Huawei faces chip supply disruptions in new trade war-related twist

Huawei famously designs its own chipsets through its dedicated HiSilicon division. However, it still depends on companies such as the Taiwan Semiconductor Manufacturing Company (TSMC) to actually produce the silicon in question.

These foundries are in turn dependent on processing equipment from some US-based firms such as Applied Materials, KLA and Lam Research to make these components. Now, the same country's authorities may exploit this situation in its continuing effort to keep Huawei out of its market.

This may be done through an amendment to a piece of legislation called the Foreign Direct Product Rule, which could be used to allow the US authorities to indirectly dictate who TSMC and similar companies can take on as clients. This would be done by imposing a need for a license to do business with certain OEMs.

These new permits may be similar to those currently mandated for US companies who wish to do business with Huawei at present. Therefore, the OEM could find the supply of crucial components disrupted as a result of this potential move.

However, it may come up against opposition, not the least from the domestic processing firms who also stand to lose out as a result. For example, Lam Research and KLA have already seen their stock fall this week (starting February 17, 2020).