U.S. President Donald Trump speaks in the Rose Garden of the White House in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Trump’s Twin Attacks Against Huawei Leave U.S. Companies Reeling

(Bloomberg) -- Eastern Oregon Telecom provides broadband and telephone service to 4,000 customers in a remote corner of the Northwest U.S., keeping costs low in part by using equipment made by Chinese telecom giant Huawei Technologies Co.

Now the company, based in Hermiston, Oregon, is trying to figure out how its operations may be affected by President Donald Trump’s decision this week toward banning Huawei equipment.

“Who knows? Who knows what’s going to happen?” Joseph Franell, the company’s chief executive officer, said in an interview on Thursday. “The uncertainty just kills me.”

From service providers that fear having to replace costly equipment to massive chipmakers such as Qualcomm Inc. that could see themselves locked out of China’s lucrative market, the ripples of Trump’s latest moves against Huawei spread quickly.

Trump, citing national security concerns, signed an executive order that’s expected to bar U.S. imports of equipment made by Huawei and another Chinese company, ZTE Corp. And the Commerce Department said Huawei would be forbidden to buy from American companies, some of which supply computer chips for its products.

In a Federal Register notice released on Thursday, the Commerce Department said the new curbs would apply to Huawei and affiliated companies around the world from China to Germany and Madagascar.

The toughening stance against Huawei hurt the stocks of some U.S. companies that supply it on Thursday. Qualcomm fell 4%, Broadcom Inc. was down 2.3% and Xilinx Inc. Dropped 7.3%. Their losses helped drag down the benchmark Philadelphia Stock Exchange Semiconductor Index 1.7%.

Huawei, which doesn’t have publicly traded stock, saw its 2027 dollar bonds slump by a record amount on Friday as investors bet that the ban will formally kick in during the U.S. day.

If the administration follows through, the bans could cripple China’s largest technology company, depress the business of American chip giants, and potentially disrupt the rollout of critical 5G wireless networks around the world as Huawei gear becomes less available.

“Too much is at stake for the world’s two largest economies to not find a productive path forward,” said John Neuffer, president of the Semiconductor Industry Association, representing chipmakers such as Qualcomm and Intel Corp.

Chipmakers have to preserve their ability to do business in China, which has surpassed the U.S. to become the largest market for personal computers, smartphones and other devices that are the biggest consumers of chips.

Qualcomm, for example, got two thirds of its sales from China in its most recent fiscal year. As recently as 2011, the country accounted for less than a third.

Worldwide, U.S. companies accounted for about half of the $469 billion of chips sold last year, according to the semiconductor association. Since American companies dominate semiconductors, that could smother Huawei’s production of everything from 5G base stations to mobile phones.

Restrictions on sales “would be terrible for any Huawei supplier, and for the semiconductor industry at large,” Chris Caso, a semiconductor analyst at Raymond James, wrote in a research note.

Companies like Huawei need their U.S. suppliers, since Chinese manufacturers account for about only 3% of worldwide chip production, according to an estimate by Sanford C. Bernstein & Co. Inc.

American Jobs

“This decision is in no one’s interest,” Huawei said in an emailed response. “It will do significant economic harm to the American companies with which Huawei does business, affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain.”

China’s Ministry of Commerce spokesman Gao Feng said in a briefing that, “We resolutely object to any country, based on their own laws, unilaterally sanctioning Chinese entities.”

American suppliers also need Chinese customers. Intel, the biggest U.S. maker of chips, got more than 60% of its sales in the Asia Pacific region last year, with most of that funneling through the China and Taiwan-based supply chain.

In the U.S., purchases of Huawei network gear are confined to smaller companies attracted to lower costs after pledges not to use the supplier by four nationwide carriers AT&T Inc., Verizon Communications Inc., T-Mobile US Inc. and Sprint Corp.

Read Bloomberg Intelligence on the Impact on Taiwan Tech Sector

It’s unclear whether Wednesday’s moves would also spur action at the Federal Communications Commission, which tentatively voted more than a year ago to ban using federal subsidies for equipment from a provider identified as posing a national security risk. That prohibition requires a second vote to take effect, and the FCC has been awaiting advice from the Trump administration before acting. Brian Hart, an FCC spokesman, didn’t reply to an email and telephone message on Thursday.

Groups representing rural carriers, which take subsidies to build networks reaching remote areas, opposed the FCC rule. Now they’re worried about the administration’s next steps.

“The executive order is very vague, and broad as it can be,” said Caressa Bennet, general counsel of the Rural Wireless Association, said in an interview.

Ordering replacement parts could become a problem if transactions with Huawei are banned, Bennet said late Thursday morning.

Commerce Secretary Wilbur Ross sought to allay some concerns on Thursday.

“We do have a plan for providing a degree of relief for the rural area broadband companies,” Ross said in an interview with Bloomberg TV. “For the first 90 days they will be able to do what they need to do for maintenance of their equipment. And we’ll be having discussions about narrowing somewhat the potential of the list in order to minimize the impact on those rural companies.”

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