‘Huawei’ E.O. Portends Total Supply Chain Chaos

The headlines have been filled with reports on the pending US ban on domestic companies from conducting business with Huawei.

In submitting the order, President Trump cited cyber-warfare, espionage and threats to US national security as rationale for the ban.

Less noted: The impact on bare board and assemblies procured from China. After all, the executive order “prohibits transactions that involve information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” as determined by the Commerce Secretary.

So while Huawei is a $100 billion company, larger than IBM, Sony, Hitachi, Panasonic and all but a few other tech firms, the declaration could have tentacles that reach far beyond the Chinese OEM. Even if all the defense industry primes, for instance, buy all their boards onshore (doubtful), many others do not, including the financial markets, and key industries such as nuclear, power, and so on.

Almost every North America-based board today shop brokers boards from Asia, mostly China. Their suppliers are, in turn, generally located in China as well. That includes the vast majority of the laminate industry. Sure enough, we are hearing reports of major laminate makers suspending shipments of key materials, including ones for the US defense primes, because of the executive order.

What’s the alternative? North American board fabricators lack the capability and capacity to take on high-volume production. The EMS industry has the capability, but not the capacity. And that doesn’t begin to address the region-to-region cost differences.

Then there’s Washington. The legislators are simply ignorant when it comes to understanding supply chain issues. The executive order targets companies that could put the US economy at risk. Any logical read of that would see that the telecom industry is only one part of the equation. Wall Street is equally at risk.

Just because Cisco or Juniper or HP or IBM or Dell or Arista don’t have Chinese names doesn’t mean they aren’t as reliant on the China supply chain as Huawei. Same goes for their EMS networks. Intel has six chip fabrication plants and three assembly/test sites. Two are in China. Qualcomm is a minority owner of SMIC, which has nine plants open or planned in China. It also has a JV assembly/test house with Amkor in Shanghai.

Take a look at HP’s supply chain. The OEM is sourcing product from China facilities of Foxconn, Jabil, Flex, Celestica, Inventec, New Kinpo, Wistron, Pegatron, Qisda, and TPV, among others. The workers on the HP lines number in the tens of thousands. That can’t be replaced easily, if at all.

Not just the large shops stand to be squeezed. Besides relying on China for raw materials, many smaller North American fabricators also outsource certain services and otherwise procure other relatively finished goods from there, such as engineering or laser drilling or mass lam boards.

Insofar as consumers are concerned, it’s probably a good thing this isn’t happening during the Christmas ramp. But that date is drawing near. Even without the tariffs, given the looming capacity constraints, prices are bound to spike.

And even if the questions surrounding Huawei are sorted out — a big “if” — the fun won’t stop there. At this writing, the US government is considering action against other Chinese OEMs, including ZTE and Hikvision.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow

2 thoughts on “‘Huawei’ E.O. Portends Total Supply Chain Chaos

  1. Mike
    Great article !
    My company of 47 years K & F ELECTRONICS have been saying this to many different Government officials for a very long time , I seen this happen 2 years after the Twin Towers went down , but what does a now consider under our Government today a small dis-vantage business know.
    Not only was I given that name years ago , I’m now consider a Diminishing Business under our Government.
    We are 47 years old today , PLEASE SEND HELP !

  2. Good day to all.
    Well.. this should not have come as a complete shock…. Here are some truisms that have been overlooked for way too long.

    Other than specialty materials the US has NOT one laminate manufacture.
    The last domestic laminate Norplex Oak / G.E. abandoned the US in favor of profits from Asia.

    There is not ONE domestic manufacture of Inks and resists for PCBs. All inks have been purchased and distributed by Di Nippon Ink and Chemicals. This includes Taiyo and Sun. All resins are manufactured in several Asian Counties. This is due to costs and profits.

    Other than a hand full of chemical companies there is a limited source for Electronic Grade Chemistry.

    It is not surprising that ALL of our top PCB manufactures have been purchased by Asian Companies. There was a promise that they would not close facilities after purchase. We are facing a growing strangulation of legitimate PCB . facilities.

    I blame some of this on buyers that continue to source off shore without giving a bid to domestic manufactures. We need to circle our wagons and give the proper respect to the true heroes of our industry. The owners of our FEW PCB manufactures. Please remember that in the 80s there were over 5000 pcb shops in N. America. The current number of active shops is less the 500 and of the 500 several are brokers and have no manufacturing facilities in N. America. Buyers purchase from a Web Site.

    The fact is that while India has done a great job building several major PCB facilities they cannot compete with the Asian Pricing Schedules.

    I am of the opinion that it would take BILLIONS of dollars and many years to resurrect our industry. We lost our industry due to greed and crooked dealings. We cannot rely on our Government to assist in our crisis. There are many calls to congress and officials in high placed arenas to look into our industry demise. It is like whistling in the wind.

    Thank you all for letting me vent my frustrations ..Please use this note as a reminder that WE can compete in the US. Lets keep our industry strong and vital.

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