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(Bloomberg Opinion) -- Taiwan Semiconductor Manufacturing Co. was expected to be severely hurt by a U.S. ban on producing chips designed by Huawei Technologies Co., one of its largest clients.The opposite seems true. The Taiwanese chip foundry posted earnings Thursday that far surpassed estimates, and went on to raise its revenue and spending guidance for this uniquely troubled year. Not only does Huawei make a large slice of the world’s telecommunications network equipment, it’s also a major international smartphone brand. To power a lot of that gear, it designs chips at its own HiSilicon unit that are manufactured by TSMC. But a May 15 edict from the U.S. Department of Commerce banning the use of American technology to make chips for Huawei has forced the Taiwanese company to stop taking orders from its Chinese client. Given that Huawei is the company’s second-largest customer behind Apple Inc., the move was widely expected to deliver a body blow to TSMC, especially in orders for its latest manufacturing technology.TSMC has barely flinched.The supply chain will adjust, Chief Executive Officer C.C. Wei told investors bluntly.In other words, the broader trends toward 5G mobile networks and smartphones, coupled with high-performance computing products (such as artificial intelligence and graphics) means that if end-customers don’t buy from Huawei, they'll find someone else. And that alternative supplier is going to turn to TSMC for chips.So far, it looks like Nokia Oyj and Ericsson AB will replace Huawei in networks. In smartphones, brands from Xiaomi Corp. to Apple Inc. may benefit, while Huawei itself can ship devices using semiconductors from third-party designers like Qualcomm Inc. and MediaTek Inc.Asked how the Huawei ban would impact TSMC’s ability to fill up its multi-billion dollar factories, Chairman Mark Liu said that the company is progressing well in using any capacity left open. He’s putting his money where his mouth is. The company will now add another $1 billion for spending on new equipment in its 2020 plan, taking the budget as high as $17 billion.As if to prove the naysayers wrong, TSMC went one step further by raising its revenue forecast. In April, it expected sales would climb a “mid to high single digit percentage” this year. Now, the company reckons it will top 20% growth.It’s almost as if the Covid-19 pandemic and the Huawei ban had never happened. Companies are installing new servers, stay-at-home workers are buying computer monitors, and quarantined consumers are whiling away the hours on games consoles. What it comes down to is that in any scenario, electronics are being bought and semiconductors are running them.Inevitably, that means the world still needs TSMC.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- With Huawei Technologies Co. barred from Britain’s future wireless networks, its two European rivals look set to split the market.The ban -- forcing phone companies to remove 5G Huawei equipment by 2027 and stop buying it by the end of this year -- is a blow to the industry, which had lobbied hard to keep Huawei, and not just because of the burden of having to redesign the next-generation networks they were already building.Read more: U.K. Bans Huawei From 5G Networks in Security Crackdown It also turns Britain’s wireless radio equipment market into an effective duopoly of Finland’s Nokia Oyj and Ericsson AB of Sweden. The companies that run Britain’s communications infrastructure will be bracing for higher prices and will have little choice but to use both Nokia and Ericsson if they are to avoid becoming dangerously reliant on either vendor.“In the short term, carriers can play one supplier off against the other,” said James Barford, an analyst at Enders Analysis. “But a medium- to long-term consequence of not having Huawei means less pricing tension in the market.”Huawei has been popular with carriers because of its competitive pricing, and its emphasis on research and development, which often gave its gear a technological edge.Carriers tend to get the best equipment deals in the early stages of a network rollout because suppliers are willing to sacrifice profits to win a decent slice of the market. Removing Huawei from the mix so early in the cycle for the 5G upgrade means the phone companies miss an opportunity for steeper discounts.The two European suppliers have a further opportunity to entrench their position against newcomers as carriers will need to swap out some of their Huawei 4G gear for Nokia and Ericsson equipment before installing 5G.Act NowTuesday’s decision was especially welcome for Nokia, which has struggled to gain traction in 5G equipment. Cormac Whelan, chief executive officer for Nokia in the U.K. and Ireland, said “we have the capacity and expertise to replace all of the Huawei equipment in the U.K.’s networks at scale and speed.”Ericsson Vice President Arun Bansal said carriers can prevent increased costs and substantial delays by swapping out Huawei equipment sooner.“The whole mobile infrastructure is built with swaps every five to seven years, depending on the technology cycle,” he said. “The longer it takes to swap, the more cost operators have.”When the U.K. government began planning Huawei restrictions earlier this year, it opened talks with Japan’s NEC Corp. and Samsung Electronics Co. to determine whether those companies could replace Huawei, a person familiar with the matter said at the time. But there’s been no word of progress on those talks since early June when they were reported by Bloomberg.Read more: U.K. Opens Talks With Huawei Rival as Johnson Confronts China“As a global provider of 5G network solutions, we would welcome the opportunity to support the U.K.’s 5G network roll-out,” Samsung said in an emailed statement.A representative for NEC didn’t immediately respond to a request for comment at its European offices.Even if a company like Samsung was able to step into Huawei’s place for 5G, it would have to make technology that works with the older 2G and 3G standards that still exist in U.K. networks. European operators like to use compatible gear for all of the generations of wireless service, which makes it easier to allocate signal across the technologies and use their spectrum more efficiently, Enders’s Barford said.Open ArchitectureCarriers are also trying to help themselves by lobbying for a more open network architecture that would make it easier to plug in parts from different suppliers.Read more: Huawei Scare Pushes Carriers to Tackle Dominance of 5G SuppliersVodafone has begun issuing small contracts for OpenRAN, an initiative that aims to standardize radio access network hardware and software. CEO Nick Read said last October that Vodafone was “ready to fast track it into Europe as we seek to actively expand our vendor ecosystem.”However keen carriers are to introduce an open standard, availability may be limited for years to come.“Within the time of the Huawei switch out, there will be some OpenRAN options,” said Robert Grindle, an analyst at Deutsche Bank AG. “I wouldn’t be surprised if there were OpenRAN adoptions within the six-and-a-half year time frame.”(Updates with detail on fiber rollout disruption from eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Huawei Technologies Co. has gone from a crucial component of U.K. and French mobile networks to potential outcast, after resistance and compromises began to give way to a relentless White House campaign.Both countries indicated this week that they’re taking steps to reduce their reliance on the Chinese company -- with the U.K. considering a phase out of Huawei’s role set to begin as soon as this year and French cybersecurity agency Anssi imposing a waiver system that’s likely to severely limit its use.Read more: France Begins to Sideline Huawei From Its Mobile NetworksA year ago, things were looking far more optimistic for the Chinese company. Britain’s intelligence and security committee said last July that barring Huawei would make networks less resilient to malicious attacks. The committee’s reasoning was that it would reduce competition and leave the U.K. dependent on just two suppliers -- Nokia Oyj and Ericsson AB.U.K. Prime Minister Boris Johnson attempted a compromise in January, allowing carriers to use Huawei equipment to build out their 5G systems as long as they capped it at 35% and agreed not to use it in sensitive network cores.But pressure from the U.S. has only increased and European governments and carriers have found themselves having to choose sides between two world powers. President Donald Trump’s administration has piled on sanctions, making it more and more difficult for European carriers to access products from the world’s biggest maker of telecommunications equipment.“Huawei’s R&D spending growth has been accelerating recently,” said Neil Campling, an analyst at Mirabaud Securities. “Their advances relative to the Western peers are significant, and so the U.S. is using everything it can in its political power -- whether that’s trade sanctions, official agreements, unofficial agreements - to try and slow China’s advances.”Huawei Vice President Victor Zhang urged the U.K. to assess the long-term impact of U.S. sanctions before deciding to exclude the company’s products.“It is too early to assess their long-term impact. This means it is also premature to make a considered judgment on our ability to deliver next-generation connectivity across the U.K.,” Zhang said in a call with reporters on Wednesday. “Now is not the time to be hasty in making such a critical decision about Huawei.” Huawei has consistently denied that it’s a security risk and that it operates independently of the Chinese government. Huawei spokesman Paul Harrison argued on Twitter that the U.S. is unfairly dictating U.K. policy with its sanctions and that they threaten the U.K.’s 5G rollout.Like the U.K. France tried to find a middle ground. In May 2019, Macron told Bloomberg Television he didn’t intend to capitulate to U.S. pressure, though the government had already restricted the amount and location of Huawei equipment used in its networks. As wireless carriers prepare to roll out 5G, the country will likely add additional restrictions on Huawei’s access.The Trump administration, which wanted Europe to ban Huawei outright because of concerns that the Shenzhen-based company’s equipment was vulnerable to infiltration by Chinese spies, hit back.Trump berated Johnson in a call after the U.K.’s announcement, a person familiar with the matter said at the time, and Vice President Mike Pence didn’t rule out that the clash could affect trade talks for post-Brexit Britain in a CNBC interview in February.Even U.S. House Speaker Nancy Pelosi weighed in, warning European allies in a security conference in Munich that month that it would be dangerous to rely on the company. And U.S. ambassador Richard Grenell tweeted that nations using an “untrustworthy vendor” for 5G risked intelligence sharing.Read more: How Huawei Landed at the Center of Global Tech Tussle: QuickTakeNow France has effectively shut out Huawei in all but name, by only allowing time-limited authorizations of between three and eight years for local telecoms providers to use Huawei equipment. The move poses a technical challenge for companies like Bouygues and SFR, which will now be forced to think twice before slotting Huawei 5G kit on top of their 4G systems if they face the risk of dismantling Chinese equipment in the near future.There are still European markets to be fought over. The German government is struggling to settle on rules that would require security certification for vendors in the 5G network. Earlier senior Chinese officials highlighted German car companies – the crown jewel of Europe’s biggest economy – as a potential target for retaliation if Huawei is banned from their markets.The fatal blow for Huawei’s relationship with Europe may have come in May when the U.S. banned the company from sourcing microchips that use American technology.The prevalence of chips that are made with or incorporate U.S. technology caused New Street Research analyst Pierre Ferragu to declare in May that “Huawei has 12 months left to live.”Those sanctions were so severe they prompted British security services to re-open their review of how secure and sustainable a supplier Huawei could be in national networks. That review has now been completed and sent to U.K. digital and culture secretary Oliver Dowden. He said they were “likely to have an impact on the viability of Huawei as a provider” and more details on the U.K.’s next steps will come soon.(Updates with Huawei comments in eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.