Huawei Sanctions Having 'Dramatic Impact' on Mobile Supply Chain: Photronics
The Photronics display business in the fiscal fourth quarter “typically sees a slight seasonal decrease in demand,” but the normal seasonal decline in the quarter that ended Oct. 31 “was exacerbated by pockets of softness in some sectors, and a negative impact from U.S. trade sanctions against Huawei,” Chief Financial Officer John Jordan said on a Dec. 9 investor call. Photronics supplies photomasks to panel makers.
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The Trump administration’s export restrictions on Huawei “are having a dramatic impact on the China mobile supply chain,” Jordan said. The sanctions that took effect mid-September “effectively prohibited” Huawei from buying “leading-edge semiconductors,” choking off its ability to release new mobile phones, he said. “That reduced their demand for new display panels, which reduced demand for masks from their panel producers.”
The Chinese supply chain is “resetting” to adapt to the Huawei sanctions, Jordan said. “We’ve seen the market move away from Huawei to other mobile phone manufacturers.” Prior to the U.S. sanctions, Huawei was one of the largest suppliers of smartphones by units, so “the ripple effect of these moves is being felt throughout the supply chain,” he said.
The challenges Photronics faced in fiscal 2020 “were unlike any in my 35-year career,” CEO Peter Kirlin said. The worst headwinds were from the “significant supply chain and customer design team disruptions, as governments around the world placed restrictions on travel, working conditions and commercial activity to limit the spread of the coronavirus,” he said. With the looming deployment of COVID-19 vaccines “and the expected impact of the U.S. election results, it appears these challenges will diminish as we move through 2021,” he said.
Semiconductor Manufacturing International Corporation is a Photronics customer, and “anything that harms a customer is a negative,” Kirlin said of U.S. national security export restrictions on China’s largest chipmaker (see 2011120018). “We don’t like to see any customer harmed in any way by external factors that are not driven by the market. We wish SMIC, like all our customers, well. It’s our culture, regardless of where a customer sits in the world, to run through walls to help them be successful.”