Coronavirus shuts down Samsung manufacturing site

Having forced the hand of the GSMA to cancel this years’ Barcelona bonanza, the coronavirus is now making itself known in Korea.

While the majority of a Samsung factory is now open, the floor where in infected employee worked will remain closed until the morning of February 25, according to Reuters. The impact should not be too significant to the Samsung business as this site only accounts for a small proportion of the total manufacturing output, it is another example of how the coronavirus outbreak could dent global supply chains.

“The company has placed colleagues who came in contact with the infected employee in self-quarantine and taken steps to have them tested for possible infection,” a spokesperson said.

Samsung might play down the impact of the closure on its business today, though it is also worth bearing in mind the coronavirus outbreak seems to be accelerating in Korea. The South Korean government has put the country on the highest threat level, after the number of cases just to 763 over the weekend.

As it stands, there has seemingly been little material impact to the industry, aside from limitations to travel and cancellations of conferences. Minimised facetime with partners and customers will of course impact business, though should manufacturing sites start to shut down, the consequences could be very expensive.

The telecoms and technology industries are under particular risk, considering the majority of manufacturing activities are concentrated in China.

“In line with recommendations from the Chinese authorities related to the Corona virus, Ericsson’s production and offices in China were closed until 9 February and this will result in limited to no impact on our customers,” an Ericsson spokesperson said.

“We continue to follow the situation and recommendation from the Chinese authorities and WHO [World Health Organisation], as we assess our supply chain.”

Ericsson is one company which is seemingly in a more comfortable position. Some products are manufactured in China, though the company also has sites in Estonia, the US and Brazil. Each of these sites can see production ramped up to compensate for any short-falling elsewhere.

As it stands there are more than 70,000 coronavirus cases in China, though the Hubei province has felt the greatest impact. Xiaomi is one company in the TMT space which has been impacted in a material way, its second headquarters is located in Wuhan, though as much of the telco industry is located in the Guangdong province, supply chain impact has been minimised for the moment.

Huawei is another company which was forced to close its doors in early February, though the company has suggested this was an extended holiday period for employees, and it is now back to 100% manufacturing capability.

“In short, we are doing an industry assessment,” said Ryan Ding, President of Huawei’s carrier business unit. “But we can say, for the next 3-6 months there will not be an impact on our global supply chain.”

Right now, the company has stockpiles of product and components which will ensure there is no complications to supply, both in terms of smartphones and telecoms network infrastructure equipment. As the sites are now functional again, it does look like the most serious consequences can be avoided, though this is based on the presumption the coronavirus outbreak will not continue to escalate.

The immediate risk to the closure of manufacturing sites is an inability to meet demands of customers with products, but also sourcing materials and components. Scarcity of components would only increase the price of products, meaning companies would have to either accept lower profit margins or pass the increased cost onto customers.

While the Chinese companies are the most obvious risk to the global supply chain, let’s not forget China is the manufacturing hub of much of the TMT industry. Ericsson, Nokia and Apple can also trace their supply chain back to Shenzhen. Currently, the delicately balanced supply chains are remaining intact, though this should be viewed as a significant risk to the telecoms industry.

Imagination re-wins Apple as customer

Almost three years ago, Apple decided it could get by without Imagination Technologies as a supplier, but 2020 gets off to a flier for the UK chip firm resigning a licencing agreement.

Details are thin on the ground for the moment, though this completes a very circular story for the Hertfordshire-based company. Imagination Technologies has now confirmed Apple has signed a multi-year agreement to access a “wider range of Imagination’s intellectual property”.

The original deal between the pair was signed in 2014, though it only took three years for Apple to decide it wanted to move operations in-house. This is becoming an increasingly common tactic for the iLeader, the acquisition of Intel’s 5G modem business is another example, though it seems Apple was not able to replicate the success of Imagination Technologies’ graphics cards.

Although Apple is still a highly profitable company, slowing growth and increased costs for the iPhone have presented a problem on the spreadsheets. As a result, CEO Tim Cook has attempted to supercharge the ‘software and services’ division to generate momentum, while bringing more of the supply chain in-house is another way to create efficiencies and profits. Imagination was a victim of the latter.

As a result of losing Apple as a customer, and more than half of the company’s annual revenues which were tied to the firm, Imagination Technologies saw its share price plummet 70% and eventually have to succumb to being sold to Canyon Bridge, a Chinese-backed private equity firm, for £550 million. At the peak of its powers, Imagination Technologies was worth more than £2 billion.

The agreement with Apple comes a month after the launch of the A-Series chipset, which Imagination Technologies CEO Ron Black described as the “most important GPU launch” in 15 years. This is of course little more than posturing from the CEO, though Apple clearly bought into the buzz, that or it figured out that designing and manufacturing GPUs is more difficult than it first thought.

Huawei’s Mate 30 is void of any US components

If the objective of the White House was to destroy Huawei by undermining its supply chain, the strategy is seemingly heading towards failure.

Only a few months after announced it had built a 5G base station without US contributions, Huawei has now stated its latest smartphone is free of US components also. According to device teardown by UBS and Fomalhaut Techno Solutions, originally cited by the Wall Street Journal, Huawei has managed to find supply chain alternatives for every US supplier.

“We would like to continue using American components,” said Huawei Head of Cybersecurity John Suffolk. “It’s good for American industry. It’s good for Huawei. That has been taken out of our hands.”

While some might have been nervous about the Huawei ban when it first emerged out of the Oval Office, some fears may have been lessened today. With Huawei capable of producing smartphone products and 5G base stations without purchasing hardware from US companies, it does appear the economic dirty bomb dropped by the White House will not have the desired impact, as it did on ZTE in 2017.

What is worth noting is that hardware is only half the battle when it comes to delivering consumer experience; the software is equally or more important. Without Google services or the Android operating system, Huawei’s smartphone business is most-likely to see a slow in sales in Western markets.

However, what remains to be seen is whether the devices and base stations are in-line with the high-standards customers, both consumers and telcos, have become used to. Changing the components of a products is highly-likely to impact performance in some manner, though whether this is a material downgrade remains to be seen.

This outcome might irritate the strategists in the White House, though it does appear another plan is currently in the works.

According to two sources, the US Government is considering extending the trade ban. Not only would the new scope include US companies, but also companies who are based in allied countries of the US. This would most likely create a catastrophic impact to Huawei’s business.

What is worth noting is that just because the US wants allies to place trade barriers in-front of Huawei doesn’t mean they actually will. Most US allies have refused to ban Huawei from selling 5G products to telcos, despite pleas, posturing and threats. The huffing and puffing from the White House does not seem to have that much impact on European nations, for example.

President Trump might have spent his first 70 years forcing his will on others in the commercial world, but he has found out Presidents and Prime Ministers of sovereign nations are not as easily swayed by temper tantrums.

US security concerns rubbished by industry and academic feedback

If you thought the UK’s Supply Chain Review was coming to an end, think again as policy makers have been given more food for thought as part of the 5G infrastructure and national security inquiry.

Entitled ‘Ensuring access to ‘safe’ technology’, Parliament’s Joint Committee on the National Security Strategy has opened itself up to public comment. Although it comes as little surprise, the feedback is relatively consistent; let the industry work with Huawei and take a risk-based approach to managing infrastructure and networks.

For those looking across the Atlantic, there might be some hurt feelings. Business and academics from across the UK have largely panned concerns, albeit in very polite wording, suggesting that while there are security standards and regulations to ponder, the US rhetoric is largely not supported by evidence and undermined by its own actions.

Submitted to the inquiry mid-way through last week, the team at Oxford Information Labs makes a very valid point regarding Huawei’s entry onto the Entity List:

“The ban was immediately suspended for 90 days, and that suspension was continued for a further 90 days in August 2019, casting doubt on whether Huawei really did represent an immediate ‘national emergency’ as originally claimed.”

Many might have contemplated this opinion, but few have vocalised it. If Huawei is such a threat to US citizens and business, why has the US Government so easily allowed it to continue to do business within its borders? If the White House propaganda is to be believed, Huawei should be erased from the Land of the Free, though the US Government has continued to validate its presence through the two exemption periods.

There is of course the damage to US businesses to take into account but suspending the enforcement of the ban does undermine the insistence that Huawei is the tip of the Chinese sword.

Another point to consider, which is constantly overlooked, is the depth of evidence to support the wild claims of the White House.

“The US Congress has a long history of making accusations against Huawei, though it has never produced any technical evidence to show that it has undermined the security of its network equipment or that it has impaired the performance of or shutdown networks using its equipment,” said Ewan Sutherland, a telecommunications policy expert from the University of the Witwatersrand.

From a personal perspective, your correspondent feels this is an element of the saga which should be taken very seriously. Due to market consolidation and the intensive R&D demands of 5G, there are already few suppliers for the telcos to consider. If one or two of the major players are to be removed from the supply chain, this is a significant decision to make. Evidence should be at the heart of these actions.

This is an element of the debate which everyone should take into account. Huawei has no material presence in US networks, aside from working with a small number of regionalised players. The US does not have to take an evidence-based approach to banning Huawei, as there is little consequence. Other nations, who have existing relationships with Huawei, must take a much more contemplative approach as there are much more serious implications.

The call for Huawei to be managed as opposed to banned is one which has echoed out of the offices for some time. Vodafone has consistently called for a risk-based approach to procurement, while Three in its evidence to the inquiry has demanded the delay to deployment be minimised. This would appear to be the rational approach, though the UK Government does seem hard-pressed to support it.

This is where the telecommunications industry has backed itself into a corner. In the pursuit of a more cost-efficient supply chain, consolidation has been rife. Alcatel, Lucent, Motorola and Nortel were all victims of the consolidation trends, streamlining the number of suppliers who can offer services to the telcos at scale. Telcos now have to look at Chinese vendors to ensure there is competition.

In an ideal world, the UK or US Government might be able to point to a domestic supplier and suggest more products and services are sourced there. This would allow the Government to have more of a handle on development requirements, and despite the suggestion of a new player emerging, this is unlikely to have any material impact on 5G.

“Perhaps, the United States will push or support the creation of a new manufacturer of RAN, though it would need to be for 6G or 7G, rather than 5G,” said Sutherland.

The likes of Huawei, ZTE, Ericsson and Nokia have been investing in 5G R&D for close to a decade and have already begun 6G investigations. What chance would a new, standalone player have in penetrating this market within the next 10-15 years?

Looking through all the submissions, there seems to be a consensus. There are only three network vendors who can realistically support rapid 5G network deployment at scale, and Huawei happens to be one of them.

Regulators do need to have a much more considered approach to acquisition and mergers in the future, if not for any other reason as to avoid the bureaucratic congestion which we are seeing through this entire Supply Chain Review process.

Another interesting takeaway from the evidence which has been presented, is the desire to remain closely aligned with Europe following Brexit. This should not be considered new either, though perhaps this could build a bridge to repair the damage done by posturing politicians during the Brexit negotiations. Let’s not forget, Europe is the UK’s largest trading partner, and this will not change any time soon; relationships will have to be re-forged following the divorce.

Last week, the European Commission collated all responses from member states into a white paper which said very little which was not already known. 5G presents more of a security threat than generations prior, while state-sponsored attacks are becoming more of a risk. While this might have been seen as busywork, it was a necessary step in the bureaucratic maze to getting something done.

Over the coming months, member states will submit more evidence and recommendations to create what could become a pan-European approach to mitigating risk and rolling out 5G networks. What the submissions are suggesting to the UK Government is that any future proposals on the Isles align as closely as possible to what our European cousins are suggesting. Not only does this provide international consistency, it is a sign of good faith for future trade and political relationships.

Although this is not the end to the protracted evaluation of Huawei and the role of Chinese vendors in the UK network infrastructure segment, it does paint a very strong case for inclusion.

Europe has proven to be a key battle ground in the increasingly fraught conflict between the US and China, and few companies are more exposed to the risk as Huawei. This is a vendor which captures billions in profit in its domestic market, as well as across Asia, though Europe contains a significant number of very prominent customers. However, the trends do seem to be heading the right direction.

Germany has recently said it would not legislate Huawei out of the country, Italy signed a Belt and Road Initiative deal with China in March 2019, Belgium has conducted its own review without consequence to the vendor, while France and the Czech Republic have given warnings but not definitive action. While it is still anyone’s best guess, the UK looks like it is heading towards a risk-based position, potentially enforcing a multi-vendor approach to procurement.

Of course, while logic and behaviour suggest this is the most likely outcome, there is a lot which can go wrong. The UK will have to balance up the impact on existing and potential relationships, especially its standing in the valuable Five Eyes intelligence community.

At some point in the future, the Government is going to have to make a decision. The prolonged review of the supply chain does not sit beside political ambitions for a rapid rollout of 5G or the accelerated timeline for a full-fibre nation. The longer this review takes, the less likely it is the UK will be a major player in the digital economy.

Vodafone searches for supply chain rejig through OpenRAN

Vodafone has announced it will introduce OpenRAN technology in various parts of its UK network, as well as the Democratic Republic of Congo (DRC) and Mozambique.

In what appears to be an effort to break down barriers to work with new vendors, Vodafone will seek to empower the ecosystem through the introduction of commoditised hardware. This is the first trial of the technology in a ‘developed’ market, leaning on trials which have taken place in Turkey and South Africa.

“We are pleased with trials of OpenRAN and are ready to fast track it into Europe as we seek to actively expand our vendor ecosystem,” said Vodafone CEO Nick Read.

“OpenRAN improves the network economics enabling us to reach more people in rural communities and that supports our goal to build digital societies in which no-one is left behind.”

Launched through the Telecom Infra Project (TIP), the OpenRAN initiative aims to build 2G, 3G and 4G RAN solutions based on a general-purpose vendor-neutral hardware and software-defined technology. With vendor-neutral hardware hitting the networks, the aim is to reduce reliance on a small number of vendors, de-couple the hardware and software components of the network more stringently and reduce the vast expenditure made on network infrastructure.

The UK trial will focus on rural locations, perhaps to reduce the exposure of failure. These are also the cell sites which will cost the most and offer the smallest profits. There is a lot to gain here, while the consequence of failure will be limited.

“Encouraging the emergence of new suppliers would give operators greater choice in a far healthier ecosystem,” said Kester Mann of CCS Insight. “Disrupting the status quo could, in particular, make the economics of network deployment stack up in rural areas or hard-to-reach locations, for which roll-out may not currently be viable or cost effective.

“Improving network economics and better monetising infrastructure assets is an important focus of Vodafone CEO Nick Read as the company seeks to achieve ambitious cost-saving targets.”

Like many of the worlds’ telcos, Vodafone is slowing stumbling towards a tricky situation with its supply chain, though many of the issues are outside the control of the company. With Huawei under increasing pressure, the future does look glum for a segment of the ecosystem which is already under-populated.

However, the telcos are not completely blameless in this situation. Investments have been concentrated with the three major vendors in this space (Huawei, Ericsson and Nokia). Through prioritising these companies as primary vendors, challengers have not been given the opportunity to scale and compete. Another complaint levelled at the telcos has been a comprehensive and convoluted procurement process, which has inhibited the ability of smaller players to compete against the status quo.

When the industry is running smoothly, few would have complained with the concentration of investment to a small number of vendors, but there are wrenches being thrown into the works all over the place.

With Huawei potentially facing bans in numerous countries and its supply chain being compromised thanks to the entry onto the US Entity List, a major vendor is under threat. Although Huawei has confirmed it is producing products free of US components, the performance of this equipment is unknown for the moment. Worst-case scenario, the vendor community could become a lot smaller.

Vodafone is one company which does look to be exposed to the Huawei conundrum. UK CTO Scott Petty has said banning Huawei would set the company back two years in its quest for 5G, costing millions as the company would be forced to strip the vendors equipment out of its network. Huawei equipment currently accounts for 32% of the 18,000 base stations around the country, though it has plans to strip Nokia equipment out, with Ericsson taking the rest.

Only working with two suppliers is a precarious situation, though this is compounded when you look at the difficulties Huawei is facing. The introduction of OpenRAN might be considered a bold move, but it is starting to look very necessary to enable access to more vendors.

The trials in the UK, DRC and Mozambique will focus on mobile calls and data services across 2G, 3G and 4G, with 5G possible over OpenRAN in the future. OpenRAN could be debuted elsewhere across Europe dependent on the success of the trials in the UK.

The team have currently identified 100+ rural locations to trial the technology, though this could be expanded in the future. Vodafone has said OpenRAN could reduce network hardware costs by up to a third, but this is dependent on how the technology and supplier ecosystem develops over time. Mavenir, Parallell Wireless and Lime Microsystems are three new suppliers enabled by the trials, though there are a huge number of start-ups who are connected to TIP.

Although this is a small trial for the moment, it is certainly one worth keeping an eye on. Vodafone is in a slightly tricky position when it comes to its supply chain, though should OpenRAN prove to be successful, numerous options could be opened-up. It is a low risk gamble, though the gains of a new supply chain certainly outweigh the consequence of failure.

Micron earnings devastated by US/China conflict

Micron Technologies unveiled fourth quarter and full-year financials for 2019, with the on-going tension between the US and China shattering the spreadsheets with distressing effect.

The company, which is a US producer of advanced semiconductor products, is one of the unfortunate victims of the US/China trade war. Like many other technology companies who are a supplier to Huawei, the on-going saga is having a catastrophic impact on financials. Unless there is a resolution on the horizon, Micron could look like a very different business in the very near future.

“We have applied for licenses with the Department of Commerce that would allow us to ship additional products, but there have been no decisions on licenses to date,” said CEO Sanjay Mehrotra during the earnings call.

“We see ongoing uncertainty surrounding US China trade negotiations. If the Entity List restrictions against Huawei continue and we are unable to get licenses, we could see a worsening decline in our sales to Huawei over the coming quarters.”

A word of warning for those who do not like are of a delicate disposition, the numbers being quoted below are not pretty.

Total revenues for the final quarter of 2019 stood at $4.87 billion. This is a slight increase quarter-on-quarter, but down roughly 43% compared to the $8.44 billion brought in for Q4 2018. Net income came to $561 billion for the three-month period, compared to $4.33 billion in the same period of 2018.

For the full-year, revenues stood at $23.406 billion compared to $30.391 billion across 2018, while net income dropped to $6.313 down from $14.135 billion.

President Donald Trump might well be pursuing national security, assuming you believe the statements, though that will come as little comfort for any of Micron’s employees, investors or suppliers.

Mehrotra has attempted to put as positive a spin as possible on these results, but it is a very difficult sell. The markets are looking positive for the business if you ignore the omission of Huawei as a customer, but it is very difficult to avoid the fact the company will make less money if it is not allowed to do business with the Chinese firm.

What is worth noting is that the business is slightly prepared for this nightmare scenario. The team have put in the work to prepare the organization, and as such, Micron actually delivered beyond analyst expectations for the quarter. That said, with share price declining 9.5% since the earnings call, it is clearly not a favourable position.

And Micron is not alone in this sticky position.

Skyworks Solutions, a supplier of semiconductors to Huawei, reported revenues of $767 million during the latest financial results, compared to $894.3 million in the previous year. The decision to ban work with Huawei only came a few weeks prior to this earnings call, and we suspect the financial hole will be substantially bigger come the next time Skyworks Solutions addresses investors.

Finisar is another US firm which saw revenues decrease to $285 million from $317.3 million year-on-year owing to challenging macro-economic environment. Qorvo is one firm which has seemingly survived the first waves of conflict, though it is forecast to have an impact soon enough.

“Ultimately, we were able to begin shipments of certain products [To Huawei] late in the quarter and we have applied for a license to expand the products we can sell,” Qorvo CEO Robert Bruggeworth said during the earnings call in August.

“We will continue to support them consistent with all applicable legal requirements. Finally, as our June quarter and September guidance demonstrate, we are effectively navigating a challenging environment and our products and technology continue to support solid sustainable results.”

Qorvo is forecasting revenues of $745 million to $765 million during the three-month period we are currently in. This would compare to $884.4 million which was brought in for the same quarter of 2018, prior to the Huawei misery.

And while these companies are applying for licences to work with Huawei while simultaneously praying for an end to the conflict, the chaos might continue well into the future.

Huawei founder Ren Zhengfei has recently said Huawei has begun the production of 5G base stations which do not contain any US component.

“We carried out the testing in August and September, and from October on we will start scale production,” Ren said.

This is something which should be viewed as worst-case scenario for everyone involved from the US side of the conflict. If you are of a sceptical nature and believe the tension has been heightened by Trump as a means to demonstrate US power to gain an edge in trade talks, Huawei surviving is a bad outcome. Another bad outcome is Huawei surviving and then restructuring its supply chain to removal any US suppliers.

Ren has initially said it would start production of base stations free of US components immediately, targeting 5,000 a month. Huawei is currently targeting the production of 600,000 base stations this year, scaling up to 1.5 million in 2020, though it is unknown how many of these will be with or without US components.

If Huawei can operate without any US suppliers in the supply chain, then it becomes a much more stable company. It is also an outcome which would please the Chinese Government considering the ‘Made in China 2025’ plan. This strategy aims to move China away from being the world’s ‘factory’ and move to producing higher value products and services.

And finally, onto President Trump, this is a disastrous outcome. The White House perhaps implemented this aggression towards Huawei to make the company falter and demonstrate power. If Ren is to be believed, Huawei will have negotiated the turbulent times and come out the other side without the need for US suppliers. The quality of the supply chain alternatives remains to be seen however.

Prior to this chapter of the saga, US firms were making profits from Huawei’s success; this might not be the case anymore.

Ren confirms Huawei restructure on the cards

An internal memo from Huawei founder Ren Zhengfei has been doing the rounds, suggesting a major business restructure to ensure the business can survive US aggression.

Although it remains the heavyweight champion in the network infrastructure segment, the last two years have been marred with a White House propaganda mission to limit the prospects of the business. Huawei has remained strong in the face of adversity to date, though in a memo to staff, Ren has admitted the damage has been dealt.

Over the next three to five years, Huawei will undergo a major business restructure to ensure it is capable of withstanding continued aggression from the US. This is a preparatory strategy from the Chinese vendor and we suspect the depth or breadth of the strategy will depend on the winner of the 2020 Presidential Election.

Of course, the inadequacies of the business have been highlighted to date. Although Huawei is not as dependent on the US as its domestic rival ZTE, there are areas where the US ban has hurt the giant. Should Trump win re-election, it would be a fair assumption the anti-Huawei campaign will continue though it might not be as aggressive under a Democrat administration.

Irrelevant to the outcome of the election, a restructure is probably needed and has been highlighted here by Ren.

“We have to complete an overhaul in harsh and difficult conditions, creating an invincible iron army that can help us achieve victory,” Ren said in a memo seen by Bloomberg.

“We absolutely have to complete this re-organisation within three to five years.”

Although the existence of Huawei was not in question, the Chinese domestic market is large enough to support it alone, the international success of the business has been called into question as a result of the on-going US/China conflict.

Huawei has largely been a proxy of the trade war, perhaps due to the success of the business on the world stage. ZTE is a more obvious target for US aggression, it is partly state-owned after all, however it does not have the presence of Huawei. Few companies have leapt out from behind the Great Firewall of China and dominated a segment in the same way Huawei has.

This is the precarious position Huawei currently sits in. Valuable relationships with international telcos are under threat thanks to the US bullying allies into line, while its supply chain is looking dented. Some suppliers can be replaced by alternatives, though there are a couple of areas where it is incredibly difficult. OS Android for its smartphones is top of the list due to fact there are no alternatives which can match.

“Two bullets fired at our consumer business group unfortunately hit the oil tanks,” Ren said in the memo.

This might be a reference to the significant damage which has been done to the consumer business. Although it is still in a position of strength, the reference might suggest it is living on borrowed time.

In the first half results, Huawei said its consumer business has grown by 24% year-on-year, though this now looks to be driven by the domestic market. Research from Canalys suggests smartphone shipments in China have increased by 31% year-on-year for the second quarter, though a decline of 16% for the same period was estimated in Europe. Patriotism is fuelling growth in the domestic market, though Huawei’s international reputation has been dented.

What Huawei looks like in a couple of years in a very interesting game to play. However, the turbulent storms of 2018/19 might lead to a stronger company in the long-run.

If US aggression continues its aggressive campaign, Huawei will be forced to completely restructure its supply chain. If it can maintain international relationships and customers throughout this period of restructure, it will have removed reliance on the US and a major weapon of the White House when attempting to bully its way through international relations.

Sources: White House holds off Huawei reprieve after China counter-punch

US suppliers are still staring into the abyss as reports emerge the US Government has halted its special-permissions programme to work with Huawei due to Chinese retaliation.

According to Bloomberg, applications for special-licenses to continue supplying Huawei with US components, products and services are currently on hold, as the US Government ponders the latest counter-move from the Chinese Government; a halt to purchases of US agricultural equipment.

Just as there was a moment to celebrate, dozens of US firms are now allegedly back to square one.

The licenses themselves have proved to be popular, with Commerce Secretary Wilbur Ross suggesting his department had received 50 applications, as of last week. This is not to say 50 companies will be given permission, the US Government has hinted the majority will be turned down, though it is back to purgatory the suppliers go.

Entry onto the Entity List has caused a significant headache for numerous parties around the world. Not only do the US suppliers have to figure out where they are going to recapture lost revenues, but potential customers in other markets have to assess the quality and resilience of the products following a disruption to the supply-chain.

Last month, Ross announced the Commerce Department would start accepting applications for licenses to receive permission to trade with Huawei. That said, no advice was offered on the criteria said applications would be measured against, aside from an ill-defined reference to national security.

What is also worth noting is the mentality of those considering the applications. Refusal would be front of mind, unless the application was compelling enough.

However, this has all been turned upside-down.

We might have been expecting retaliation from Chinese Government, though few would have assumed the White House would snap the olive branch extended to US suppliers who are losing a major customer. This is allegedly what is happening today.

This tit-for-tat trade battle has now entered the realms of finger pointing. Trump has suggested he would loosen controls on Huawei if China increased purchases of US agricultural equipment. China has stopped purchases because the noose is still firm grasped, but the US is not willing to let go because China has not ramped up its purchases.

It’s a Mexican stand-off with private companies, in both countries, feeling the pain of government posturing and flexing, as egos are massaged by enablers and yes-men looking to gain favour with short-sighted and morally-bankrupt politicians.

Looking at the collateral damage, numerous US technology companies saw share price decline following the rumours. Skyworks Solutions, where 10% of revenues are attributable to Huawei, recently reported quarterly earnings with a $127 million hole in the spreadsheets. Total revenues were 16% down in comparison to the same period of 2018, prior to the Huawei headache.

Interestingly enough, there are several companies who have publicly stated they have applied for licences. Micron and Xilinx, two US semiconductor companies, have said the license is key as their role in the supply chain can be replaced by a foreign alternative.

If the rhetoric of the trade-war is to help US companies in the long-run, the very opposite is being done with these two organisations; once they are out of the supply chain, it will be very difficult to get back in. Most likely the only way will be to renegotiate contracts at less favourable rates to convince Huawei to ditch newly found alternatives.

Google is another which will pray for the end of the trade-war and ban on supplying Huawei due to the emergence of Harmony OS, the Chinese vendors in-house OS which could be applied to smartphones and smart devices. The emergence of another contender in the OS segment could lead to Google losing real-estate on millions (if not billions) of devices for its products such as Google Play, Chrome and Google Maps.

Right now, it is difficult to see this trade-war as anything more than a battle of egos. It was supposed to counter nefarious activities of the Chinese Government, creating a platform for US companies to thrive. However, with alternatives being sought and created, the temporary damage could turn permanent very quickly.

US suppliers do not want to permanently lose a lucrative position in the supply chain of one of the worlds’ fastest growing technology companies, though that is the reality some will have to face.

Breaking down the Supply Chain Review Statement

Although there was very little said during the Supply Chain Review statement yesterday, there are some interesting developments worth keeping an eye on.

Speaking to the House of Commons, Secretary of State for the Department of Digital, Culture, Media and Sport Jeremy Wright did as most expected he would and dodged the Huawei decision. Although we were promised a decision by March, the slippery politician has managed to create enough breathing room to get him through to September.

Despite some being disappointed by a lack of clarity on the competitive landscape for UK communications infrastructure, there were a few takeaways.

There’s no avoiding interference from Transatlantic geo-politics

Every politician will tell you decisions are made dependent on what is best for the British people alone, but it is impossible to avoid the US here. The White House and its aggressive policies are causing havoc around the world, including here in the UK.

Fundamentally, without a decision on Huawei there is no clarity for investment and progress into the digital economy will falter.

Wright said a decision on Huawei would be made irrespective of the political influences of the US, but US interference is unavoidable.

“The hon. Gentleman has said that he is concerned to ensure that this should be a decision about the interests of the UK and not the priorities of the US Administration, and I understand that,” Wright said in response to the suggestion the US has too much influence from Tom Watson, Shadow Secretary of State for Culture, Media and Sport.

“I can give him the assurance that decisions we take will be decisions in the best interests of the United Kingdom, but he knows that this is a hugely interconnected sector and it simply is not possible to make sensible judgments about telecommunications without recognising those interconnections.”

With Huawei being placed on the Entity List the performance, resilience and security of its products might be impacted in the future. Wright has said he will not make a decision on Huawei until he has all the facts, and the relationship between China and the US is a huge factor in this.

Kicking the can to avoid irritating the new boss

Despite there being pressure from influential Parliamentary groups and the telco industry to make a decision, it was always highly unlikely Wright was going to say anything until his new boss has taken residence in No.10 Downing Street.

Boris Johnson is the new Prime Minister and he will want to put his own mark on proceedings. The Huawei decision is an important one, not only for UK 5G infrastructure, but because it will impact the relationship with the US. BoJo has already shown himself as somewhat of a pet of the President and will most likely want to nurture this relationship as only he knows how.

Wright does not want to jump the gun on making a decision and potentially irritating the new boss, especially when there is a potential promotion around the corner.

David Guake, the Justice Secretary, has resigned. Education Minister Anne Milton has gone. Chancellor of the Exchequer Philip Hammond has publicly stated he would quit if BoJo won. Rory Stewart, the Secretary of State for International Development, formally announced his resignation over Twitter at 11.18am. And finally, it is highly likely Foreign Secretary Jeremy Hunt, BoJo’s opponent for PM, will be shifted elsewhere.

“The reality is that this statement is just a lot of words to confirm further delay. Why are the decisions now being left in the gift of the new Prime Minister? Is this just another case of putting the Tory party before the country?” SNP MP Alan Brown questioned.

As one of the few politicians who managed to remain neutral during the proceedings, Wright could find himself heading up a new department before too long.

Security framework will make UK more secure

This is perhaps the most encouraging snippet to emerge from a relatively shallow statement overall; security requirements will be heightened for everyone.

“Fundamentally, we must make a decision on the basis of what is in our security interests, but he is also right that if we were to focus solely on one company or country, we would miss the broader important point that our telecoms supply chain must be resilient and secure, regardless of where equipment comes from, because risk may transfer from place to place and our population is entitled to expect that the approach we take puts security at its heart, wherever the equipment comes from,” Wright stated.

Although there are few details available regarding the new security requirements, Wright has suggested there will be a more stringent framework set in place and on-going assessments to ensure standards are being maintained. This will be applicable to every supplier, irrelevant of where they have come from.

To start with, this will be a voluntary scheme for the telcos, but soon enough it will be cemented in place through legislation. This takes time, but it is encouraging that the Government recognises threats can come from anywhere, everyone has a globalised supply chain and cybercriminals are becoming much more capable.

If policies have the position of 100% secure is impossible and everyone is a potential threat, risk mitigation levels should be set higher. This is the best possible means to achieve a resilient and secure network, capable of dealing with threats irrelevant as to their origin or intention.

Vendor diversification is nothing but a smokescreen

It might sound like a wonderful plug, but suggesting the UK is going to encourage diversification in the supply chain is nothing but a distraction to attract PR points for DCMS.

“In addition, we must have a competitive, sustainable and diverse supply chain if we are to drive innovation and reduce the risk of dependency on individual suppliers,” Wright said.

“The Government will therefore pursue a targeted diversification strategy, supporting the growth of new players in the parts of the network that pose security and resilience risks. We will promote policies that support new entrants and the growth of smaller firms.”

During the statement, Wright promised work will be done to enable smaller and more innovative players to contribute to the 5G euphoria. This sounds good and, in theory, addresses a long-standing problem in the telco world, but let’s not get ahead of ourselves.

The telco industry has been attempting to create a more diverse supply chain for years, as well as adapting procurement models to ensure smaller companies can weave through the red-tape maze. There has been little progress to date and intervention from DCMS is unlikely to reap any material changes.

You also have to wonder whether Wright is tackling the challenge head-on. Wright pointed to funding which has been directed towards the West Midlands and other innovation hubs, however this is not the problem which the telco industry has been facing. The limited supply chain is most harmful in places like the access network or core. This is where there are so few suppliers and competition has been impacting the cost of deployment.

Wright might be encouraging diversification and growth for start-ups, but don’t be fooled by this statement; he is not directly tackling the biggest competition challenge the industry faces.

Long-overdue legislative overhaul and Ofcom empowerment

The legislative and regulatory landscape has needed an update for years and Wright is promising one. Not only would this put the security framework into law, it will also ensure Ofcom has the right powers to be effective in the digital economy.

“We will pursue legislation at the earliest opportunity to provide Ofcom with stronger powers to allow for the effective enforcement of the telecoms security requirements and to establish stronger national security backstop powers for Government,” Wright said.

Until the new legislation is put in place, Government and Ofcom will work with all telecoms operators to secure adherence to the new requirements on a voluntary basis.”

Many of the rules which govern the telecoms and technology industry have been written for a bygone era. This is an outcome which is largely unavoidable when you consider the speed at which progress develops nowadays. However, rules need to be brought into the 21st century.

Legislation will offer the Government more influence over commercial communications infrastructure while Ofcom will have its teeth sharpened. It’s a long-overdue update.

Not much said, but potential to progress

Overall, there was little said by Wright in terms of material progress, but there is enough evidence the UK is creeping forward toward contextual relevance. We saw hints of progress yesterday, but realistically, the new Prime Minister and his administration will dictate evolution over the coming months and years.

Apple eyeing up $1bn Intel smartphone chip purchase – sources

Reports emerged about Apple’s interest in Intel’s smartphone modem business a few weeks back, and now the rumour mill is back up-and-running as more sources suggest conversations.

According to The Washington Post, a deal worth $1 billion, including various patents and staff, is entering advanced talks. Apple has always been a business which wants to control its ecosystem and such a deal would take it one step closer to developing critical components for its devices.

Although the Intel smartphone business unit has been viewed as somewhat of a failure in recent years, it is certainly more developed than Apple’s in-house capabilities. This is an area which is a significant focus for Apple and incorporating the Intel smartphone business into its own operations could help save it years of development work.

This is of course not the first push into the semiconductor world by Apple. Not only has it announced plans to open a 1,200-strong research facility in San Diego, but it effectively ended its relationship with GPU firm Imagination Technologies in 2017. Apple said it would begin to phase out Imagination Technologies in favour of its own GPU components.

For Apple, this seems like a logical move considering the squeeze which is being placed on smartphone manufacturers worldwide. There are several reasons smartphone shipments are declining year-on-year, but the increasing price is certainly a powerful factor.

The iPhone has consistently underpinned profits at Apple, though the global slowdown and challenge to market share from Chinese brands threaten this. Apple is regularly being undercut by rivals, while entry into new markets such as India has been challenging because of the price of devices. Owning more elements of the supply chain, especially components, can help the iLeader reduce the price of handsets and become more competitive in the era of innovation mediocrity.

This is also a slight change in mentality when it comes to Apple’s acquisition strategy. Rarely does the iChief go for the big-ticket acquisitions, preferring to swallow up smaller providers in pursuit of innovation, but it does appear context is ruling above in this instance, assuming the reports are true of course.

For Intel, this would appear to be a very satisfactory exit from a challenging segment. Although the team has always had ambitions in the smartphone segment, it has never been able to make it work. The unit has consistently undermined profits and recent R&D efforts have focused on 5G in other device segments. This transaction would appear to be a win-win for both parties.