Huawei Ban Hurts Broadcom, Micron—But May Help Qualcomm and Ericcson

When the U.S. decided to ban Huawei, it was intended as a backhanded slap over claimed security risks, as Fortune has previous reported. But after striking the face of the Chinese telecommunications giant, the impact kept traveling and has hit multiple U.S. firms right in the earnings.

The ban—actually, the addition of the company to the Department of Commerce’s “Entity List”—is a two-way restriction on Huawei. Not only can it not sell products into the U.S., but American companies—particularly in high tech—face severe restrictions on what they can deliver to the Chinese company.

“Technology as defined in the export regulations can’t be sold to Huawei without a license,” said Doreen Edelman, a partner at law firm Lowenstein Sandler and chair of the global trade and policy group. “Companies have to figure out how to change their supply chains or customer base or what they manufacture and sell.”

And Huawei is a big customer to lose. It was the second largest smartphone seller in 2018 and the largest vendor of mobile infrastructure equipment, according to IHS Markit. The ban ensures that everyone will pay a price.

There are multiple U.S. companies that are significant component suppliers and a number have already picked up a phone to sound an alarm. Chip company Broadcom CEO Hock Tan said in a Thursday earnings call that the “Huawei export ban is creating economic and political uncertainty and reducing visibility for global OEM customers” and that the “second half of 2019 will be more in line with the first half as opposed to the previously expected recovery.” The company cut its 2019 revenue outlook from $24.5 billion to $22.5 billion.

Last year, Huawei was $900 million in revenue for Broadcom. But the wider uncertainty has cut into additional orders and caused a push to reduce inventory through the entire supply chain. Broadcom is a supplier to many companies, so an industry malaise hits them in multiple ways.

Micron has said in a statement that Huawei “represented 13% of our revenues in the first half of fiscal 2019,” as Barron’s reported. That is a difficult amount of revenue to make up.

But the pinch works two ways. Huawei likely has sufficient parts inventory for the next two or three months, says Michael Yang, research and analysis director at IHS Markit. After that, the situation changes drastically. The company needs every component in the design of each product. “If there’s no replenishment of components that they make into their products, whether that is a power supply or motherboard or processor or memory or storage, they can’t make products to sell,” he said.

That could mean a medium- to long-term opportunity for U.S. companies as carriers around the world put their 5G infrastructures into place.

“At this point in the 5G evolution, this is a critical [time],” said wireless and telecommunications analyst Jeff Kagan. “These are the critical early stages where networks choose the vendors they’re going to be working with over the next decade.” If it looks as though Huawei may be hindered, that could open the door for large competitors like Qualcomm and Ericcson. “This is going to impact every country because it’s going to impact the ability for Huawei to deliver equipment.”

So even if investors are put on hold in one way, they might find another line to pump up their portfolios.