Huawei said the U.S. couldn’t ‘crush’ it. Trump is starving it instead

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For the past two years, executives at Huawei Technologies, the Chinese telecommunications giant, have struck a defiant tone in the face of the Trump administration’s escalating campaign to bar the company from Western markets over national security concerns.

In a high-profile interview with the BBC in February 2019, Huawei founder and CEO Ren Zhengfei famously declared, “There is no way the U.S. can crush us.” When Fortune CEO Alan Murray and I met with Ren at Huawei’s sprawling Shenzhen campus last September, he told us his biggest fear was that “our next generation of leadership may be overwhelmed by the success of our company.”

And until recently that confidence seemed well placed. As this piece in the Associated Press points out, even as the U.S. blocked Huawei’s access to American components and Google’s smartphone services, Huawei ramped up sales in its vast home market, pushed into Europe, Asia and Africa, launched development of its own operating system and unveiled its own design for high-speed chipsets. The result? Huawei widened its lead as the world’s largest manufacturer of telecommunications gear and overtook Samsung and Apple to become the world’s No. 1 smartphone brand. Sales last year soared 19% to a record $123 billion.

But now Trump’s assault on the company appears to be taking a toll.

One clear sign of distress came at an industry event in Shenzhen last Friday, when Richard Yu, CEO of Huawei’s consumer business group, acknowledged Huawei has “no chip supply” because U.S. sanctions announced in May will prevent the company from purchasing advanced Kirin processing chips to power its flagship smartphones. Huawei designed the chips, but it relies on Taiwan Semiconductor Manufacturing Company, a world leader in chip manufacturing, to produce them.

The May rules ban any firm, American or not, from using American software or chipmaking equipment to create custom-made processors for Huawei. TSMC, like many chip makers, makes extensive use of a small number of American technologies.

On Monday, the Commerce Department announced even more sweeping restrictions that prohibit any firm from selling any chips to Huawei, whether custom-designed or not, if they were produced with American technology. This latest measure appears to apply to everyone in the global chip industry.

The consensus among Western analysts is that these last two rounds of U.S. sanctions pose a serious threat to Huawei and might even derail—at least temporarily—China’s plan to roll out the world’s largest telecommunications network using high-speed fifth-generation mobile technology.

“The U.S. government has passed a death sentence on Huawei,” said Dan Wang, an analyst at Gavekal Research. “Huawei is probably finished as a maker of 5G network equipment and smartphones once inventories run out early next year.”

Industry analysts Paul Budde says Huawei is “losing market share quite dramatically outside China,” and the company’s international position “is most likely going to get worse rather than better.”

The Nikkei Asian Review reports that Huawei and China’s second-largest telecom equipment manufacturer, ZTE, have slowed shipments of 5G base stations in China to give them time to redesign products and change equipment to eliminate as much U.S. content as possible.

The Economist weighs Huawei’s options here. They aren’t great. China’s domestic chipmakers, though much improved, are years behind their U.S. and Taiwanese competitors—and may not want to risk running afoul of U.S. sanctions themselves.

And in this equation, the key variables are political. Beijing could retaliate by imposing reciprocal sanctions on Apple. Qualcomm, the San Diego-based chipmaker, is lobbying the Trump administration to allow it to sell to Huawei. Chinese President Xi Jinping might strike a deal with Trump to speed up purchases of U.S. agricultural products ahead of the election in exchange for loosened restrictions on Huawei. Or perhaps Xi will just sit tight, in the hope of a more amicable discussion of Huawei’s predicament with Joe Biden.

This week’s Eastworld Spotlight conversation is with Huawei chief technology officer Paul Scanlan. It was conducted last week before the Commerce Department’s latest round of restrictions on Huawei. Paul, an Australian, makes the case for U.S. and Chinese collaboration on 5G.

Source: Fortune

READ  Huawei posts revenue growth in H1 despite sanctions and pandemic

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