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Top US tech firms begin to cut off supply of critical components to Huawei

Impact reverberating across global supply chain, hitting some of the biggest component-makers

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The impact of the Trump administration's threats to choke Huawei Technologies Co reverberated across the global supply chain on Monday, hitting some of the biggest component-makers.

San Francisco

THE impact of the Trump administration's threats to choke Huawei Technologies Co reverberated across the global supply chain on Monday, hitting some of the biggest component-makers.

Chipmakers including Intel Corp, Qualcomm Inc, Xilinx Inc and Broadcom Inc have told their employees they will not supply Huawei till further notice, according to sources. Alphabet Inc's Google cut off the supply of hardware and some software services to the Chinese giant, another source said.

The moves, which had been anticipated, hamstring the world's largest provider of networking gear and No 2 smartphone vendor. The Trump administration on Friday blacklisted Huawei - which it accuses of aiding Beijing in espionage - and threatened to cut it off from the US software and semiconductors it needs to make its products.

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European semiconductor makers said they would still keep on supplying to Huawei, after the effects of the US ban continued to ripple across global markets. A spokesman for Infineon Technologies AG - one of Europe's largest chipmakers - said the majority of products it delivers to Huawei are not subject to US restrictions, adding that the chipmaker can "make adaptions in our international supply chain". Austria-based AMS AG also said that it had not suspended shipments to Huawei.

STMicroelectronics NV fell as much as 10.2 per cent in Paris on Monday, while Infineon dropped as much as 6 per cent in Frankfurt. Shares in AMS dropped as much as 13.4 per cent, the most in over three months. Huawei accounts for 2.35 per cent of STMicro's sales and 1.3 per cent of Infineon's, according to data compiled by Bloomberg.

Huawei said it will continue to provide security updates and sales services to customers, according to a company statement on Monday.

Blocking the sale to Huawei of critical components could also disrupt the businesses of American chip giants such as Micron Technology Inc and retard the rollout of critical 5G wireless networks worldwide - including in China. That in turn could hurt US companies that are increasingly reliant on the world's second largest economy for growth.

If fully implemented, the Trump administration action could have ripple effects across the global semiconductor industry. Intel is the main supplier of server chips to the Chinese company, Qualcomm provides it with processors and modems for many of its smartphones, Xilinx sells programmable chips used in networking and Broadcom is a supplier of switching chips, another key component in some types of networking machinery. Representatives for the chipmakers declined to comment.

Huawei "is heavily dependent on US semiconductor products and would be seriously crippled without supply of key US components", said Ryan Koontz, an analyst with Rosenblatt Securities Inc. The US ban "may cause China to delay its 5G network build until the ban is lifted, having an impact on many global component suppliers".

The ban's commencement also walloped shares of Asian tech supply chain companies on Monday. Sunny Optical Technology Group Co was again the worst performer on Hong Kong's Hang Seng Index, while Luxshare Precision Industry Co fell as much as 9.8 per cent in Shenzhen.

To be sure, Huawei is said to have stockpiled enough chips and other vital components to keep its business running for at least three months. It's been preparing for such an eventuality since at least the middle of 2018, hoarding components while designing its own chips, sources said.

But its executives believe their company has become a bargaining chip in ongoing US-Chinese trade negotiations, and that they will be able to resume buying from American suppliers if a trade deal is reached, they said. The American companies' moves are likely to escalate tensions between Washington and Beijing, elevating fears that President Donald Trump's goal is to contain China, triggering a protracted cold war between the world's biggest economies.

In addition to a trade fight that has rattled global markets for months, the US has pressured both allies and foes to avoid using Huawei for 5G networks that will form the backbone of the modern economy.

"The extreme scenario of Huawei's telecom network unit failing would set China back many years and might even be viewed as an act of war by China," Mr Koontz wrote. "Such a failure would have massive global telecom market implications."

US spy chiefs have in past days briefed American companies, investors and other important groups on the dangers of doing business with China, The Financial Times reported on Monday. BLOOMBERG

READ MORE: Google suspends some business with Huawei after Trump blacklist