blocked leading companies from both countries from doing business with one another. Chinese companies can no longer do business in the U.S. and U.S. companies are blocked from exporting to Chinese companies. Lost business and the need to replace gear are likely to cost billions of dollars.

The Wall Street Journal reports, “U.S. chip makers worry that the loss of sales to China will mean less money for research and development, making it hard to continue producing the cutting-edge chips that have made the U.S. the global leader in the semiconductor industry.”

It adds that another risk is the slowdown of “high-speed telecom access throughout Europe and rural America, regions that bought Chinese-made wireless and Internet equipment after Washington effectively banned such hardware from major U.S. networks back in 2012.”

With U.S. restrictions disrupting its supply chain, China’s Huawei Technologies — which had $123 billion in sales last year — is thus far the “biggest casualty” of the Cold War. A Huawei spokesperson said it won’t have “an estimate of the financial damage” from U.S. bans until next year, and deputy chair Guo Ping said “survival is the goal,” with its consumer division, which accounts for most of its 2019 revenue, facing “the biggest challenge.”

But, notes WSJ, “the effect of Huawei’s problems … extend well beyond the company … [and] also will have a big impact on companies in the U.S., Europe and Asia that design or make computer chips sold to Huawei.” Huawei reported it spends $11+ billion a year on U.S. parts. A U.S. official “acknowledged that American suppliers would bear some costs … [and there] are currently no plans … for the government to help these companies offset those costs.”

In Europe, said wireless executives, without 5G networks, its tech and manufacturing sector will “fall behind on developing 5G-dependent technologies such as driverless cars and robot-run factories.” In the United Kingdom, Oliver Dowden, minister in charge of digital issues, said the Huawei ban “could delay the development of 5G by two to three years and cost up to roughly $2.6 billion to replace Huawei equipment.”

The UK “could lose billions as a result of the delay … [due to the loss of] increased productivity and new business opportunities.”

Boston Consulting Group reported that, in 2018, “the U.S. semiconductor industry had $226 billion in revenue and 48 percent of the global market,” but that “both figures were expected to decline in coming years because of China’s growing competitiveness … [and] U.S. export controls could make that decline steeper and faster.” Its report estimated it would drop to $190 billion in revenue and 40 percent market share within three years “under existing conditions.”

If the tech Cold War escalates, “those figures would plunge to $143 billion and 30 percent, putting China and South Korea in place to lead the global industry.”

Related:
The U.S.-China Conflict Over Chips Is About to Get Uglier, Bloomberg, 10/24/20