Huawei US ban metastasizes to ARM – where next?

The BBC is reporting that mobile chip designer ARM is the latest tech company to suspend its business with Huawei.

An ARM internal memo leaked to the Beeb instructed all employees to cease “all active contracts, support entitlements, and any pending engagements” with Huawei and made it clear that this was as a direct result of the recent US decisions to put Huawei on a list of companies US companies aren’t allowed to do business with.

ARM is based in the UK but is now a subsidiary of Japanese conglomerate SoftBank. However the memo apparently states that since ARM designs contain technology that originates from the US, ARM is cutting ties just in case that causes problems. Since these are probably design and software patents this move introduces the prospect that any company with even a trace of US intellectual property in its products may feel compelled to shun Huawei.

Huawei’s smartphone business is already in a lot of trouble thanks to its reliance on Android, but this ARM move will mean it can’t make its own chips either, which renders talk of OS alternatives redundant. It’s surely impossible to make a viable smartphone that contains no US intellectual property whatsoever and that may also be true of networking equipment.

The ARM business model involves licensing its semiconductor designs to third parties, who then incorporate them into their own chips. ARM’s designs are so effective, especially in power constrained environments, that they’re ubiquitous in the mobile world. The appear in not just processors and modems but IoT sensors and countless industrial applications, including a lot of networking gear. It’s hard to see how Huawei can function without access to them.

Here’s Huawei’s statement on the matter: “We value our close relationships with our partners, but recognise the pressure some of them are under, as a result of politically motivated decisions. We are confident this regrettable situation can be resolved and our priority remains to continue to deliver world-class technology and products to our customers around the world.” ARM doesn’t seem to have made a public statement yet.

Elsewhere it’s being reported that the US is mulling over the next tranche of Chinese companies to put on its blacklist. Next in the crosshairs are those that make surveillance gear, which isn’t too surprising. The way this is headed there seems to be no limit to the scope of this US ban. Only companies that do absolutely no business whatsoever with the US seem safe at this stage.

Huawei’s in-house mobile OS is a very long shot

This story includes additional reporting from Jamie Davies.

In response to the threat of an imminent Android ban Huawei has started banging on about its own mobile OS, but who would want to use it?

Huawei’s mobile business boss Richard Yu was reported by the South China Morning Post as saying “The Huawei OS is likely to hit the market as soon as this fall, and no later than spring next year.” From the report this seems more like a fork of the open source Android core OS, with novel apps and a Huawei app store, much as Amazon has done with its Fire devices range.

While this is pretty much the only option available to Huawei if Google does withdraw access to licensed parts of Android, such as the Play Store, it’s hard to see it as a viable solution. The Amazon Fire phone offers perhaps the best precedent to draw upon. The premium device ticked all the hardware boxes but used a forked version of Android without the Play Store and as a result found a new use as a paperweight across Washington state.

Huawei will be able to continue using Android, it is open source after all, though technical support is only supplied to licenced partners, while any updates are rolled out through the open source much later than for the licenced one. This will have notable impacts not only on performance, but security. The most recent WhatsApp spyware issues were corrected through such an update, though unlicensed partners would still be exposed to the risk.

The issue Huawei faces is in the ecosystem. Wang Chenglu, President of the software engineering segment of the consumer business, told media in September developing the OS wasn’t a particularly complicated issue, but getting apps, services and products into the ecosystem is.

Smartphones are no-longer communications devices. These devices, which are millions of times more powerful than the computers which sent spacecraft to space in the 60s, are the focal point of our lives. If calling and texting was all we did, there would not be an issue, but asking for directions, collecting loyalty points, watching movies, playing games, signing into work, paying bills… everyday more functionality is being put onto the devices, and all these apps will have to be migrated to the Huawei OS.

Without apps smartphones are no longer smart. Yes, you can use the internet browser to access most services that also have an app but the user experience is significantly diminished. Huawei has the resources to ensure a lot of the top apps are ported to its own OS, but not all of them. Ultimately, in a largely undifferentiated Android smartphone market, there’s no reason for consumers to accept any compromise whatsoever.

There have also been numerous reports that Huawei was shocked by the Google decision but, in hindsight, that was an inevitable consequence of being put on the entity list, which in turn followed from US President Trump’s executive order. Maybe it was the Trump decision that surprised Huawei but since the US has been steadily increasing its hostility towards it for months that too seems a tad naïve.

Appropriately enough for something that could be Huawei’s last hope this OS is reportedly called Project Z. This has apparently been on the back-burner for a while, but largely designed for the Chinese market where a lot of Android features are blocked anyway. While we can safely assume it has now been given top priority, Project Z is reportedly still miles away from completion.

Even if Huawei completed the development of its own OS today, that wouldn’t make much difference for the reasons previously stated. Chinese smartphone vendors have benefitted enormously from having access to Android, but their reliance on a third party operating system and platform was always a precarious position. The likes of Xiaomi and Oppo will be watching Huawei’s struggles carefully.

US suspends Huawei export ban for three months to help operators adapt

The US Department of Commerce has given Huawei a three month license to buy US goods in order to lessen the disruption to US companies.

The decision follows the news that a bunch of US companies, including Google, were going to stop doing business with Huawei. Not only would this do severe damage to the desirability of Huawei Android smartphones sold outside of China, but would have caused major disruption to any US companies that rely on working with Huawei.

The DoC therefore decided to grant a temporary licence allowing Huawei and US companies to buy stuff from each other for 90 days starting 20 May. Any US operator that use Huawei gear now effectively have three months to swap it out for equipment not made by anyone on the US shitlist. Any still flogging Huawei smartphones might want to take that time to return them to their source too.

“The Temporary General License grants operators time to make other arrangements and the Department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services,” said Secretary of Commerce Wilbur Ross. “In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks.”

Huawei responded with its now familiar defiance, telling Chinese media that none of this is remotely surprising and that it doesn’t even need the temporary license because it saw all this stuff coming ages ago. Additionally a UK Huawei exec told the beeb he reckons Huawei is just collateral damage in the broader trade war between the US and China, which is hard to argue with.

If you’re really into that sort of thing you can read the full temporary license decision here. This doesn’t seem to represent any softening of the US position, just an attempt to cushion the blow for US companies and consumers. It may, however, also represent a diplomatic window for US and China to try to resolve their differences and prevent the ban kicking in on 19 August. Time will tell but further escalation seems more likely than a truce at this point.

US influence on Europe failing as France resists Huawei ban

The White House might have felt banning Huawei was an appropriate measure for national security, but France does not agree with the drastic action.

Speaking at a conference in Paris, French President Emmanuel Macron has confirmed the country will not ban Huawei. This is not to say it won’t in the future, but it appears Europe is remaining resolute against the demands of the US. The burden of proof might be a concept easily ignored in the US, but Europe stands for more.

“Our perspective is not to block Huawei or any company,” Macron said. “France and Europe are pragmatic and realistic. We do believe in cooperation and multilateralism. At the same time, we are extremely careful about access to good technology and to preserve our national security and all the safety rules.”

President Donald Trump is most likely a man who is used to getting his own way, and upon assuming office as head of the most powerful government worldwide, he might have thought this position of privilege would continue. However, Europe is being anything but compliant.

In direct contradiction to the Executive Order banning Huawei from supplying any components, products and services to US communications networks, Macron has declared France open is for business. France won’t use the excuse of national security to beat back the progress of China but will presumably introduce mechanisms to mitigate risk.

Germany has taken this approach, increasing the barrier to entry for all companies, not just Huawei. Vendors will have to pass more stringent security tests before any components or products can be introduced to networks, though Chancellor Angela Merkel has also made it clear she intents to steer clear of political ties to the decision.

“There are two things I don’t believe in,” Merkel said in March. “First, to discuss these very sensitive security questions publicly, and second, to exclude a company simply because it’s from a certain country.”

The UK is seemingly heading down a similar route. Alongside the Huawei Cyber Security Evaluation Centre (HCSEC), run by GCHQ with the objective of ensuring security and privacy credentials are maintained, the long-awaited supply chain review is reportedly going to place higher scrutiny but stop short of any sort of ban. The official position will be revealed in a few weeks, but this position would be consistent with the UK political rhetoric.

Over in Eastern Europe, governments also appear to be resisting calls to ban the company, while Italy seems to be taking the risk mitigation approach. Even at the highest bureaucratic level, the European Commission has asked member states to conduct an assessment for security assessments. Unless some drastic opinions come back in October, we suspect the official position of the European Union will be to create higher security mechanisms which offer competitive opportunity for all vendors in the market.

For the moment at least, it appears the Europeans are immune to the huffing and puffing making its way across the Atlantic. That said, the trade war with China is set to escalate once again and it would be fair to assume more US delegations will be attempting to whisper in the ears of influential Europeans. At some point, the US will get tougher on Europe, but it does appear those pesky Europeans are stubborn enough to resist White House propaganda and pressure.

Don’t ignore Huawei’s ban on buying US components

While everyone is focusing on the ban on selling in the US, the ban on buying US components is a much more interesting chapter of the Huawei saga.

President Donald Trump has dropped the economic dirty bomb on China and it’s dominating the headlines. Although Huawei, or China, are not mentioned in the text, the Executive Order is clearly a move to stall progress made in the telco arena. China is mounting a challenge to the US dominance in the TMT arena, and this should be viewed as a move to combat that.

There are clearly other reasons for the order, but this should not be ignored. The security argument, albeit an accusation thrown without the burden of concrete evidence, is a factor, but never forget about the capitalist dream which underpins US society.

However, although most are focusing on Huawei’s inability to sell components, products and services in the US market, there might be an argument the ban on purchasing US components, products and services is more important, impactful and influential.

“This action by the Commerce Department’s Bureau of Industry and Security, with the support of the President of the United States, places Huawei, a Chinese owned company that is the largest telecommunications equipment producer in the world, on the Entity List,” said Secretary of Commerce Wilbur Ross. “This will prevent American technology from being used by foreign owned entities in ways that potentially undermine US national security or foreign policy interests.”

While we will focus on the ban on purchasing US components, products and services for this article, it is worth noting the ban on Huawei selling in the US will have an impact.

Rural telcos in the US have mostly been against any ban on Chinese companies. In October 2018, Huawei made a filing with the FCC arguing its support for rural telcos is underpinning the fight against the digital divide and a ban would be disastrous for those subscribers. Michael Beehn, CEO of MobileNation, was one of those who argued against the ban, suggesting the cost-effectiveness of Huawei allowed his firm to operate. Without the advantage of nationwide scale, these organizations will always struggle when the price of networks is forced north.

While the US is a massive market, with huge opportunities to maximise profits, not being able to sell in the US is not going to have a significant impact on Huawei. Its customers are the rural telcos not the national ones. Huawei has not managed to secure any major contracts with the big four, therefore it is missing out on something which it never had. Huawei has still managed to grow sales to $105 billion without the US, therefore we believe this ban is not going to be a gamechanger.

However, it is the ban on purchasing US components, products and services which we want to focus on here.

Huawei is not outrightly banned from using US technologies and services, however, those companies who wish to work with the dominant telco vendor will have to seek permission to do so beforehand. The US can now effectively how strategically it wants to twist the knife already dug deep into Huawei’s metaphorical chest.

Although we’re not too sure how this will play out, Huawei’s business could be severely dented by this move.

Huawei recognises 92 companies around the world as core suppliers to the business. It will have thousands of suppliers for various parts of the business, but these 92 are considered the most important to the success of operations. And 33 of them are US companies.

Some are small, some are niche, some are more generic, and some are technology giants. The likes of Qualcomm, Intel and Broadcom all have interests in keeping the US/Chinese relationship sweet, though more niche companies like Skyworks Solutions, Lumentum and Qorvo have much more skin in the game. Firms like NeoPhotonics, who are reliant on Huawei for 46% of its revenues, might well struggle to survive.

Huawei will be able to survive this move, it has been preparing for such an outcome, but you have to wonder what impact it will have on its products and credibility.

HiSilicon, the Huawei-owned semiconductor business, has been ramping up its capabilities to move more of its chip supply chain in-house, while the firm has reportedly been improving the geographical diversity of its international supply chain. According to the South China Morning Post, not only has Huawei been moving more operations in-house, it has also been stockpiling US components in the event of the procurement doomsday event.

A similar ban on procuring US components, products and services was placed on ZTE last year and it almost crippled the firm. Operations were forced to a standstill due to the reliance on US technology. Huawei has never been as dependent on the US, though it seems the lessons were learned from this incident.

The big question is what impact a ban would have on the quality of its products.

Huawei might preach the promise of its own technology and the new suppliers it will seek/has sought, but there is a reason these 33 US companies were chosen in the first place. Either there is/was a financial benefit to Huawei in these relationships, or they were chosen because they were best in class.

Huawei is a commercial organization after all, it wants to make the best products for the best price. There will certainly have been compromises make during these selections, either paying more for better or sacrificing some quality for commercial benefits, and having to make changes will have an impact. Huawei, and its customers, will have fingers and toes crossed there is no material impact on the business.

The other aspect to consider is disruption to operations. ZTE found out how detrimental dependence on a single country can be, and while Huawei has mitigated some of this impact, it remains to be seen how much pain could be felt should the ban be fully enforced. Might it mean Huawei is unable to scale operations in-line with customer deployment ambitions? Could competitors benefit through these limitations? We don’t know for the moment.

The ban on selling in the US might sound better when reeling off headlines, but don’t forget about Huawei’s supply chain. We think there is much more of a risk here.

Huawei hints at legal retaliation to Trump executive order

US President Trump has issued an executive order calling for major restrictions on technology suspected of assisting ‘foreign adversaries’.

In the Executive Order on Securing the Information and Communications Technology and Services Supply Chain Trump states that he reckons “foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services.” In response to that perceived threat he is empowering state officials and agencies to take pretty much whatever prohibitive action they deem necessary against any companies they consider to be under the influence of said adversaries.

On one level this is merely an official confirmation of the position the Trump administration has had on this sort of thing for a while. But it’s also a distinct call for escalation and actively encourages state agencies to be more aggressive in their response to these threats and seems to absolve them of any responsibility to present evidence of wrongdoing before acting.

The words ‘China’ or ‘Huawei’ don’t appear anywhere in the executive order, but it’s pretty clear it’s a response to the ongoing issue of Huawei’s suspected ties to the Chinese state. Of course Huawei has spent the past few months repeatedly denying the allegations, but the US position has if anything hardened and there doesn’t seem to be any more the company can do to prove its innocence.

We received the following statement from Huawei in response to the executive order: “‘We are the unparalleled leader in 5G development. We are ready and willing to engage with the US government and come up with effective measures to ensure product security.

“Restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment, and eventually harming the interests of US companies and consumers. In addition, unreasonable restrictions will infringe upon Huawei’s rights and raise other serious legal issues.”

Most of that has been publicly said by Huawei before, but the final sentence definitely hints at a formal legal response. Huawei has already opened one legal front challenging the legality of the sales restrictions already in place. Assuming US state agencies accept Trump’s invitation to act against it, Huawei may move to question the legality of the executive order itself.

Trump’s hand is hovering over China executive order

President Trump is reportedly on the verge of signing an executive order effectively banning Huawei, and other Chinese companies, from providing any products or services in the US market.

According to Reuters, the signing of the order could happen as soon as this afternoon (Wednesday 15 May) although no companies will be named specifically. It is believed US companies will be banned from purchasing any telco equipment from vendors who are deemed a threat to national security.

The vagueness of the report is perhaps down to the fact the news is not official just yet, although it might well be designed that way in the document. Intelligence agencies will presumably be requesting as much freedom from bureaucratic shackles as possible; vague language in the executive order might be by design.

The White House will allegedly use the power of the International Emergency Economic Powers Act, which offers the President the luxury of regulating commerce in response to national security concerns.

The executive order certainly comes at a sensitive time, with both the US and China on edge as trade talks have stagnated. The toing and froing over trade tariffs look set to escalate once again, with the reprieve from the threat of global trade war looking to be over.

President Trump has been suggesting talks are still on a steady path through Twitter, but many commentators believe the two superpowers are at odds with each other. Following the Chinese decision to impose tariffs on $60 billion worth of US goods starting in June, the White House is supposedly preparing a new list of $300 billion worth of Chinese imports that would be hit with tariffs of up to 25%.

The executive order, should the rumours prove to be true, could be fatal blow to the trade talks. Huawei is the telco champion of China, the poster boy of Chinese dominance in the technology world. Although Huawei will not necessarily be losing any significant business as a result of the order, it is a symbolic gesture.

While this executive order should come as little surprise, the world should ready itself for further escalation of a trade war between the two economic superpowers. Collateral damage could certainly be notable, especially in Europe where governments have been resisting US pressure to act against Huawei specifically.

China Mobile somehow surprised at FCC snub

There was no squabbling over party-politics here; both the Republicans and the Democrats agree China Mobile should not be allowed a licence to operate telco services in the US.

Making an entry for the least surprising decision ever made, the FCC has announced it will deny China Mobile, the Chinese state-owned telco, a licence to operate in the US. Despite the outcome being glaringly obvious, China Mobile is irritated at the decision, suggesting there is no reason to deny the application.

“CMI (China Mobile International) complies with and adheres to the local laws and regulations in every country it operates. In the spirit of openness and free trade, CMI applied to obtain International 214 License from the Federal Communications Commission (FCC), aiming to support telecommunication needs to customers in both countries, enhancing connections between the two markets,” the company said in a statement.

“After 7 years and 8 months of application, FCC now denies CMI’s bid to operate in the U.S. without apparent reasons and basis. It is out of market economy principles and contradicts the trend of economic globalization.”

Made back in 2011, China Mobile filed an application under Section 214 of the Communications Act and section 63.18 of the Commission’s rules to provide international facilities-based and resale services between the US and abroad. It might have taken almost eight years to make a decision, but it is exactly what you would have expected.

“Simply put, granting China Mobile’s application would not be in the public interest,” said FCC Chairman Ajit Pai. “China Mobile ultimately is owned and controlled by the Chinese government. That makes it vulnerable to exploitation, influence, and control by that government.”

“As a fierce supporter of promoting competition, permitting foreign ownership, and facilitating open markets, I nonetheless find the situation confronting us to be extremely serious, and the action we take today to block China Mobile from accessing the US telecommunications market to be a necessary step, drastic though it may be,” Commissioner Michael O’Reilly said.

This is a decision which has the full support of the FCC as well, with all Commissioners voting the same direction. Unsurprisingly, all of the Commissioners spoke of national security, the importance of communications networks in today’s society and the lack of trust in China Mobile. Simply put, the FCC doesn’t want a puppet of the Chinese state poking around its telco infrastructure.

The Huawei case is slightly nuanced as the ties back to the Chinese government are largely based on a piece of legislation and founder Ren Zhengfei’s time in the People’s Liberation Army. Here, there is no murkiness or grey areas; China Mobile is owned by the state, directly.

The FCC unanimously concludes China Mobile can’t be trusted

The Federal Communications Commission was never going to let China Mobile set up in the US market and now it’s official.

Last month FCC Chairman Ajit Pai made it clear he was against China Mobile USA’s application to provide telecommunications services between the United States and other countries and that he hoped his fellow commissioners agreed. Often there is dissent among the five commissioners, usually along partisan political lines, but this time nobody dared stick up for China Mobile.

“After an extensive review of the record in this proceeding, the Commission finds that due to several factors related to China Mobile USA’s ownership and control by the Chinese government, grant of the application would raise substantial and serious national security and law enforcement risks that cannot be addressed through a mitigation agreement between China Mobile and the federal government,” said the FCC announcement.

The long and short of it is that the US state doesn’t trust the Chinese state and therefore doesn’t trust anything owned by it. This is pretty similar to the Huawei argument, with the difference that in this case they seem to see even closer ties with the state. At time of writing the commissioners had yet to publish their statements on the matter, but one of them apparently wants the FCC to take another look at China Telecom and China Unicom too.