Since its founding more than three decades ago, Taiwan Semiconductor Manufacturing Co. has built its business by working behind the scenes to make customers like Apple Inc. and Qualcomm Inc. shine. Now the low-profile chipmaker has landed squarely in the middle of the U.S.-China trade war, an incalculably valuable asset that both sides are vying to control.
The Trump administration opened up a new front in the conflict on Friday by barring any chipmaker using American equipment from supplying China’s Huawei Technologies Co. without U.S. government approval. That means TSMC and rivals will have to cut off Huawei unless they get waivers from the U.S. Commerce Dept. TSMC has already stopped accepting new orders from Huawei, the Nikkei newspaper reported Monday.
The move threatens to wreak havoc throughout the complex ecosystem that produces technology for consumers and companies around the world. An attack on Huawei threatens not just its workers and its standing as a world leader in making smartphones and telecom equipment, but also hundreds of suppliers. The Chinese government has vowed to protect its national champion, with threats of retribution against U.S. companies that depend on China like Apple Inc. and Boeing Co.
“China likely will retaliate, and investors should brace themselves for a possible trade war escalation,” Sanford C. Bernstein & Co. analysts led by Mark Li wrote in a research note on Friday.
Read more: U.S. Tightens Rules to Crack Down on Huawei’s Chip Supply
Huawei suppliers across Asia fell on Monday, with AAC Technologies Holdings Inc., Q Technology Group Co., Sunwoda Electronic and Lens Technology all sliding 5% or more. TSMC, which gets an estimated 14% of its revenue from Huawei, dropped as much as 2.5%.
The U.S. already blacklisted Huawei last year, preventing American companies from supplying the Chinese company unless they got a license. The latest move tightens those restrictions to prevent chipmakers — American or foreign — from working with Huawei and its secretive chip-design unit HiSilicon on the cutting-edge semiconductors they need to make smartphones and communications equipment. The Trump administration sees Huawei as a dire security threat, an allegation the company denies.
“We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests,” Commerce Secretary Wilbur Ross said in a tweet.
Huawei countered by accusing the U.S. of ulterior motives.
“The so-called cybersecurity reasons are merely an excuse,” Richard Yu, head of the Chinese tech giant’s consumer electronics unit wrote in a post to his account on messaging app WeChat. “The key is the threat to the technology hegemony of the U.S” posed by Huawei, he added.
The U.S. decision is likely to hurt not just Huawei and TSMC, but also a clutch of American players including gear-makers Applied Materials Inc., KLA and Lam Research Corp. themselves, Morgan Stanley analysts wrote. Disruptions to Huawei’s production will also hurt U.S. customers from Micron Technology Inc. and Qorvo Inc. to Texas Instruments Inc., they said. But “it bears repeating that any escalation of trade tensions is negative for the stocks overall,” they wrote in a research report.
It would have been impossible to imagine TSMC becoming such a coveted chit between the world’s great powers when it was founded in 1987. Morris Chang, born in China and trained in the U.S., started the company as a so-called foundry, manufacturing semiconductors for any customer that didn’t want to construct its own fabrication facility, or fab.
At the time, the business wasn’t nearly as glamorous as making chips yourself. Dominating the industry at the time were companies like Intel Corp. and Advanced Micro Devices Inc., which made processors for personal computers. “Real men have fabs,” AMD co-founder Jerry Sanders would say, making clear that was an insult.
But in the intervening years, the foundry industry has become far more strategic for the technology industry. Customers from Apple and Huawei to Qualcomm and Nvidia Corp. have found they can innovate more quickly if they focus on chip designs and then turn to foundries like TSMC to produce them. Innovators in emerging technologies like artificial intelligence or the internet of things also depend on foundries to crack open new markets.
Today, many of the chips for mobile phones, autonomous vehicles, artificial intelligence and any other key technology are made at foundries. TSMC has become the leading foundry in the world by investing heavily in ever more advanced fabs, with annual capital spending of about $16 billion this year.
It can now manufacture at 5 nanometers, about twice the width of human DNA, while China’s top foundry, Semiconductor Manufacturing International Corp., or SMIC, is at 14 nanometers. That makes TSMC’s chips far more powerful and energy efficient.
Huawei and HiSilicon will have few good options if they are cut off from TSMC. One possibility is to procure off-the-shelf chips from Taiwan’s MediaTek Inc. and South Korea’s Samsung Electronics Co., an option Huawei’s rotating Chairman Eric Xu mentioned in late March. But even that may no longer be viable under the new Commerce restrictions.
SMIC itself is keen on moving up the technology ladder, eyeing a secondary share listing that could raise more than $3 billion on top of a large capital infusion from the state.
Read more: China Injects $2.2 Billion Into Local Chip Firm Amid U.S. Curbs
But that’s a longer-term endeavor and Huawei’s products meanwhile are likely to suffer, putting them at risk of falling behind those of rivals like Apple or Xiaomi Corp.
For TSMC, it’s growing ever more difficult to remain neutral amid the growing tensions between the U.S. and China. The company brands itself “everybody’s foundry,” effectively the Switzerland of the tech industry. It supplies Chinese customers like Huawei and the American military, while relying on U.S. producers of semiconductor-making equipment like Applied Materials and Lam Research.
TSMC did take one step closer to the U.S. last week, saying it would build a $12 billion chip plant in Arizona. The Department of Defense has expressed concern that overseas fabs may be vulnerable to cyberattacks and domestic manufacturing would assure a more reliable supply of chips.
The proposal appears to be carefully calculated to address such security issues without too much damage to profits or its political balancing act. Suppliers to the military, such as Xilinx Inc., would be able to use the U.S. fab, but the facility would likely account for less than 5% of revenue so margins won’t be compromised.
It’s not clear if the plans for a U.S. plant will win TSMC leniency in supplying Huawei, however.
“TSMC will not be granted or granted a license based on their intent to build a 5 nanometer fab here in the United States. That’s not part of it at all,” Keith Krach, undersecretary for economic growth, energy and the environment at the State Department, told reporters on a call. “There’s no assurance on that and we don’t anticipate that.”
Meanwhile, China appears to be preparing to retaliate for the new restrictions on Huawei. On Friday, the Global Times — a Chinese tabloid run by the flagship newspaper of the Communist Party — reported Beijing was ready to initiate countermeasures, including imposing restrictions on Apple, suspending the purchase of Boeing airplanes and putting U.S. companies on an ‘unreliable entity list.’
The list will cover “foreign entities that cause actual or potential damage to Chinese companies and industries,” the newspaper said.
(Updates with Nikkei report in second paragraph)
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Getting mortgage default insurance is about to get harder after Canada’s federal housing agency announced stricter lending standards on Thursday.
The Canada Mortgage and Housing Corp. (CMHC) says it will no longer allow homebuyers to use borrowed funds for their down payment, will require a higher credit score from at least one borrower and will lower the threshold for how much debt applicants can carry compared to their income.
The changes, which come into effect July 1, will reduce the purchasing power of homebuyers who opt for CMHC insurance and likely leave insured mortgage applicants in pricey markets with fewer options, according to mortgage brokers.
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0:50 Should you buy a house during the coronavirus crisis?
Should you buy a house during the coronavirus crisis?
CMHC’s new debt-ratio policy will lower homebuyers’ purchasing power by up to 11 per cent, according to Robert McLister, founder of rates comparisons site RateSpy.com.
For example, someone making $60,000 a year with a five per cent down payment and no pre-existing debt would be able to afford a home with a maximum home price that is roughly 11 per cent lower than what they would have been able to buy before the new rules, according to McLister’s calculations.
Economists say the measures could discourage some prospective homebuyers from entering the market.
CMHC said it will require a credit score of at least 680, up from the current minimum of 600. It will also lower the maximum amount of debt applicants are allowed to carry compared to their income.
To measure the latter, lenders use two key metrics: the gross debt service ratio (GDS), or the share of income used to cover the mortgage and other housing costs like property taxes, and the total debt service ratio (TDS), the share of income used to cover housing costs plus the cost of servicing other debts.
CMHC is lowering the maximum GDS from 39 per cent to 35 per cent and the maximum TDS from 44 per cent to 42 per cent.
3:27 Open House: Pros and cons of reverse mortgages
Open House: Pros and cons of reverse mortgages
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Changes to the GDS threshold and the credit score minimum will have the greatest impact on affordability, said James Laird, co-founder of financial products comparisons site Ratehub.ca and president of mortgage brokerage CanWise Financial, in a statement via email.
Banning the use of borrowed funds to finance down payments will likely have a more marginal effect, as most Canadians rely on savings, investments and financial help from family for down payments, Laird added.
Mortgage insurance, which protects lenders from the risk of borrowers defaulting on their payments, is mandatory in Canada for loans with a down payment of less than 20 per cent.
Mortgage default insurance is available from CMHC as well as private companies such as Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co.
While the new CMHC rules do not apply to Canada’s private mortgage insurers, they could adopt the new policy on a voluntary basis.
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Private mortgage insurance providers could become “the only games left in town” for homebuyers in expensive markets like Toronto and Vancouver, where borrowers generally have higher debt ratios, McLister noted.
McLister is critical of CMHC’s decision to tighten the rules at a time when the economy is already reeling from the impact of the COVID-19 public health restrictions.
“Normally, you don’t rock the boat when you’re already taking on water,” McLister wrote in a blog post shortly after the policy announcement. “But that’s what CMHC has done,” he added.
Canada’s housing agency has said it’s concerned that already high household debt levels will soar in the aftermath of the COVID-19 crisis, increasing the risk that overstretched homeowners won’t be able to keep up with their mortgage payments.
The new rules “will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth,” said CMHC head Evan Siddall in a statement.
U.S. West Texas Intermediate crude oil futures are trading at their highest levels of the week on Friday and inside the price gap created on March 9 when the market opened sharply lower, officially starting the coronavirus-related plunge. The price action strongly suggests the buying is getting stronger especially if traders fill the gap.
The market was initially supported after a report said OPEC and its allies led by Russia would meet on Saturday to discuss extending record oil production cuts and to approve a new approach that aims to force laggards such as Iraq and Nigeria to comply better with the existing curbs.
A second surge in the market occurred following the release of a much better-than-expected U.S. Non-Farm Payrolls report. This surprisingly strong report is a sign that the economy is improving much faster than previously expected, meaning that demand will pick up at a much faster pace than currently estimated.
OPEC+ Wants an Extension and Better Compliance
Saturday’s meetings would start with talks between members of the Organization of the Petroleum Exporting Countries and be followed by a gathering of the OPEC+ group, an OPEC+ source said, after Algerian and Russian media reported the meetings, Reuters reported.
Two OPEC+ sources said Saudi Arabia and Russia had agreed to extend the deeper cuts until the end of July but they said Riyadh was also pushing to extend them until the end of August.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.” data-reactid=”23″>Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.
A press release from his department indicated that postponing the auction will allow telecom carriers focus on “providing essential services to Canadians” during the pandemic.
The new date is set for June 15, 2021.
In general, 5G operates over traditional and new cell radio frequency bands that include the low- (sub-1GHz such as 700MHz), mid- (1.6GHz, around 3.5-3.8GHz), and millimetre-wave (mmWave, such as 28GHz) ranges.
The 3,500MHz band is critical specifically in cities where thousands of small cells will be deployed in order to be used for applications like self-driving cars and many consumer applications.
The sum of opening bid prices for the auction is $558 million. Last year’s 600MHz spectrum auction raised $3.57 billion.
“Canada’s telecommunications service providers are doing their part in this difficult time, providing essential services to keep Canadians connected as we face the realities of the COVID-19 pandemic together,” Bains said in the release.
“A number of providers have raised concerns, and the government is implementing measures to address them. The government will continue to reach out to telecommunications service providers—and to the private sector more broadly—to understand their challenges and support them to ensure that Canadians have access to high-quality networks and broad coverage at low prices.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.” data-reactid=”31″>Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.” data-reactid=”32″>Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.
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