The US is allowing a growing number of chip companies to supply Huawei with components as long as these are not used for its 5G business, people briefed by Washington said, in a potential lifeline for the Chinese group.

Analysts believe this could mean that tough US sanctions this year against China’s leading technology group could be less threatening to its overall business than previously thought. While the sanctions would still pose a grave challenge to Huawei’s 5G business, the company’s important smartphone arm might have a chance to recover.

The US Department of Commerce “has been telling companies in recent conversations that while licences to supply Huawei are handled with a view to denial, this can be overcome if you can demonstrate that your technology does not support 5G”, said a semiconductor executive involved in dialogue with the department, referring to the cutting-edge telecoms infrastructure.

Executives at two Asian semiconductor companies said they were optimistic that their applications for licences to resume shipments to Huawei would be approved. “It has been indicated to us that chips for mobile devices are not a problem,” said one of them.

Washington barred companies worldwide from manufacturing for or selling to the Chinese group components that used US technology, under rules imposed in May and then tightened in August. Given the central role of US technology in the global semiconductor industry, the sanctions threatened to choke off Huawei’s access to chips.

But recently Washington has appeared more willing to permit companies to supply Huawei with components for non-5G uses. The display unit of South Korea’s Samsung Electronics said on Tuesday that it had received a US licence for shipping organic light-emitting diodes, or OLED displays, for handsets to Huawei.

This is a strong indication the US intends to allow Huawei to stay in the handset business

“We believe this is a strong indication the US intends to allow Huawei to stay in the handset business, since, as we have argued, it does not present an obvious national security threat to the US,” wrote Edison Lee, an analyst at Jefferies, in a research note.

Mr Lee said Japan’s Sony and Chinese-owned OmniVision, headquartered in California, had also been granted licences to supply Huawei with CMOS image sensors — chips used in smartphone cameras.

OmniVision did not respond to a request for comment.

At an earnings briefing on Wednesday, Sony declined to comment on whether it had been granted a licence to resume selling its image sensors for use in Huawei smartphones. 

Sony was forced to cut its full-year profit guidance for its image sensor business by 38 per cent after halting its sales to Huawei from September 15. 

The US government, which has argued for more than a decade that Huawei’s telecoms infrastructure equipment could pose a security threat, originally put the Chinese company on a list of entities subject to export controls last year.

In the year that followed, more than 300 companies applied for licences to allow them to continue doing business with Huawei, of which about one-third were granted. US chip companies Intel and AMD were among those that received a licence. Intel has continued to supply Huawei with processors for servers in its cloud computing business.

After a second wave of sanctions was announced in May, Huawei started stockpiling the chips needed to power its telecoms networking gear, such as base stations. Its telecoms infrastructure unit, which builds and manages mobile networks for carriers from China Mobile to Deutsche Telekom, has enough inventory for about two years, according to industry executives.

But Huawei’s consumer business, which accounts for more than half of its revenue, was harder hit. The tougher US restrictions announced in August not only block contract chipmakers from manufacturing the latest smartphone processor designed by Huawei in-house, but also bar vendors such as Taiwan’s MediaTek from selling it off-the-shelf chipsets.

Jefferies’ Mr Lee said if Washington was willing to allow Huawei’s smartphone business to survive, both US chip company Qualcomm and MediaTek could receive licences later this year to resume sales of certain chips needed for smartphones to Huawei.

However, industry experts caution against too high expectations on the matter, pointing to what they say are the Trump administration’s erratic policy decisions.