uploads///Huawei Trade ban

What Huawei’s CEO Has to Say about the US Ban

Puja Tayal - Author

Jul. 26 2020, Updated 12:09 p.m. ET

The US ban on Huawei is the most heated topic in US-China trade negotiations and among semiconductor companies. China agreed to return to the negotiation table on the condition that the US lift the Huawei ban. While the US didn’t lift the ban, it agreed to restart trade for components not critical to national security. 

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A few days after the ban’s easing, Huawei CEO Ren Zhengfei shared his views about the ban, its effect on the company’s future earnings, and how he plans to deal with any future bans. 

Before we consider Huawei’s perspective, let’s discuss how Huawei got involved in the trade war. The Trump administration banned US companies from doing any trading with Huawei after it accused the Chinese giant of espionage and IP (intellectual property) theft. The ban centered on any technology related to 5G technology. Huawei is the world’s largest network equipment supplier and a leader in 5G technology.

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Why is the Trump administration targeting Huawei?

In an interview with Yahoo Finance, Zhengfei discussed why he thinks the Trump administration targeted Huawei. US lawmakers have long considered Huawei a security threat and avoided using its products, so it has little presence in the US. However, the Trump administration tried to isolate Huawei by imposing a trade ban on it and asking allies to join. Zhengfei finds this move strange. He believes Huawei’s US lawsuits related to the violation of US sanctions on Iran and the stealing of US IP influenced President Donald Trump’s decision.

Zhengfei questioned Trump’s method of mixing trade negotiations with legal issues. He said it’s the courts, not the government, that handle lawsuits. The situation wasn’t the first time Trump’s involvement in corporate matters came into question. In March 2018, Trump used his veto power to cancel Broadcom’s acquisition of Qualcomm (QCOM) on the grounds of 5G and national security. 

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Zhengfei said the company doesn’t pose a national security risk to the US, as its products aren’t used in US 5G networks. He thinks Trump is only using Huawei to put pressure on the Chinese government. Huawei is trying to separate itself from the trade talks and is refraining from taking help from the Chinese government. 

Huawei was not prepared for the US ban

Whatever the US’s intention behind the trade ban, Zhengfei admitted that he wasn’t prepared for it. On May 15, Intel (INTC) and Qualcomm halted shipments of chipsets, and Google (GOOG) stopped Android updates for Huawei smartphones. In less than a month, a Bloomberg report stated that Huawei executives expected overseas smartphone shipments to fall 40%–60% in 2019. The Chinese giant increased its efforts in the domestic market to offset the fall in overseas shipments.

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According to Kantar, Huawei increased its share in China’s smartphone market to 46.1% in the second quarter. Its smartphone sales in major European markets fell 1.9% sequentially in the same period. Zhengfei told Yahoo Finance that he expects the company’s global smartphone shipments to rise 30% year-over-year to 270 million units in 2019 despite the ban.

Bad news for US semiconductor players: Huawei reduces dependence on the US

Zhengfei stated that Huawei is ready for any future US bans. It has reduced its dependence on US companies for core products. It’s also cut the production of noncore products that depend on US components. This way, Huawei will continue to do business even if US companies stop shipments again.

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However, US players will lose out on an important customer. In 2018, they earned a combined $11 billion from Huawei. US-based Broadcom reduced its full-year guidance by $2 billion because of the Huawei ban. More companies will likely follow Broadcom and cut their guidances. 

Though Huawei reduced its dependence on US technology, it still depends on Google’s Android for its smartphone OS (operating system). Zhengfei said that the company’s in-house Hongmeng OS isn’t designed for smartphones. It will start developing a smartphone OS when Android isn’t an option. In the meantime, it’s developing a backup OS.

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Easing the Huawei ban

US semiconductor players lobbied the government to ease the Huawei ban, as it put them at a serious disadvantage to foreign competitors. The Trump administration eased the ban during the G20 Summit in June. Zhengfei said that some US companies had restarted shipments of less critical components to Huawei. However, the US hasn’t yet decided whether to allow the shipment of critical components.

On July 22, the CEOs of Cisco, Intel, Broadcom, Qualcomm, Micron Technology, Western Digital, and Alphabet met President Trump to discuss the Huawei ban. Trump agreed that the US Commerce Department would make a timely decision on US companies’ licensing requests to trade with Huawei. 

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Just when US-Huawei relations were easing, the Washington Post reported that Huawei was secretly helping North Korea develop a commercial wireless network. The revelation may violate US controls on exporting equipment to North Korea, as Huawei uses US technology. Huawei denies any ties with North Korea, just as it denied US IP theft and involvement with the Chinese government. Trump says the US will investigate the matter.

It remains to be seen how Trump will respond if the US finds Huawei to be involved with North Korea. Will there be another ban? 


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