How US-China tech war is rippling through the global supply chain

For many years, digital imaging technology supplier Altek Corp. relied on private demonstrations to generate business from its handful of large clients in China.

The Taiwanese high-tech supplier, however, must now take part in trade shows in China to widen its search for new customers, according to company executive Nicole Chen, after major client Huawei Technologies became entangled in the raging trade and tech war between China and the United States.

Photo credit: Open Grid Scheduler / Grid Engine

“Everything was perfect before the third quarter of last year, but now orders have halved,” said Chen, who serves as special assistant to Altek founder and chairman Alex Hsia, on the sidelines of the CES Asia 2019 trade show held this week in Shanghai.

Huawei, the world’s largest telecommunications equipment maker and second biggest smartphone vendor, used to outsource to Altek the production of image signal processors for its dual camera handsets.

Altek has had to adjust its business strategy, according to Chen, amid a slowdown in Huawei smartphone shipments caused by the US-China tech war and the Shenzhen-based company’s decision to bring more chip development projects in-house.

That has driven Altek to sign up new smartphone clients, including Samsung Electronics and Vivo, as well enter China’s surveillance technology market with its own artificial intelligence-powered cameras and facial recognition system, Chen said.

“We want the trade war to end as early as possible, but it’s very unpredictable,” she said. “All we can do now is to spread the risk and diversify our business.”

That conflict, in which the US imposed higher tariffs on Chinese goods, recently intensified when Washington added Huawei and 68 of its non-US affiliates to a trade blacklist, officially called the Entity List, on May 16 because the company was considered a threat to national security. This action restricts Huawei’s ability to buy hardware, software and services from its American high-tech suppliers without approval from the US government.

The US action came as talks to resolve a lingering trade war between the world’s two biggest economies ended without agreement last month, sparking a wave of targeted actions by the Trump administration against China.

With the US trade ban, Huawei’s wholly owned chip design company, HiSilicon, is anticipated to supply semiconductor products to replace those provided by the likes of Qualcomm and Intel Corp. for use in Huawei’s smartphones and network equipment. Huawei is now looking to boost production of its own Kirin chipsets and roll out its “Hongmeng” operating system to replace Google’s Android.

Huawei, which claims to be the “unparalleled leader in 5G,” has also been stockpiling critical US components for almost a year, according to separate reports by research houses Haitong and Canalys.

Those efforts, however, have not been enough to bolster Huawei’s plan to overtake Samsung and become the world’s top-selling smartphone vendor by 2020.

That goal would take longer to achieve, said Shao Yang, chief strategy officer at Huawei’s consumer business group, in his keynote presentation on Tuesday at CES Asia. He revealed there were now more than 500 million users of Huawei devices globally.