14 DAY TRIAL // Huawei’s efforts to prepare for a possible ban in the United States included stockpiling a large amount of hardware components that would have allowed the company to continue its normal operations even without support from American companies.
And as it turned out, all this inventory buildup that Huawei has been making in anticipation of more US restrictions generated what an analyst from CLSA calls “fake demand,” which could now lead to a drop of the semiconductor sector in the second quarter of 2019.
In other words, Huawei purchased so many components that it created the false impression of a massive growth in the chip market, with analyst Sebastian Hou explaining that the increase reached 8 percent.
“Huawei’s inventory pre-build has helped related tech/semi suppliers to report better-than-expected or less-than-feared numbers in 1H19,” he is quoted as saying by Yahoo Finance.
Up to 1 year of worth of hardware
The downside of Huawei spending big on chips that would help prepare for the US ban is that the market is now expected to drop as the company can no longer purchase more components due to the restrictions announced by President Trump earlier this month.
“Huawei accounts for 8 to 9% of global semiconductor demand, without the inventory buildup,” Hou continued. “Half of that is gone for this quarter, so at a minimum it’s a 4% impact to the overall semiconductor sector in the second quarter.”
And despite its efforts to achieve self-sufficiency and be prepared for doomsday, Huawei can’t run only on its existing inventory.
“Before the end of this year, they will use up all the critical components,” the analyst said. “If the ban is not lifted by then, they will be in trouble.
The reason is as simple as it could be: with the tech industry evolving so fast, Huawei can’t keep up with its competitors using the existing inventory. The hardware used on mobile devices, for example, is refreshed every year, so without a licensing deal that would allow it to buy new generations of products, Huawei is really set for major struggles in several key markets.