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Qualcomm Lobbies U.S. to Sell Chips for Huawei 5G Phones

08/08/2020 | 06:14am

By Asa Fitch and Kate O'Keeffe

The American chip company Qualcomm Inc. is lobbying the Trump administration to roll back restrictions on the sale of advanced components to the Chinese telecom giant Huawei Technologies Co., wading into the intensifying technology battle between the U.S. and China.

Qualcomm is telling U.S. policy makers their export ban won't stop Huawei from obtaining necessary components and just risks handing billions of dollars of Huawei sales to the U.S. firm's overseas competitors, according to a presentation reviewed by The Wall Street Journal that the San Diego-based company has been circulating around Washington.

Qualcomm is lobbying to sell chips to Huawei that the Chinese company would include in its 5G phones, which use the new standard for superfast telecommunications. U.S. chip makers need a license from the Commerce Department to ship many such components to Huawei after the federal government placed the company on an export blacklist and imposed other limits.

With those restrictions, the U.S. has handed Qualcomm's foreign competitors a market worth as much as $8 billion annually, the company said in the presentation.

U.S. officials have for more than a year argued that placing restrictions on Huawei is necessary because they see it posing significant national-security risks regarding links to the Chinese government, a stance some U.S. allies are beginning to embrace. Last month the British government said it would bar telecom companies from purchasing new equipment made by the company. Huawei denies it is a threat and says it operates independently of the Chinese government.

Qualcomm's campaign seeks to seize upon the Trump administration's sometimes competing policy priorities of confronting Chinese security threats while ensuring the financial health of U.S. companies critical to American technological competitiveness, many of whom have significant business interests in China. It also underscores how U.S. efforts to restrict sales of semiconductors to China are rippling through complex manufacturer and customer relationships in an industry that spans the globe.

A Commerce Department rule change in May targeting Huawei's chip-making arm, HiSilicon, has effectively shut down its future production of the most advanced semiconductors. But U.S. companies can't easily swoop in and supply replacement chips to Huawei because of the license requirement, leaving the door open for foreign companies to win that business. The policy has "inadvertently created massive financial opportunities for the two foreign competitors of Qualcomm," the company said.

Qualcomm said Taiwan's MediaTek Inc. and South Korea's Samsung Electronics Co. would benefit.

"If Qualcomm is subject to export licensing, but its foreign competitors are not, U.S. government policy will cause a rapid shift in 5G chipset market share in China and beyond," the American chip maker said. That would hamper American research and leadership on 5G issues, it said, calling that "an unacceptable outcome for U.S. interests."

Samsung declined to comment. MediaTek wouldn't discuss specific customers, but it said its investment in 5G technology has allowed it to win customers globally.

Granting a license would generate billions of dollars in sales for Qualcomm and help it fund development of new technologies, the company argued. Denying the license would help Qualcomm's foreign competitors, it said, while hardly affecting Huawei because it can source components elsewhere.

The lobbying coincides with Qualcomm's resolution of a long-running patent-rights dispute with Huawei. Under the deal reached last month, Huawei agreed to pay $1.8 billion to settle past licensing fees and backed a multiyear license agreement going forward.

The two sides had been negotiating a settlement for months, and there wasn't a connection with the lobbying effort, according to a person familiar with the matter. Qualcomm had applied for a license to sell 5G chipsets to Huawei in June, before the settlement was reached.

Huawei was a significant customer for Qualcomm until last year, when the Commerce Department blacklisted the Chinese company. Qualcomm Chief Financial Officer Akash Palkhiwala told analysts in late July that the company's business with Huawei is now negligible.

"We're working hard to figure out how to sell to every [manufacturer], including Huawei," Chief Executive Steve Mollenkopf said during the earnings call.

Qualcomm has been at the center of the U.S.-China political firestorm before. In 2018, President Trump blocked a $117 billion bid for Qualcomm from Broadcom Inc., then based in Singapore, on concern that the combination would hinder the U.S. in its technological competition with China.

The Commerce Department's restrictions still permit chip makers to do some business with Huawei, sometimes by moving manufacturing overseas or supplying Huawei indirectly. In other cases, suppliers have determined that certain products aren't subject to U.S. restrictions and resumed selling them to Huawei. While Qualcomm needs a license for its flagship 5G chips, the U.S. company has been able to continue shipping some other components to Huawei because those comply with government regulations.

Other American chip makers have applied for and in some cases received licenses to deal with Huawei, including Intel Corp., the largest semiconductor company in the U.S. in terms of revenue; Micron Technology Inc., a major memory manufacturer; and Xilinx Inc., a maker of programmable chips that are used in telecommunications infrastructure.

Write to Asa Fitch at asa.fitch@wsj.com and Kate O'Keeffe at kathryn.okeeffe@wsj.com

 

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