New restrictions on the sale of U.S. components to Chinese tech giant on September 15 Huawei entered into force. These rules would have prevented Intel (NASDAQ: INTC), AMD (NASDAQ: AMD), and other US chipmakers to sell new chips to Huawei.
But shortly after that deadline expired, Intel and AMD announced that they had obtained special government licenses that will allow them to continue selling chips to Huawei. Let’s take a look at how Intel and AMD got these licenses and what they mean for the tech war between the US and China.
Why does Huawei need American chipmakers?
Huawei installs x86 processors from Intel and AMD in its PCs and servers, as well as Altera FPGA (field programmable gate array) chips from Intel in its 5G base stations. Huawei is developing its own Arm-based processors through its subsidiary HiSilicon, but these chips are less powerful than Intel and AMD chips. Huawei depends on Semiconductor manufacturing in Taiwan (NYSE: TSM) to produce these chips – but the Taiwanese contract chipmaker stopped taking orders to comply with stricter U.S. regulations earlier this year.
These restrictions have also curtailed Huawei’s smartphone activity. Qualcommof (NASDAQ: QCOM) mobile chips. To make matters worse, NVIDIAof (NASDAQ: NVDA) The planned takeover of Arm Holdings could eventually cut HiSilicon and other Chinese chipmakers from Arm-based designs – which account for more than 95% of all smartphone chips in the world.
Simply put, the United States could have cut Huawei out of the industry’s most powerful PC and mobile chips with its latest restrictions. That’s why the 11-hour license approvals for Intel and AMD were surprising – the United States clearly had Huawei on the ropes, but it’s now backing down and giving the Chinese tech giant time to recover.
Why would the government license Intel and AMD?
Details of the new licenses are vague, but they would allow Intel and AMD to sell “certain” types of chips to Huawei.
AMD’s EESC (enterprise, in-vehicle and semi-custom) chief Forrest Norrod recently said that based on his recent license approvals, the chipmaker would not experience a “significant impact” from the latest restrictions commercial. Intel was less receptive to the overall impact on its business and simply confirmed that it could sell chips to Huawei again.
AMD’s statement suggests that the two chipmakers will continue to sell PC and server processors to Huawei. Intel is already supplying server-class processors to Inspur, China’s largest server company, and said in July that the latest trade restrictions will not affect those shipments. Intel used to supply supercomputer-class chips to the Chinese government, but the Obama administration banned these shipments five years ago. As a result, Intel’s PC and data center business in China is expected to remain fairly stable.
However, Intel’s FPGA business, which generates most of the revenue of its Programmable Solutions Group (PSG), faces a less certain future in China as its Altera chips power Huawei’s 5G stations (this is a point lightning bolt in the growing technology war between the United States and China.). Intel’s statement regarding “certain” types of chips suggests these chips may still be banned.
However, Intel can afford to lose these orders since its PSG activity generated only 2.5% of its turnover in the last quarter. Intel is not disclosing the exact revenue for the PSG segment in China, but we do know that the chipmaker generated 28% of its total revenue in China last year. As such, Intel’s FPGA sales to Huawei are likely less than 1% of its total revenue.
Hesitation on both sides
These new license approvals should allay some concerns about the future of Intel and AMD in China, but they also indicate that the Trump administration is not ready to cut Huawei off US chips entirely. This reluctance reflects the Chinese government’s reluctance to blacklist US tech companies.
The two sides seem hesitant as their technologies and activities are still too closely linked. Additionally, cutting Huawei off of US chips would force Chinese chipmakers to speed up development of their own domestic chips – potentially hurting US chipmakers in the long run.