Huawei’s problems with the Trump administration appear to be putting a major undersea cable project Google is undertaking at risk. Google, Facebook (FB), and a Chinese company called Dr. Peng Telecom & Media Group have teamed up to build an undersea data cable linking Los Angeles and Hong Kong. However, the Wall Street Journal reported on August 28 that US officials had raised national security concerns over the involvement of Dr. Peng in the undersea cable project and are now seeking to block it.
Dr. Peng’s cooperation with Huawei could cause problems for Google
The problem may be Dr. Peng’s cooperation with Huawei. According to the Journal, Dr. Peng lists Huawei as a partner on its website. In 2014, Dr. Peng and Huawei agreed to jointly research in AI and 5G technology.
The Trump administration has grown suspicious of Huawei products and technologies. The administration has banned the use of Huawei products in building America’s 5G network. Now the administration is rallying its allies to ban Huawei as well. US officials believe that these products could provide a back door for China to spy on foreign governments. However, the company denies the characterization that it’s a tool of the Chinese government.
In addition to banning Huawei products from US 5G infrastructure, the Trump administration has also placed Huawei on a trade blacklist. Consequently, US companies such as Google and Facebook have responded by limiting Huawei’s access to their software products. For example, Huawei’s Mate 30 smartphone, which is set to launch this month, may arrive without Google apps such as YouTube installed.
Blow to Google’s cloud business
Google has been investing in undersea cable systems to speed up connections between data centers that power its cloud services. Last year, Google disclosed having invested $30 billion in improving its infrastructure with new undersea cable networks and data centers. Therefore, we believe Google’s cloud computing business will suffer a major setback if US officials block or delay the Los Angeles–Hong Kong undersea cable project over the Huawei factor.
Right now, Google is struggling to narrow the gap with Amazon (AMZN) and Microsoft (MSFT) in the cloud computing market. Google finished the second quarter with an 8.0% share of the global cloud market. In contrast, Amazon and Microsoft held 33% and 16% shares of the global cloud market in the period, respectively. Google is counting on its cloud business to reduce its overreliance on the advertising market. Currently, advertising sales contribute more than 80% of total revenue at Google’s parent, Alphabet.