Chinese tech company Huawei has received an estimated US$30 billion in state funding for a shadow semiconductor fabrication network to dodge US sanctions, Bloomberg has reported.
Huawei, which was effectively neutered as a global telecoms giant under Trump and Biden-era technology sanctions, has acquired two chip fabrication plants and is building three more, according to information from the Semiconductor Industry Association (SIA) and seen by Bloomberg.
Under US sanctions, Huawei and other major Chinese tech firms are prohibited from importing cutting-edge microchip technologies that go into everything from smartphones to military equipment.
The sanctions gained bipartisan support in order to hobble China’s military capabilities amid rising geopolitical tensions.
However, SIA believes Huawei may be importing restricted chips and chipmaking equipment through secret channels in something of an underground railroad for semiconductor technology.
According to the SIA, Huawei is building these foundries under different corporate identities near the company’s Shenzhen headquarters.
Though most semiconductors are designed in the US by the likes of Nvidia and AMD, most of the actual manufacturing is offshored to highly specialised foundries run by TSMC in Taiwan or Samsung (KS:005930) in South Korea.
These companies have found themselves caught between souring US-China relations, while Nvidia and AMD have also seen their exports drop due to the sanctions.
Though China is still allowed to import older-generation tech, these companies may suffer more if the US decides to impose tougher sanctions.
Is Arm Holdings at risk?
Soon to be listed in the US, British microchip giant Arm Holdings licenses its microchip blueprints to most major chip designers.
This means Arm, too, has considerable exposure to Chinese volatility, something the company discussed at lengths in Monday’s IPO filing with US regulators.
“We depend on our commercial relationship with Arm China to access the PRC (People’s Republic of China) market. If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected,” read the filing.
Neither Arm Holdings nor Arm’s parent company SoftBank has any control over Arm China’s operations.
Yet Arm China was responsible for 24% of Arm’s total revenues in the last financial year.
Arm warned that “political actions, including trade and national security policies of the US and PRC governments, such as tariffs, placing companies on restricted lists, export controls or new end-use controls” have in the past and could in the future adversely affect this revenue stream.
Such is China’s risk to Arm Holdings that ‘China’ appears 222 times in Monday’s filing and ‘PRC’ 91 times.
Arm is seeking a US$60 billion valuation through its landmark public listing, a price tag that is already higher than a 138-times price-to-earnings ratio.
Further limitations to Arm’s Chinese operations represent a genuine risk to this valuation.