‘No technical grounds’ to ban Huawei says UK Parliament committee

Chair of the Science and Technology Committee in the UK, Norman Lamb, has stated there is not enough technical evidence to ban Huawei and is demanding a final decision by the end of August.

In a letter written to Jeremy Hunt, Secretary of State for Digital, Culture, Media and Sport (DCMS), Lamb has demanded a conclusion to the Supply Chain Review which has staggered the progress of 5G networks in the UK. Many in the industry have become increasingly frustrated with the state of purgatory which has loomed over the UK telecoms industry, and now the influential Science and Technology Committee has had enough.

“Following my Committee’s recent evidence session, we have concluded that there are no technical grounds for excluding Huawei entirely from the UK’s 5G or other telecommunications networks,” said Lamb.

“The benefits of 5G are clear and the removal of Huawei from the current or future networks could cause significant delays. However, as outlined in the letter to the Secretary of State for Digital, Culture, Media and Sport, we feel there may well be geopolitical or ethical considerations that the Government need to take into account when deciding whether they should use Huawei’s equipment.”

This is the interesting aspect of the letter to Wright. Lamb is effectively telling DCMS and the National Cyber Security Centre (NCSC) to hurry up and make a decision, but not to come to a conclusion too quickly as there are ethical and political considerations to account for. It’s a bit of a mixed message, but a deadline is perhaps overdue for this saga.

The message from Lamb is relatively simple; there are no technical grounds to ban Huawei. Quoting the NSCS’ assumption that 100% secure is impossible, suggesting a lack of concrete evidence against Huawei espionage, reasserting legal obligations placed on telcos to maintain security and pointing towards the international nature of supply chains nowadays are all points made by Lamb to suggest Huawei should be allowed to contribute to network infrastructure.

There are of course concessions make in the letter. Lamb is suggesting Huawei should be excluded from contributing to the network core, while there should also be a mechanism introduced to limit Huawei should it fail on-going competency tests and security assessments, but the message seems to be focused on the idea that Huawei is no more of a security threat than any other organization.

“Supply chains for telecommunications networks have been global and complex,” the letter states. “Many vendors use equipment that has been manufactured in China, so a ban on Huawei equipment would not remove potential Chinese influence from the supply chain.”

Another interesting point raised by Lamb is the legal obligation which has been placed on the telcos to ensure security. Communications infrastructure is a key component to today’s society, but the telcos are the ones who will suffer some of the greatest consequences for poor risk mitigation and due diligence. None of the telcos have raised concerns of an increased security risk from Huawei, and this should be taken as some of the most important evidence when considering the fate of the Chinese vendor.

Ultimately, this is action from the Government. It might kick-off some bickering between the parties (Lamb is a Liberal Democrat) and between departments, but finally someone is forcing DCMS and NSCS into a decision. It seems Lamb is not concerned about the distraction of a party leadership contest or Brexit, he simply wants an answer by the end of August.

Interestingly enough, this letter also forces DCMS into basing the outcome of the Supply Chain Review on politics. By stating there are no technical grounds for a ban, should Wright and his team want to exclude Huawei it will have to be done for another reason. Lamb has asked DCMS to consider the ethical and political weight of a decision, as well as the impact it might have on relationships with allies.

This is now a very difficult decision for DCMS. Lamb has seemingly taken technical considerations off the table; any ban would have to be political.

Ren’s back to tell us how Huawei is starting to ditch the US

Huawei founder Ren Zhengfei appears to be little more than a celebrity spokesperson nowadays, but a recent interview suggests the vendor is just fine with its US shunning.

Speaking to the Financial Times, Ren has once again been called into action to address the tensions between China and the US, as a result of which, Huawei has become a prime target for anyone hoping to inflict damage on the worlds’ second largest economy. The message from Ren is relatively simple; we’re doing OK and we’ll move away from US suppliers.

Such comments will certainly set off alarm bells in the offices of some US semiconductor firms, but it should hardly come as a surprise. The ‘Made in China 2025’ strategy might be unpopular with the US and Europe, but it is by no-means a secret.

‘Made in China 2025’ is an initiative set into action by Chinese Premier Li Keqiang during 2015. Through this initiative, the Chinese Government wants to evolve the perception of the country, ditching the ‘world’s factory’ tagline and moving up the value chain towards higher value products and services. The Government will be contributing $300 billion to the project to enable China to compete with the US.

This plan has been heavily criticised by the US for a number of reasons, but ultimately it all boils down to one; this is a genuine threat to the technological domination of the US on the global scene.

Of course, there are plenty of reasons not to like the idea. Some have suggested it violates the World Trade Organization (WTO) rules on self-sufficiency. Others have said trade secrets have been stolen from foreign companies or unfairly obtained through forced joint-ventures. For ‘Made in China 2025’, companies have to move up the value chain, targeting growth industries such as AI or medicine, and these smarts have to come from somewhere.

However, you always have to bear in mind the end-result irrelevant of path taken to get there. If ‘Made in China 2025’ succeeds, the US will no-longer be the dominant force in the technology world, and other economies could be shattered if China replaces imported goods with domestic.

In the latest interview, Ren is suggesting that even if there is a reprieve from President Donald Trump following the G20 summit last weekend, Huawei will continue to move its supply chain out of the US. Perhaps this is the catalyst which was needed to kick the ‘Made in China 2025’ concept up another gear.

“The US is helping us in a great way by giving us these difficulties,” said Ren. “Under external pressure, we have become more united than ever.

“If we aren’t allowed to use US components, we are very confident in our ability to use components made in China and other countries.”

Although there has been a concession from Trump with regard to the ban facing Huawei, some might view this pardon with scepticism. The President’s opinion seems to change more often than the tides so why would any organization pins its hopes and aspirations on the door of the Oval Office. Instead of a power demonstration, the US seems to have pushed the Chinese further towards autonomy.

While it is far from confirmed, we strongly suspect the huffing and puffing from the White House was little more than a demonstration of power. Huawei’s entry onto the Entity List might have been an aggressive move to gain the upper-hand in trade talks with the Chinese; look what we did to ZTE last year, the US appears to be saying, so play nice or we’ll do the same to Huawei.

But it doesn’t seem to have worked; Huawei is still alive and still OK, if you listen to Ren.

How OK Huawei actually is remains to be seen. Ren has been wheeled out to put a positive spin on the situation, but the picture is rather gloomy. Smartphone shipments are set to decline by 40-60% over the remainder of the year, Google hasn’t said it is once again on friendly terms with Huawei despite Trump’s amnesty, and some have questioned whether China is capable of filling the semiconductor hole created through the China/US vacuum.

Huawei has done a lot to add diversity to its supply chain in recent years, while also moving numerous operations to its own fabless semiconductor company HiSilicon, but can it satisfy its appetite for more specialised components? Huawei works with a number of US firms who have niche operations, Qorvo supplies radio-frequency systems and solutions for Huawei for example, and when it comes to specialised components, the US rules the world.

For certain segments of the semiconductor industry, field programmable gate arrays as another example, and China has not been able to replicate the US success just yet. Despite what Ren says about moving Huawei’s supply chain out of the US, it will still be reliant for some incredibly important cogs.

One way of viewing this situation is that there is a short-term demonstration of power. Without the likes of Xilinx, Qualcomm, Qorvo, NeoPhotonics and numerous other semiconductor businesses, Huawei cannot produce the products it is promising customers. Not yet at least.

But long-term, perhaps this approach is simply forcing ‘Made in China 2025’ to accelerate and eroding the control the US has globally over some very high-value, highly profitable segments. Prior to the trade war, US companies were inside the tent. Admittedly conditions were not perfect, but they were inside not outside.

Perhaps this is the watershed moment; companies are going to be forced out as companies like Huawei increasingly look for domestic suppliers, and once they find them (by luck, convenience or necessity) there is no coming back.

Trade deal on the cards if Trump leaves Huawei alone

For weeks and weeks there has seemed to constantly be new stories to write about the US/China trade war, and on the eve of the G20 meeting, the dynamic duo haven’t disappointed.

This week, representatives of the 20 richest countries around the world will meet in Japan to discuss everything from fishing regulations through to finance and climate change. Telecommunications, and more specifically cybersecurity, will of course be on the agenda, and most importantly, it will feature in the meeting between President Donald Trump and President Xi Jinping.

Of all the bouts over the next couple of days, this will be the one everyone is paying attention to. The leaders of the worlds’ two largest economy, duking it out to gain supremacy. Trump has said he wants a trade deal, and so has Xi. These two nations not getting on is no good for anyone, but it seems neither wants to appear as weak and concede ground.

The latest development is coming out of Beijing. Xi has stated he is open to a trade deal between the two nations, but Trump would have to stop targeting Huawei as a proxy for passive and active aggression against the Chinese Government.

This is going to be a massive ask from the Chinese premier, as while Trump is fully willing to use companies as pawns in his greatest negotiation, the supporting cast in Congress might not be as willing. We’ve already seen this during the ZTE saga.

It might seem like a lifetime ago, but it was in mid-2018 ZTE found itself in the crosshairs of the White House. Trump built up the situation, seemingly as a demonstration of the power of the Oval Office, and once the point had been made he tried to stand down. But Congress stood in the way.

26 Senators, somewhat hardliners, attempted to block the de-escalation from Trump. They seemingly bought into the evil stories told by Trump as validation for such actions and weren’t willing to let the company off the hook. Trump wanted to play a game with ZTE as movable piece, but Congress wasn’t reading the rule book.

The same situation might happen here. Opinion in the US has been directed towards Huawei being the weapon of Chinese oppression on the world, and Trump has been the most vocal when it came to hyping the fear. Even if Trump does want to step down from this position to facilitate a deal, Congress might once again prevent him.

Trump seems to have done a good job in convincing politicians of the national security threat, and Congress does not seem to have the same game-playing attitude as Trump; if something is a national security threat, it will remain one. The opportunity of commercial gain will not change that.

This is of course assuming Trump wants to make a deal. Xi has played his hand, set out his demands with Huawei, and Trump seems to be just as combative. In interviews and tweets, the President has condemned Canada for tariffs on agricultural products, slammed India for its own tariffs and suggest China’s economy is ‘going down the tubes’.

Currently we have two Presidents who do not seem like they are going to shift. In their homelands they have created personas of strength, leaning on hawkish strategies not diplomacy. It would be fair to assume a continuation of the status quo.

Silicon Valley rallies against Washington over China tariffs

‘Make America Great Again’ might be the slogan pinned to anti-China aggression from the White House, but Silicon Valley is creating a tsunami of discontent against the short-sighted policies.

The Office of United States Trade Representative (USTR) has opened up for public comment regarding a new wave of tariffs to be placed on Chinese exports. While this will generate additional income for the US Government, anyone who believes these actions will not be reciprocated by the Chinese Government is probably fooling themselves.

For months, President Donald Trump has seemingly held a belief he can do whatever he chooses without repercussion, and the industry has largely stood-by with little action or objection. But no-longer, the list of comment submissions is growing by the hour, and there are some pretty big names to take notice of.

In one statement, Intel, Microsoft, HP and Dell Technologies have jointly submitted an opinion suggesting the laptop industry will be under-threat. The team point to price increases for US consumers and businesses, while also claiming the action would weakening the competitive edge these companies have on the international market.

“At the same time, the imposition of tariffs on such products would not address the underlying Chinese trade practices that USTR’s investigation seeks to remedy,” the submission states. “Instead, the tariffs will harm US technology leaders, hindering their ability to innovate and compete in a global marketplace.”

Price is of course a concern to these businesses, as the consumer electronics segment is one which operates under the cloud of low margins and high costs. With the threat of Chinese retaliation on the horizon, costs could be about to soar. With this in-mind, the team would the proposed tariffs to be amended with a horde of exemptions.

And when there are increased costs, there are fewer profits and therefore less money to spend. The jobs category is one which could be under-threat.

“While we appreciate the Administration’s efforts to address longstanding issues the software and other innovative industries face in China, we are concerned that the proposed modification will significantly and negatively impact economic growth, jobs, and innovation,” said Tommy Ross, Senior Director of Policy for The Software Alliance. “The proposed tariff increases will raise costs and reduce competitiveness across the international software industry and beyond.”

According to Ross, the software industry employs 2.9 million US citizens directly, while supporting a further 10.5 million indirectly. The tariffs threaten profitability and the ability for the firms to hire. This may well have a negative impact on growth as well as innovation.

On the handsets and devices side of things, there are of course numerous comments from a range of different parties. John Shane of Fitbit is requesting the USTR remove HTSUS

subheading 8517.62.0090 from the tariff list, as this would cause economic harm to his firm and its competitors, while also having the perverse effect of advancing primary Chinese

objectives under Made in China 2025.

Roku is another which has objected, suggesting Section 301 could negatively impact its ability to capitalise on the opportunity it has with the Roku Operating System. Roku has emerged as somewhat of a challenger to the traditional TV market, with 54% of Roku users not utilising traditional linear TV. This is an emerging segment, though Jim Lamoureux argues the tariffs would inhibit innovation and impact Roku’s ability to lead globally in this potentially profitable segment.

This is the greatest danger of the USTR actions against China with these tariffs; retaliation from the Chinese Government might ensure the damage inflicted on US firms and the prospects of the wider US economy in the international markets would exceed the benefits.

Then you have to consider the impact the White House’s actions will have on allied nations.

“While the USTR has a vital role vis-àvis China, the proposed tariffs could unwittingly affect products made by American, European, Japanese, South Korean, Taiwanese firms and firms from countries of non-offending origin – the very countries with whom the US wants to strengthen trade going forward,” said Roslyn Layton of the American Enterprise Institute.

In her comment, Layton has voiced support for the actions, though seems to encourage more thought when it comes to the law of unintended consequences. Layton seems to be encouraged by firm position the USTR is taking in opposition to China but questions the effectiveness of its current path.

You have to wonder how much collateral damage the US Government is prepared to stomach in its crusade against China. We strongly suspect it does not care in the slightest that a firm of a couple of hundred people are negatively impacted, NeoPhotonics has been crippled by losing Huawei as a customer, but when the tech giants start to get twitchy politicians might start taking notice.

Layton also pays homage to the international allies of the White House. Trump has not exactly been collecting compliments on his diplomatic strategies over the last couple of years, and should the tariffs directed at China have negative impacts on its trade partners, we can imagine strained relationships would be put under further pressure.

All of these businesses are requesting exemptions from the tariff list, but also question the logic behind the decision. There is going to be collateral damage and friendly-fire, though you also have to question whether the strategy is going to satisfy the desired aims.

What is also worth noting is that we are only focusing on the technology segment here; there are more than 2,000 comments so far on a very wide range of topics, industries and verticals. A large number of these submissions are calling for exemptions on the products, components or services which are deemed critical to their work. We suspect if you go through every comment, every item on the tariff list will be mentioned by someone, somewhere.

There are still a flood of questions and concerns which need to be addressed by the USTR, though one which we are interested in is who the US Government will choose to wear the collateral damage. Some exceptions will be granted, and some requests will be ignored. The USTR has to decide which industries to protect from the trade-war and which are going to sacrificed for ‘the greater good’.

US politicians alarmed by Facebook’s cryptocurrency masterplan

The announcement of a new currency led by Facebook has caught the attention of US law-makers and not in a good way.

The Chairwoman of the House Financial Services Committee, Maxine Waters, is alarmed by the prospect of a massive company with a patchy track record when it comes to data protection and censorship having control of a global currency. She published the following statement on the matter soon after the unveiling of Libra.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” said Waters. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a FTC consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.”

Waters isn’t the only representative to express concern and at least one Senator has joined the party, as you can see in the tweet below. Regulators are going through a period of realising they were very slow to acknowledge the magnitude of social media and they should be keen to show they’ll be less complacent about money than they were information. It seems likely that Facebook will have to jump through a lot more hoops to launch this product than it has had to previously.

Industry quietly lobbies against Trump’s anti-globalisation agenda

Slowing down the progress made by Huawei on the global stage might be a win for the White House, but US firms are not seeing the benefits as some are reportedly lobbying against the infamous ban.

In a televised interview this morning, Huawei Founder Ren Zhengfei suggested sales forecasts will be negatively hit by the firms debut onto the US ‘Entity List’, taking two years to get back onto the 2018 trajectory. For the White House, this might be vindication of its aggressive anti-Huawei agenda, but not everyone is happy about how events are unfolding.

According to Reuters, US semiconductor firms are quietly lobbying the US Department of Commerce in an attempt to limit the negative impact of the ban. Let’s no forget that while the White House might seem against globalisation trends right now, the success of these firms is largely based on the idea of free-trade and capitalising on the rapid evolution of international markets.

The issue which these firms face is one of commercial loss and gain. Huawei is one of the industry’s biggest consumers of semiconductor products, with the firm rumoured to spend roughly $20 billion a year on such products. When you look at the impact on some firms, you can see why the semiconductor industry is getting a bit twitchy.

Last week, Broadcom lowered its sales forecast for the year by $2 billion, pointing towards one of its customers being caught up in an international trade-war. Although Broadcom has not explicitly stated how much of the total revenues are attributable to Huawei, firms are only compelled to do so when it is more than 10% of the total, the numbers would suggest it is not far off that percentage.

And Broadcom is not alone on relying on Huawei as a customer. Qorvo depends on Huawei for 11% of its total revenues, while Lumentum has said Huawei accounted for 18% of all shipments during the last quarter. As a result, Lumentum’s sales forecast is now $30-35 million less for the year. Xilinx is another chipmaker which has been impacted by the ban on selling components to Huawei, and there are others as well including Intel and Qualcomm.

As a result, numerous lobbying efforts are reportedly being held behind closed doors to mitigate the impact. This might be exemptions or the creation of loopholes, but the friendly-fire is quite notable in this segment.

What is worth noting is that there are other lobby efforts going on also. Google is rumoured to be in active conversations, suggesting its operating system Android should be exempt from the ban on the grounds of national security. Google is arguing that should it be banned from working with Huawei, it would not be able to provide timely security updates which could make the devices vulnerable to hacking and data breaches.

However, there is a commercial angle to all of these arguments which might gain more traction in the minds of the government puppeteers.

At Google, the firm has a dominant position in the OS market. Huawei’s alternative OS might not be able to dislodge this position, but it does have a significant domestic market to drive user adoption. If a suitable alternative to Android emerges from the Chinese telco flagbearer, it would not be unimaginable to see mass adoption in the Chinese market. Once it has domestic domination, it would not be unusual to see international expansion to the China-friendly nations. This would potentially erode Google’s influence on the world.

In the semiconductor space, the risk is of the emergence of a homegrown Chinese-semiconductor industry.

This is not to say China does not already have a presence in the semiconductor space but forcing Huawei away from the US could be the catalyst the slumbering sector needs. Companies like Shenzhen Fastprint Circuit Technologies and Jiangsu Changjiang Electronics Technologies have been making financial gains in recent months, both in terms of revenues and share price, while Huawei’s HiSilicon has also been ramping up.

The US is dominant in the semiconductor market and will probably continue to be. There is a gap in competence for core technologies in the Chinese segments to eclipse this position, though the risk is erosion of profits. The more competitors there are on the market, the lesser the market share for US firms. This assumption might well be exaggerated when you consider the preference of Chinese firms for a homegrown supply chain.

For the semiconductor industry, this should be seen as a red-flag. The Semiconductor Industry Association (SIA) has already suggested the industry is in a bit of a slump at the moment, with sales for April down 14.6% year-on-year. The SIA does have international members, though its biggest role is to represent the interests of US manufacturers. The last thing these firms need right now is more bad news when the market is already dampening.

The result of this friendly-fire is conversations behind closed-doors. The Trump administration is seemingly trying to dilute the influence of China on the rest of the world, though it appears to be having the same impact on some US firms. We’ve said this before, but the result of this trade-war seems to be nothing by a net-loss globally right now; no-one is winning, and it seems to be a matter of damage limitation.

What the White House should be wary of is whether this anti-China agenda is starting to look like a personal vendetta for the President. If there is notable damage to US firms as well as Chinese, the White House must question whether the current strategy is the most effective.

Is ‘Make America Great Again’ is the motto of the White House, it would be useful for the rest of us to understand how much friendly-fire will be tolerated in the quest to destroy the Silk Road.

US pressure forces UK government rethink about the Huawei situation

On the opening morning of the 5G World 2019 event in London, the UK Secretary for DCMS Jeremy Wright revealed the Huawei situation has been complicated by events in the US.

Wright’s keynote address didn’t initially address any specific companies, focusing instead on some fairly scripted stuff about the importance of 5G to the future of the UK. “As a government we see 5G as a great opportunity,” said the Secretary of State for Digital, Culture, Media and Sport.

He did make the announcement that his department has just started a consultation on reforms to the planning process to make it easier to roll out 5G infrastructure, including fibre, and revealed the Ministry of Defence recently freed up a bunch of 8 GHz spectrum.

Wright concluded his talk by emphasising the importance of security in the nascent 5G network, reflecting that the UK’s security framework needs to be significantly strengthened. He was clearly skirting around the specific matter of Huawei but it took further prompting from the host of the keynotes, Light Reading Editor Ray Le Maistre, for him to cut to the chase.

The government review currently underway is not specific to any company or even country, Wright was keen to stress. But referring to “the company everyone has in mind,” without actually naming Huawei, he said some recent complications, especially from the US, have made the decision about what to do with respect to Huawei’s involvement in the UK’s 5G network, even more difficult.

Reading between the lines, Wright seemed to be leaving the door open for a tougher government line on Huawei than had been implied by the leak from a few weeks ago, which indicated the UK would try to plot a middle course in which Huawei would be involved to a limited extent. The complications referred to probably mean the ramping of political and intelligence pressure from the US and it wouldn’t be surprising to see the UK eventually do what it’s told with respect to Huawei.

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.

Politicising cybersecurity hurts everyone – Huawei CEO

As it is becoming increasingly difficult to discuss Huawei without mentioning security concerns, Rotating Chairman Ken Hu has joined the masses.

Speaking at the Huawei Analyst Summit, Hu confronted the issue head-on. “If an issue is politicised, the discussion will be moved away from facts and onto feelings,” said Hu.

“This kind of approach risks putting technology into a fragmented discussion. The fragmentation of technology will impede innovation and increase costs. This will be a burden for all of society. This will not just be a challenge for Huawei, but the entire of industry and society.”

While it might sound like a PR plug in the battle to combat US political aggression, Hu is talking sense. Political rhetoric has a way of whipping the masses into a frenzy and all of a sudden, you’ve forgotten the foundational point of the debate. Just look at the mess Brexit evolved into over the last five years.

For Hu, the message this week is relatively simple; look at the facts, look at the technology and look at the consequence of rash actions. This point has been accompanied by an admission Huawei needs to do better when it comes to security and software, but many will argue this should be an industry wide position.

This is the danger that Huawei currently faces. The carrier business group took a hit over 2018 with revenues declining by 1.3%. This is perhaps best attributed to the dilly-dalliance of European telcos in moving ahead with 5G, the prospect of spending money with a company which may potentially get banned is a dangerous one, but progress is being made. However, the climate of uncertainty is impacted the confidence of telcos to invest.

Huawei has suggested to Telecoms.com it has now shipped more than 64,000 5G radios worldwide, therefore there must be customers somewhere. How many of these shipments have been made outside of China remains unknown, but revenue is revenue.

In fact, David Wang, Chief Strategy Marketing Officer at Huawei, suggests the carrier business group will enter back into double-digit growth over the course of 2019. But where is this revenue coming from?

First of all, 5G. Huawei might be banned from a few major markets around the world, but it isn’t banned from all of them. The UK is an example. Deployment might be slower in the UK than in Japan or the US, but progress is being made and Huawei continues to be an important partner to UK telcos.

Secondly, let’s not forget about 4G. With VoLTE still continuing to be an important factor of almost every network the telcos will have to continue to push geographical coverage. This network extension will continue to bolster Huawei bank accounts, such is the dominant position it has crafted in the 4G market.

The final area which Wang mentioned is 5G preparation. Some countries might still be in the trial stages of 5G, but they are certainly readying their networks. One facet of this is increasing the capacity of mobile backhaul, and fortunately for Huawei, it is one of the global leaders in the transmission game.

Security might be an on-going issue for Huawei, but it is by no-means killing the ambitions of the business. The risk is whether this discussion continues to swirl around the political domain, and it remains to be seen whether Huawei can shift the security question back to a technology basis. The recent decision from Germany suggests there is hope, and Huawei will be hoping more countries base decision making on risk mitigation principles, not political influence.