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ECONOMY

5G chipmaker Sumitomo Electric hedges bet on top client Huawei

  • January 21, 2021
  • , Nikkei Asia , 0:33 a.m.
  • English Press

OSAKA — Japan’s Sumitomo Electric Industries, which sells most of its 5G base station semiconductors to Huawei Technologies, seeks a bigger roster of clients to reduce exposure to the troubled Chinese telecommunications heavyweight.

 

Sumitomo Electric will augment its European research and development facilities during the fiscal year that begins in April. The R&D team there will upgrade its capacity to develop semiconductors for Sweden’s Ericsson and other 5G base station makers.

 

Huawei accounts for 90% of Sumitomo Electric’s revenue from 5G base station semiconductors. The Japanese supplier aims to reduce that ratio to 50% in five years.

 

These semiconductors are used for antennas. Competing products are made of silicon, but Sumitomo Electric uses gallium nitride, which lessens power loss. The semiconductors generate tens of billions of yen (10 billion yen equals $96.2 million) in revenue yearly.

 

In September, the U.S. Commerce Department enacted a de facto ban against supplying Huawei with semiconductor products. This caused Sumitomo Electric to suspend product shipments to Huawei. Those deliveries have since resumed, apart from a small volume of high power output products.

 

But the ban has prompted Sumitomo Electric to seek European customers. The exuberant investment from Chinese clients has lost momentum as well.

 

“Fiscal 2021 sales of gallium nitride products will decline 20% compared to the previous year,” a Sumitomo Electric representative said.

 

Huawei is caught in the U.S.-China frictions, and its products are being excluded from many national fifth-generation wireless infrastructures. Other Japanese parts manufacturers likely will shift in the same direction.

 

“Huawei’s procurement of base station components from Japanese companies has climbed to nearly $1.1 billion,” said Akira Minamikawa at U.K.-based research firm Informa Intelligence. “Because the Chinese have a large presence, [Japanese suppliers] will inevitably experience a loss of demand up to around 10%, even if they diversify clients.”

 

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