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(EDITORIAL from Korea Times on Sept. 17)

07:09 September 17, 2020

U.S. sanctions on Huawei
Time to set up new strategies to brace for change

The United States began to impose additional sanctions on Chinese telecom giant Huawei Technologies Sept. 15. The sanctions ban the supply of semiconductors made with U.S. equipment, software or design to the Chinese firm without prior approval from the U.S. government. This shows the United States is determined to remove Huawei from the market.

The U.S. move is expected to have a far-flung impact on the global chip market. It will also deal a blow to Korean semiconductor manufacturers Samsung Electronics and SK Hynix, which earned 3.2 percent and 11.4 percent, respectively, of their chip revenue from exports to Huawei last year. From the short-term perspective, the Korean companies will suffer losses due to the sanctions.

On the other hand, the looming exit of Huawei from the cellphone market does not necessarily mean a decline in demand for mobile phones. Other Chinese companies such as Xiaomi will likely go all-out to keep their market share and will therefore need to increase their purchases of Korean-made memory chips. As Samsung produces smartphones in its own plants, it will be able to expand its share in the Asian and Latin American markets with rising demand for mid- and low-priced phones.

Samsung Electronics' foundry business recently received a $6.64 billion order from Verizon of the U.S. for 5G communications equipment, which demonstrates the company's potential to expand its clout in the non-memory market. Huawei has so far been the No. 1 firm in the sales of 5G equipment. Samsung and other Korean companies are expected to enjoy increasing profits from sales of cellphones and telecommunications equipment, offsetting possible losses in the sales of semiconductors and displays.

But the U.S. still holds the key. Should it attempt to impose similar sanctions on Chinese companies other than Huawei, this will force Korean companies to review their business strategies starting from scratch. The competition has already been heating up since U.S. graphic chip maker Nvidia decided to acquire U.K. chip-design company Arm, heralding a major shift in the IT sector, including semiconductors in particular. Currently, more than 90 percent of the world's application processors use Arm's technology.

Nvidia entering the market equipped with Arm's technology will pose a threat to existing companies such as Samsung, Apple and Qualcomm. Samsung needs to rearrange business ties with Nvidia to continue to develop its foundry business.

The recent sanctions came amid the growing U.S.-China conflict, which will likely spill over to diverse areas beyond semiconductors. U.S. President Donald Trump and Democratic presidential candidate Joe Biden have engaged in a severe competition to protect U.S. interests by pressuring China. Regardless of the results of the U.S. presidential election, the conflict between the two superpowers will continue to grow, further increasing market uncertainty.

Domestic firms need to focus on taking the lead in the prosperous non-memory chip market while further distancing their rivals in the memory chip market. It is time for them to use imminent market changes as a chance to sharpen their competiveness.
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