US Senators demand answers from Pentagon for alleged Huawei reprieve

The US Department of Defense has reportedly vetoed plans to further disrupt the Huawei supply chain, seemingly paying attention to the ‘rule of unintended consequence’.

Over the course of the last 18 months, the US Government has effectively been using the economist version of guerrilla warfare to dilute the influence of Huawei and China on the global technology industry. Success has been debatable, though the plan certainly worked on ZTE, and now three US Senators are questioning why the Pentagon has reportedly blocked plans to ramp efforts.

“We write regarding recent public reports that the Defense Department objected to a proposed change to Commerce Department regulations that would have made it more difficult for U.S. companies to sell to Huawei from their overseas facilities,” the Senators wrote.

“Given the national security risks surrounding Huawei’s technology and operations, concerns which resulted in the addition of Huawei and its affiliates to the Department of Commerce’s Entity List in May 2019, we respectfully ask for a member-level briefing on the Department’s rationale for its reported objection.”

Senators Ben Sasse of Nebraska, Tom Cotton of Arkansas and Marco Rubio of Florida, the authors of the letter, are all incredibly vocal leaders of the US aggression towards China. Sasse has been particularly active surrounding the on-going conflict in Hong Kong, while Cotton authored the Bill which would ban US intelligence sharing with Huawei friendlies, and Rubio has attempted to use legislation to extinguish the hope of any exemptions to the Entity List.

The latest twist in this saga concerns efforts from the US Commerce Department to further impact the Huawei supply chain. As it stands, US suppliers can work with other Huawei suppliers, as long as US components do not make up more than 25% of the product. The new rules would see this number reduced to 10%, potentially spelling disaster for the Huawei supply chain.

But it seems the Department of Defense are taking a much wider view of the move than the Department of Commerce. The Pentagon is worried about how this ban would impact sales for US businesses, potential job losses and the sums which can be redirected towards R&D to ensure the US technology industry remains cutting edge.

This is potentially the ‘law of unintended consequence’ in action. Although there is no official confirmation from the Pentagon that it did indeed block the Department of Commerce, the Senators are attempting to bring the saga into the public domain.

What has largely been ignored to date is the impact of the Huawei offensive on the fortunes of US businesses. In the immediate aftermath of Huawei entry onto the Entity List, the share price of several companies was hit hard. Micron Technologies was one such firm, and in a recent earnings call, quarterly revenue were reported down 43% year-on-year. Qualcomm, Xilinx, Skyworks Solutions, Qorvo and Neophotonics are only a few of the companies who have skin in the game.

The US strategy to combat Huawei is seemingly having more of an impact on US firms than it is the intended target. It might seem like an unpopular move to block increased aggression against the Chinese vendor, but it might will be the most logical decision.

There are a couple of points worth considering. Firstly, what impact is the strategy having on US companies. Secondly, what impact is the strategy having on Huawei. And, what are the potential secondary and tertiary consequences of the initial impacts.

Firstly, several US technology companies are suffering due to the ban. Secondly, Huawei is continuing to report year-on-year financial growth, therefore negative impacts are arguably limited. But the most interesting element of this story are the consequences because of the action to date.

In being unable to work with US suppliers, Huawei has been forced to look elsewhere, in most cases to Chinese suppliers, or create its own alternative. HiSilicon, the Huawei-owned semiconductor company, has likely been offered greater importance, while the firm is also creating an in-house alternative to the Android mobile operating system. Where Huawei can’t replicate products on its own, the Chinese ecosystem will benefit.

Not only are revenues being deprived from US suppliers, Huawei is removing reliance on an international supply chain while also driving more R&D funds to Chinese companies. China’s technology industry could be viewed as getting a boost, while the US influence is diluted. Arguably this is only because of US aggression towards Huawei.

This is all a very theoretical argument of course, and the chances of success or failure depend on the ability of Huawei to replicate the performance and efficiency of the US components of its supply chain. But it is a potential outcome which few have seemingly been paying attention to.

Phase One is window dressing, the US-China trade war is just on pause

It has taken a month of negotiations, but Phase One of the US-Chinese trade deal has finally been signed. However, this was the easy part.

With eight chapters, 96 pages and a relatively redundant preamble, this is a document which President Trump can hold aloft and distract the world from the damning impeachment trial. To some, this is more progress than any President has made before, to others, little has been achieved through the first phase.

Both are probably correct.

Trump’s diplomacy and negotiating skills might not be orthodox, but he has brought stubborn leaders to the table. However, this is a man who has also aggravated and irritated almost every politician around the world.

“Today, we take a momentous step – one that has never been taken before with China – toward a future of fair and reciprocal trade, as we sign phase one of the historic trade deal between the United States and China,” Trump said at the signing ceremony.

“Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.”

The Phase One document on show here contains some quick wins and some useful steps forward. However, it does appear to be an agricultural purchase agreement with a few bells and whistles attached. It should also be worth noting that President Xi Jinping was not in the White House to sign the deal, that responsibility was left to Chief Negotiator Liu He.

The document addresses industries and issues which are not at the crux of the argument between the two superpowers. China has promised to beef up intellectual property protections, lower barriers to entry for US firms, US farmers get help and the financial services markets will be opened-up.

It is meaningful because it is progress, but it is meaningless because it hasn’t addressed the root cause of the conflict which has caused so much collateral damage.

And as you would imagine, the President’s opponents are not in agreement with the success of this deal.

“I greatly fear President Xi is laughing at us behind our backs for having given away so little at the expense of American workers, farmers and business,” said Chuck Schumer, Minority Leader of the United States Senate.

“The administration, in an attempt to get a deal before the 2020 election, has thrown the American people and business overboard. They are going to be the ones left to face the consequences.”

Next, President Trump and President Xi will have to address new areas which could cause some pretty significant friction. Next the duo will have to come to an agreement on cybersecurity, state-owned enterprises, joint ventures between Chinese and foreign companies. There are a host of complications between the two nations who have not been addressed today, not least to mention to relationship between the Chinese Government, its intelligence agencies and technology companies. There could be some heated debates between the two incredibly stubborn nations over these topics.

This is certainly a step in the right direction, but let’s not forget a few things:

  • Huawei is still on the US Entity List
  • The US Government is still pressurising other nations to ban Chinese suppliers
  • The tariffs remain in place
  • This agreement will only last for two years
  • The timeline for Phase Two and beyond has not been detailed

The trade war is still currently raging on between the two, and it is debatable as to whether there has been any material benefit to the US.

As part of this deal, China has agreed to purchase $200 billion of agricultural goods over the next two years, does this make up for the $420 billion loss in US exports since the beginning of the saga?

Huawei has continued to grow its revenues through this period, 2019 sales are expected to be up 18% year-on-year, though General Motors reported a 15% decline in Chinese sales. This is a single example, though there are numerous others of US companies being negatively impacted by the trade war. IHS Markit expects real US imports to fall 4.5% below the baseline level in 2020 as a result, while China’s will drop 3.2%.

Optimists will hope these negative impacts will be reversed once the trade war concludes, but that might not be the case; the US is forcing China to reassess its reliance on other nations for key industries and supply chains.

Reports in the Chinese press suggest the Government is driving towards the creation of 25 new manufacturing innovation centres, adding to the 15 which already existed at the end of 2019. Domestic capabilities can only provide 33% of China’s key components today, though the plan is to shift this up to 75% by 2025.

How much of this drive towards creating domestic supply chains is down to the trade war is anyone’s best guess. The ‘Made in China 2025’ industry strategy existed before the trade war, though the conflict might have exposed weaknesses the Government now wants to address. It might be the case that the US caught the Chinese off-guard and a newly invigorated drive towards self-reliance will make it stronger than ever, assuming it can meet these goals of course.

That said, the announcement is encouraging, and Trump has arguably got more from the Chinese Government than any politician before him, irrelevant of nationality. But some of the biggest questions are still on the table. If it took a month to achieve Phase One of a deal which hasn’t got many commentators enthusiastic, how long will it take to secure signatures on the phase where the sensitive and critical conversations will take place.

India risks US wrath after Huawei thumbs up

India’s decision to allow Huawei to participate in 5G trials is certainly a win for the vendor, but it does add further strain to an already tenuous relationship with the US.

As a country, India has gone through an incredibly aggressive digital transformation in recent years. Reliance Jio democratised the digital economy, bringing the benefits of mobile internet to hundreds of millions who were priced out of the equation in bygone years. This is incredibly promising for the people of India and the Indian economy, but it also pushes the nation into the spotlight.

Thanks to an increasingly wealthy and digitally competent society, India is looking like a goldmine for other nations. Every country will want to secure a lucrative trade relationship with India, and for the US, it represents another battleground for China in the race for supremacy in the digital economy.

Aside from fighting the ‘red under the bed’, attempting to convince India to ban Huawei is a step towards eroding the Chinese telecom champions dominance on the technology world of today, and China’s influence on the 5G world of tomorrow. The US has already warned of the consequences of India working with China, and in particular Huawei, it has threatened to severely limit visa applications from the country, but India has seemingly ignored these threats.

India is heading towards becoming a tier one digital nation, but with this success comes the challenge of making friends. Countries will push, bicker and threaten to secure more valuable trade relationships, as well as try to get the upper hand over rivals.

India is walking the line of diplomacy, and unfortunately it is a very precarious trail. And such is the animosity between the US and China, it becomes very difficult to be friends with both.

Country Export Import
USA $44.3 billion (15%) $22.8 billion (5.5%)
China $14.8 billion (5.1%) $68.8 billion (16%)

India Exports and Imports value and percentage of total

As you can see there is a delicate balancing act in play. It is not as simple as choosing one superpower over the other, as one trade partner is the most valuable globally in each column.

Looking at the exports, heading towards China are a lot of raw materials. Iron ore accounts for 9.9% of the total exports to China, refined copper 12%, refined petroleum 3.7% and granite 3.6%. While these might not be considered the growth prospects of the economy, these industries are still incredibly valuable and employ significant numbers in the rural regions.

In terms of exporting to the US, diamonds account for 19% of exports, while packaged medicines make 14% of the total. What is worth noting, is that these numbers from the OEC do not include the service industry, the largest contributor to the Indian economy.

If a country was to value its relationship with partners on the value of exports, the US is the financial winner, however the industries which China underpins are likely to be larger employers in the country. The nuances become a bit more complicated, and that is before the import column is considered.

In terms of the goods coming into India from China, 13% of the total ($8.84 billion) are telephones (landlines, smartphones and feature phones). The OEC estimates that machinery (including consumer devices and computers) accounts for $38.9 billion of the Indian imports from China, perhaps due to the affordability of Chinese brands. These imports will be a significant factor to continue the drive towards the digital dream.

These statistics become important when you consider the other countries who are being heavily pressured by the US to ban Huawei.

Take the UK as an example. The UK has a valuable trade relationship with the US (11% export, 7.5% import), but it also does with China (5.6% export, 9.5% import). The US might account for more currently, but this might be down to the longevity of the relationship; China could be a more profitable market for the UK in the future.

Germany is also in a similar position to the UK. US and China account for 8.4% and 7.1% of total exports, and 5.7% and 10% of imports. In Italy, the US exports and imports are 9.3% and 3.8% of the total, while it is 3.4% and 7.2% for China. These are all countries which are resisting President Trump’s demands to ban Huawei.

What is worth noting is that there are countries which do not seem to be walking the fine line of diplomacy in the same manner. Australia, as an example, was one of the first to ban Huawei and to place its relationship with China at risk. According to the OEC statistics, China accounts for 35% of exports while the US only takes 3.5% of the total. In terms of imports, 24% come from China with only 10% heading across the Pacific from the US.

There is no hard and fast rule to explain why some countries have been swift to ban Huawei while others are sitting on the fence. Competition and reliance on the firms 4G equipment will be part of the reasoning, but the overarching implications on the relationship with China should not be ignored.

The conflict between the worlds two superpowers is incredibly complex, and there is certainly credibility to the argument that it is more than one country pushing back in the name of ‘national security’.

Back to basics for Huawei as China remains the bedrock of success

Pretty much everyone in the technology world knows Huawei is under pressure, though with its dominance of the Chinese market, it has more than enough to weather the storm.

According to new estimates from IDC, Huawei has now officially become number one in the market share rankings for tablets in China. These estimates follow smartphone shipment figures which demonstrate extraordinary dominance from the under-fire firm.

Over third quarter of 2019, Huawei shipped 2.12 million tablets, up 24.4% from a year ago, to take 37.4% of the total market. It has leap-frogged Apple to lead the market, the iLeader currently controls 33.8% of shipments, while the rest of the field are no-where near the leading two. Xiaomi currently sits in third position, with market share of 5.9%, a decrease of 47.4% year-on-year.

Although increased tablet sales in China are not going to compensate for the troubles which Huawei are facing in the international markets, alongside the smartphone dominance during the same period, it demonstrates the comfortable position Huawei is currently in.

Talking of smartphone shipments, as you can see from IDC’s figures below, the strong market share position is duplicated.

2019 Q1 2019 Q2 2019 Q3
Shipments (Million units) 29.7 36.3 41.5
Market share 35.5% 37% 42%
Year-on-year growth 40% 27% 64.6%

And even with heavy criticism from the White House, Huawei is maintaining its position as the leading network infrastructure vendor worldwide. In the third quarter, Dell’Oro estimate Huawei owned 28%, though some might suggest this is due to its dominance of the Chinese market. The firm has been missing out on valuable contracts in some European markets though it doesn’t seem to be having a disastrous impact.

Noise from the White House might be starting to have an impact on the Chinese vendors influence on certain Western markets, but let’s not forget how Huawei created such a dominant position in the first place.

Some might suggest the dominance of Chinese companies on the Chinese market is only due to an uneven playing field, Western challengers might be handicapped when it comes to competition, but this is largely irrelevant. This is not a situation which is likely to change in the future, regardless to the number of complaints, therefore it should be accepted.

This dynamic afforded Huawei the confidence to aggressively expand in bygone years, and it will continue to be a comforting thought as uncomfortable aggression floats both directions out of the US.

With continued dominance in the Chinese smartphone, tablet and network infrastructure segments today, Huawei has firmed up its bank accounts. The spreadsheets will not be under anywhere near as much threat as they potentially could have been, as the management team can rely on revenues continue to flow through the domestic market. This is the same position Huawei was in prior to its international expansion.

Huawei is not necessarily a Chinese company anymore. Yes, it was founded in China and the country continues to house its headquarters, but this an international beast with considerable influence around the world. The management team will not be happy its international revenues are being eroded, though the Chinese domestic market can prop this giant up; it is that big.

Irrelevant to the amount of noise coming out of the White House, and regardless of the success it has in convincing its allies to ditch Huawei as a vendor, it will always have the Chinese domestic market to lean on. And as long as it is still one of the country’s leading companies, it will always have the opportunity to expand aggressively internationally. It just has to wait for the anti-China rhetoric to die down, like it did in the early 2010s.

US on the verge of signing some kind of trade deal with China

US Commerce Secretary Wilbur Ross has said his country is close to signing a deal with China that could lead to an easing of some trade restrictions.

Ross (pictured) said as much to Bloomberg, with the usual caveats about nothing being set in stone. Many media have been reporting their own conjecture about what this could mean for Huawei as fact, but Ross was keen to stress this deal doesn’t affect the ‘entity list’, which prevents US companies doing business with Huawei.

There was some couched optimism about licenses being granted, that would enable specific companies to conduct specific trade with Huawei, but then again the US has been sitting on a bunch of license applications for a while without apparently granting any. Arguable the biggest of these would be one that allows Google and Huawei to work together, thus enabling the latter to install the full version of Android on its phones.

It’s all very well for Ross to insist the entity list and the trade war are unrelated, but US foot-dragging over granting those licenses implies the contrary. Trade wars are a game of chicken in which each side raises the stakes to give them more weight in negotiations. Putting national champion Huawei in existential danger via the entity list is just too convenient a negotiating chip for its to be plausible that the two issues are unrelated.

 

CTA suggests Trump’s tariffs doing more harm than good

The Consumer Technology Association (CTA) has labelled the logic behind President Donald’s Trump’s trade strategy with China as a “one-step-forward, two-steps-back” approach.

The current resident of the White House certainly does polarise opinion, though the CTA is claiming the strategies in play during trade talks with China are having a negative impact on the consumer. With an election looming large on the horizon, if the idea of Trump hitting the US wallet consumer gains traction, it could prove to be a very damaging piece of rhetoric.

“The tariff delay on $250 billion worth of Chinese goods is welcome news for American businesses and consumers – but a one-step-forward, two-steps-back approach means US businesses will continue to struggle under the burden of tariffs and uncertainty in supply chains,” said Gary Shapiro, CEO of the CTA.

“American businesses thrive when they can dedicate their time and resources to innovating and competing globally, not checking Twitter for trade policy updates and combing through HTS codes to find which products are facing higher taxes. We’re encouraged by the progress from today’s round of trade talks and hope that President Trump will stop using tariffs as a weapon during this Phase 1 agreement.”

According to estimates from the CTA, US consumer tech companies paid an additional $1.8 billion on tariffs in August alone, with $124 million on products critical to 5G deployment. Considering these figures are only focusing on a single month, and 5G network deployment is not scaled to mass market just yet, the bill is likely to be eye-wateringly higher in the future.

Although Trump’s approach to Chinese trade negotiations has been criticised by industry, the consumer has not necessarily been involved in the argument. And why should it? Trade talks are something which happen in the background without the ‘man on the street’ being too bothered in the past, though there is a different element to consider here; if wallets start to get impacted, the very citizens Trump is supposed to be protecting from the evil communists might start to get a bit irked.

Citizens are consumers after all, and in a consumer-driven society, cheaper is usually better. There will of course be homage paid towards quality, though this can only be drawn out so far. Consumers have gotten used to paying less and getting products right now. Being asked to pay more for the dubious claim of national security might not sit well with some.

According to the same data presented by the CTA, the tariffs have the consumer technology an additional $14 billion since they were first introduced in July 2018. $1.3 billion can be attributed to 5G-related products. These costs derived from a more expensive supply chain will be eventually passed onto the consumer.

What is worth noting is that there is probably worse to come if the President decides this approach to negotiations is proving successful. And we suspect from the tone of statements and tweets, the inner-circle of US politics are very much committed.

This is perhaps one of the worst elements of the current saga for US business, the idea of uncertainty. If these companies knew exactly what was going to happen, changes could be made to the supply chain. It might cost a little more, and while this is not ideal, operational efficiencies could be driven elsewhere. Knowing that there is something terrible on the horizon is much better than it popping-out from behind a tree.

The risk of the unknown, and a political leader who seemingly reads the Beano for strategic inspiration is likely to make many businesses very nervous.

Creating a competitor will only help us – Huawei CEO

In the latest edition of ‘A coffee with Ren’ the Huawei founder graced a wide range of topics from data protection to 6G, but perhaps the most important area was the licensing idea which has been floated.

It is an interesting thought. Huawei founder Ren Zhengfei is prepared to license the technology which has fuelled the vendors drive towards the top of the connectivity ecosystem, to create a competitor. And just any competitor, one from the US, the very country which is driving the misery and headaches in Shenzhen.

For some, actively creating a competitor might be considered somewhat of a risk, but this is not how Ren see things.

“First, we will get a lot of money from the licensing,” said Ren. “That will be like adding firewood to fuel our innovation on new technologies. It will mean that we will have a better chance of maintaining our leading position.

“Second, we will bring in a strong competitor. This will prevent our 190,000 employees from becoming complacent. They’ll know that if they sleep on the job, they might wake up and find they have lost their jobs.

“Sheep become stronger when they are chased by wolves. I don’t worry that a strong competitor will emerge and drag Huawei down. In fact, I would be happy to see that, because this would mean that the world is becoming stronger.”

This might sound like a corporation putting a brave face on an uncomfortable situation, but there is some logic to it.

Ren has suggested the new competitor should probably be a US firm, as Europe already has its own vendors in this space. This presents a very interesting opportunity for Huawei. Presumably, a US vendor would have an excellent opportunity to secure valuable contracts with US telcos. If you have a look at the vendors activities in their own domestic markets, they are generally very successful.

Should this presumption prove accurate, Huawei won’t be making money directly from the US market, but through license fees, it will secure indirect revenue. The more successful this company is, the more revenue Huawei can realise through licensing.

The US is an incredibly large and lucrative market for network infrastructure vendors and Huawei has been almost non-existent to date. It might have secured contracts with some of the regional telcos, but these are not the riches which are promised in the ‘Land of the Free’. Huawei will be making money somewhere it has never really made money before. Suddenly, the licensing plan starts to look like an understated but clever move.

The technology will be licensed to the exclusive partner on fair, reasonable and non-discriminatory (FRAND) terms, with the team offering everything associated to 5G. That means software source codes, hardware designs, production technologies, as well as network planning and optimization and testing solutions, as well as chip design technology.

Although the company which undertakes this license will go toe-to-toe with Huawei on a technology basis, it will also have to prove it can support customers in the same way.

One of the reasons Huawei has been a success in recent years isn’t simply down to the technology. CTOs and network executives have noted to us that the support offered to customers post-sale sets the vendor apart, while the team is more open than most to consider customisable solutions to meet the unique demands of each vendor. This attention to detail is one of the reasons Huawei is perhaps considered the leader in the market.

Overall, this is of course a way to ease the tension between the White House and Huawei. We suspect this will not have much of an impact on the overarching trade-war between the two global super-powers, however that is of little concern to Huawei. This is a commercial organisation. It matters little if there is political conflict overhead, just as long as the company is not drawn into the saga.

The big question which remains is whether this will appease the aggression of the US.

The attraction of gaining more traction in the network infrastructure space might well be a tempting offer to disperse the aggression. The US is a company which wants to control the 5G ecosystem after all, as does pretty much every country. This is perhaps one of the contributors to the tension between the US and China.

As Ren pointed out during the coffee session, the saga does need to be resolved before more powerful technologies are being discussed in wider society.

“5G is not that amazing; its power is exaggerated by politicians,” said Ren. “AI will have an even brighter future. I hope we will not be added to the Entity List again in the AI era.”

Huawei is not the biggest and best software company around (just yet) therefore we cannot see the company taking a lead in the AI-era. It’s heritage and excellence primarily lie in the hardware, however it is a risk should the tension continue to remain at a stalemate between the two global superpowers.

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.

iPhone gets the official nod of approval for tariff exemptions

For those who are facing uncertainty over the potential introduction of tariffs on products and components originating in China, the confirmation of Apple’s exemptions will perhaps rub salt into the wound.

Although the idea of preferential treatment is a stretch, a lot of good things do happen to Apple. With new tariffs looming on the horizon, Apple has received approval for 10 of the 15 applications it made for exemption. Details are thin on the ground for the moment (the US Trade Representative website had crashed at the time of writing), the damage which would be inflicted on the iLeader’s Mac Pro computers.

Dedicated Apple followers will now breath a sigh of relief as the prospect of increased costs being passed onto the consumer are much lower. Apple will have to swallow some additional costs, not every application was approved, but the impact will now be limited.

The Apple issue is a relatively complicated one. Although the Mac Pro products are assembled in the US, many of the components are manufactured in China. For example, partially completed circuit boards are imported to a plant in Texas for the final product to be assembled.

Texas does appear to be an interesting element in this story…

On July 26, President Trump tweeted “Apple will not be given Tariff waiver, or relief, for Mac Pro parts that are made in China. Make them in the USA, no Tariffs!”, before going onto explain the next day that Apple was considering opening a manufacturing plant in Texas as a means to avoid the financial penalty. The claims followed meetings between the President and Apple CEO Tim Cook, but Apple is yet to make any announcement which would resemble what Trump is claiming.

In fact, during the last earnings call, Cook suggested the tariffs presenting a significant problem for Apple. The current set-up was not necessarily feasible, with some fearing these comments meant production could be moved out of the US completely.

Much of Apple’s manufacturing supply chain is currently located in China. One reason for this will be the cost of labour, land and local materials, but it is worth noting that China has skillset which cannot be replicated in the US. China is a hotbed for the worldwide manufacturing industry, and such, careers like Precision Tooling have thrived while they have suffered elsewhere. Sourcing talent outside of China is as much of a supply chain headache as swallowing the cost is.

While an unknown number of companies will be sweating over the seesawing nature of the US/China trade relationship and potential tariffs, Apple seems to be coming out unscathed at each turn in the road. With these exemptions, and the delay of the tariffs which would have impacted the production of the iPhone, the Apple lobby seems to be working very effectively.

US gives Huawei back some gear it nicked two years ago

In September 2017 US authorities confiscated a bunch of Huawei kit on its way from California to China and has only just returned it.

The only account we have of this is from Huawei, but that’s at least in part because the US has been very reticent about explaining many of its actions regarding Huawei. The servers and networking gear had been in a California lab to undergo commercial testing and certification. When it was in the process of being returned the US Commerce Department seized it, citing unidentified export violation concerns.

By June of this year Huawei decided to take legal action to get its property back and, as if by magic, the US decided to return it, once more without explanation, according to Huawei. “Huawei views the decision to return the technology as a tacit admission that the seizure was unlawful and arbitrary,” said Huawei in its announcement, which also revealed that the lawsuit has been dropped as a consequence.

“Arbitrary and unlawful government actions like this – detaining property without cause or explanation – should serve as a cautionary tale for all companies doing normal business in the United States, and should be subject to legal constraints,” said Dr. Song Liuping, Huawei’s Chief Legal Officer.

Presumably the US wanted to inspect the gear to see if it could find any evidence of IP theft, Chinese spy gear, or whatever. If so then it should have followed that same due process it would have applied to US companies, such as just cause, legal representation, etc. Every time the US abandons due process while at the same time accusing Huawei of illegality it undermines its own position.