(Yicai Global) July 26 -- Electronics manufacturer Flex is to scale back supplies of smartphone components to Chinese telecoms equipment giant Huawei Technologies as US restrictions on its key customer take effect.

"Flex and Huawei have had a long-standing and successful partnership," Chief Executive Revathi Advaithi said in an earnings briefing yesterday. "We have worked with them to find an agreeable solution. This change is unfortunate."

The announcement follows a Global Times report yesterday that claimed Flex kept CNY700 million (USD102 million) worth of Huawei's materials and equipment in its Chinese and overseas factories in May for over a month, resulting in a huge loss for Shenzhen-based Huawei.

In May, the US Department of Commerce added Huawei and 68 of its non-US affiliates to a so-called Entity List, a register of foreign individuals and organizations subject to additional trade licensing requirements. Headquartered in the US and Singapore, Flex has not found itself immune to the blacklisting of Huawei.

"However, China is and will remain a very important center of production and market for Flex," Advaithi added.

Huawei claims Flex is over-interpreting US policies. The supplier is also suspected of violating Chinese law because Flex's factory is in Zhuhai, Guangdong province and US policies do not apply there, a person familiar with the matter told state media.

A large part of the contract manufacturer's revenue comes from Huawei. In the third quarter of last year, Huawei paid Flex CNY2.4 billion (USD348 million), or 5 percent of its total operating income, Bloomberg's statistics show.

Profit at Flex more than halved in the second quarter of this year to USD44.9 million from USD116 million a year earlier. Operating income rose to USD6.2 billion from USD6.4 billion, according to the earnings report issued yesterday.