Trump needs fodder for the campaign trail, maybe Huawei fits the bill

A thriving economy and low levels of unemployment might have been the focal point of President Donald Trump’s re-election campaign, pre-pandemic, but fighting the ‘red under the bed’ might have to do now.

In 2016, Donald Trump won the Presidential election for numerous reasons, but one very important element was his ability to mobilise the vote of elements of society who wouldn’t have had any interest in politics otherwise. One reason was because of who Trump was and is, a celebrity more than a statesman, but perhaps a more critical element was the message.

Trump ignored political correctness, seemingly appealing to racism and xenophobia as the Make America Great Again slogan was born. He proposed the deportation of all illegal immigrants, the construction of a wall on the US-Mexico border and a temporary ban on foreign Muslims entering the US. The forgotten men and women of the US were the focal point of this campaign.

This campaign, focusing on a single message of foreign people are bad for patriotic US citizens, worked. If Trump is to repeat the success of his 2016 Presidential Election in November, there will have to be another message at the core of the campaign to rouse the masses and build a slogan on.

There has been a suspicion that the success of the economy and low levels of unemployment would have been this focal point. Prior to the COVID-19 pandemic, the economy was on the rise. From Trump’s entry to the Oval office on 6 January 2017, to the final days before lockdown in February, the Dow Jones grew from 19,963 to 29,398, a 47% surge. Unemployment was down to 3.5%, slowly eroding through the three-year period.

The message could have been ‘look what four years of Trump has gotten you, wouldn’t you like four more?’. But then coronavirus hit, and the economy went down the toilet.

The Dow Jones will recover, as will unemployment, but the Trump campaign would be playing with fire by making this the central point of the campaign. Many believe Trump was too slow to act against the coronavirus after spending months claiming it was little more than the common flu. At its worst point, the Dow Jones fell to 18,591 while unemployment is currently as high as 14%, and likely to go higher.

Using the economy as a reason for re-elections is offering ammunition to the Democrat candidate, the opening round of a slug match where Trump can be undermined and embarrassed.

Without this weapon in his arsenal, Trump will have to find a new focal point to build a campaign around; China and Huawei could fit the bill.

Trump needs to redirect attention away from his failings as a leader during the pre-coronavirus weeks. People generally need an enemy when times are hard, and the invisible enemy of today will not do; you can’t get people angry about a virus, not in the way that the Trump campaign will want. If Trump can further vilify the Chinese, he can position himself as the hero, the man to champion US values, whatever they might be.

Huawei has been made the proxy of the Chinese Government in the eyes of the US. If the US is scared about the ‘red under the bed’, the idea of communism creeping into democratic societies secretly, the successful telecoms vendor can be made public enemy number one.

This is clearly not a new campaign of hate from the President, but it is one which had quietened off over the last few months. It is an on-going conflict point between the US and Chinese Governments, and fuel was thrown onto the embers last week.

In a new assault from the US Department of Commerce, further efforts were made to inhibit the ability of Huawei to source semiconductor components for smartphones and base stations. The US is perhaps hoping the globalised nature of the technology industry, which has allowed Huawei to thrive, can be weaponised against it as few (if any) companies could operate without a single trace of the US in its supply chain.

“We have survived and forged ahead despite all the odds,” Huawei Rotating Chairman Guo Ping said at a virtual conference this week. “The US insists on persistently attacking Huawei, but what will that achieve for the world?”

Conflict with the Chinese might not sound good for economic reasons, but for political ones, it is fantastic. Trump needs an enemy so he can be the champion of for the forgotten men and women of the US.

While it is clear there are a lot of US politicians buying into the anti-China campaign of hate, we asked Telecoms.com readers how they feel about the on-going aggression towards Huawei:

Telecoms.com Poll: Do you feel the US Government is justified in its action against Huawei?
Yes, it is effectively a pawn for the Chinese Government 43%
Yes, but Government links are not there 1%
Maybe, but show us the evidence of foul play first 12%
No, Trump shouldn’t punish a company just because it is Chinese 22%
No, international competition should be left to sort itself out 22%

Huawei might have enjoyed a brief breather over the last few months, but the signs are there to suggest there might be greater conflict on the horizon. Speaking at the Munich Security Conference this week, Secretary of State Mike Pompeo and Secretary of Defence Mark Esper both drew battle lines.

“Let’s talk for a second about the other realm, cybersecurity,” Pompeo said during his speech. “Huawei and other state-back tech companies are trojan horses for Chinese intelligence.”

“Under President Xi’s rule, the Chinese Communist Party is heading even faster and further in the wrong direction,” said Esper. “More internal repression, more predatory economic practices, more heavy handedness, and most concerning for me, a more aggressive military posture.”

Further sanctions and more aggressive policies against Huawei specifically, as well as other Chinese companies in the international markets, could be on the horizon. Huawei executives have certainly expressed concern, but there are numerous other companies who should also be sitting uncomfortably.

The US Senate recently passed the Holding Foreign Companies Accountable Act (S.945) which could result in numerous companies who do not pass strict criteria being delisted from US stock exchanges. China is of course a target with this legislation.

“The SEC works hard to protect American investors from being swindled by American companies,” said Senator John Kennedy, one of the politicians to introduce the original bill.

“It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans – people who put their retirement and college savings in our exchanges – because we don’t insist on examining their books. There are plenty of markets all over the world open to cheaters, but America can’t afford to be one of them.”

This legislation would not impact Huawei, it is a private company after all, but it is further evidence of increasing aggression towards China, and suggestions there could be rising tensions.

And while Huawei might be attracting the most attention from US Senators right now, there are certainly more which could fall into the crosshairs. Tencent owns TikTok which has already come under criticism, Alibaba is hoping to expand its cloud computing venture into international markets, while the likes of OPPO and Xiaomi are proving to be quite successful in gaining interest as challenger smartphone brands. These are all companies which would perhaps fall foul of US opinion.

The first Trump campaign rallies will give more of an indication of what will be the focus of his scorn and hatred over the coming months, and where the pent-up frustrations of US citizens could be directed. We suspect Huawei could be in for a rough few months as Trump further vilifies the Chinese Government and looks for an opponent to bureaucratically challenge during the campaign.

Taking down Huawei could be the feather the Trump campaign is looking for in its quest for re-election to the White House.


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Huawei says US is only hurting itself with sanctions

Speaking at this years’ virtual Huawei Analyst Summit, Rotating Chairman Guo Ping hit back at the US, suggesting it will only do more damage to itself by pursing its current course.

The keynote session from the newly rotated executive was one of defiance as a confident face was put on newly refined aggression from the US. The latest actions to inhibit Huawei’s supply chain will almost certainly have an impact, but it will continue to be a very prominent player in the telco industry.

“We have survived and forged ahead despite all the odds,” Ping said, while also boasting of the $120 billion in revenues achieved in 2019. “The US insists on persistently attacking Huawei, but what will that achieve for the world?”

Ping is referring to additional sanctions placed on Huawei at the end of last week. Announced by Commerce Secretary Wilbur Ross, the US will prevent any company around the world from using US equipment, IP or software to work with Huawei. The aim is to choke the vendors supply of components and semiconductors, a critical element of smartphones and telecoms base stations.

To mitigate these actions, Ping has said R&D is on the up, to remove dependence on US suppliers, while the business has been stockpiling. But there will be a material impact on operations eventually.

This is a mitigation strategy, softening the blow but it is not a concrete solution. The US semiconductor industry can do want few others can, cultivating specialisms which have taken years to fine tune. This cannot be replicated by China overnight.

“Our business will be inevitably impacted,” said Ping. “But we are confident in finding a solution soon.”

Huawei has consistently stated such actions for the US would be a net loss for the industry, but what is the risk? Ping is pointing towards industry fragmentation.

This is of course a dirty word in the telecoms industry, but Huawei’s warnings should be taken with a pinch of salt. Ping warned of standard fragmentation, which is a long-term risk, but it is not one which is emerging now. The immediate risk is two, independent ecosystems, the creation of two distinct markets. Suppliers would hate this, and there is a chance competition (and therefore prices) would be impacted for telcos.

However, there is not really a risk of standard deviation is the short-term. Like the US, Huawei seems to be playing a bit fast and loose with rhetoric and muddied statements.

Ping also suggested this would be a severe consequence for the US telcos, a lesson which they should have already learned.

According to the executive, during the 2G era US telcos did not align on standards whereas European counterparts did. This offered scaled business opportunity to European suppliers, while the US vendors have to deal with fragmentation. Ultimately, the US has no remaining vendors because of this, while the likes of Ericsson and Nokia have thrived.

This is a mishmash of the truth, half-correct statements, half-informed assumptions and missing information.

Firstly, European telcos backed GSM standards. The fragmentation of standards was not US in-fighting, but a Europe versus North America situation, with Europe winning out. Secondly, yes, US vendors were swallowed up by bigger and more successful rivals, but so were European ones. The likes of Siemens and Alcatel have been acquired during the same period.

The reason there are so few suppliers is because previous generations of bureaucrats embraced market consolidation in a way which would have turned stomachs today.

Should the US continue to pursue Huawei in this manner, it will hurt everyone. It could lead to industry fragmentation, the separation of the East and West into two separate markets and much more isolationist policy making.This will hurt Huawei, it will hurt market competition, it will hurt the telcos, it will hurt US suppliers and it will hurt the industry on the whole.

There might be some inaccuracies here, but the overall message is very relevant; isolationist policy is not the friend of the telecommunications industry.

US targets Huawei semiconductor supply chain as 5G battle continues

With muted success in combating the sustained success of the Huawei juggernaut, the US has revealed its latest offensive play; attack the vendors semiconductor supply chain.

The US Department of Commerce announced new rules on Friday (May 15) designed to cause chaos in Huawei’s operations. The move is likely to douse more petrol on flaming tensions between Washington and Beijing, as the US attempts to inhibit Huawei’s ability to source semiconductor components for various products, including smartphones and base stations.

This latest action could take White House intervention beyond US borders, which would complicate matters for Huawei but also place the US at odds with allies.

“Despite the Entity List actions the Department took last year, Huawei and its foreign affiliates have stepped-up efforts to undermine these national security-based restrictions through an indigenization effort,” said Secretary of Commerce Wilbur Ross.

“However, that effort is still dependent on US technologies.”

This is the ace card which is held by the US; there probably isn’t a manufacturing site, production facility or office in the world which doesn’t have some form of US technology. The success of the US economy is now a weapon for the political elite; screw us and we’ll mess with your supply chain. It is effectively an economic dirty bomb.

While Huawei might be able to shift its manufacturing capabilities and find new suppliers to replicate the likes of Qorvo or Broadcom, it becomes a lot more difficult to remove every single element of US technology, intellectual property or software from its supply chain. If enforced properly, this could be very damaging to Huawei.

For example, it might shift some of its semiconductor purchasing to an Indian supplier, but if that company uses US software to design elements of the product it is another risk for Huawei as sales to the firm could be blocked by Washington. This is truly a trump card for the US in its continued battle.

The move comes at a time of heightened tension between the US and China which has taken a new twist over the last few months.

President Donald Trump has always found fault with the Chinese, whether it be currency manipulation or making use of Chinese vendor’s products to spy on other nations. This time the coronavirus is taking centre stage, with the US blaming the severity of the pandemic on China’s actions during the first few months, but it of course has nothing to do with the fact the White House ignored the danger of COVID-19 for two months.

The anti-China rhetoric in the US does seem to be heightening. Missouri’s Attorney General Eric Schmitt filed a lawsuit against the Chinese Government in pursuit of compensation from the Chinese Government. There are numerous other lawsuits floating around, including a class action lawsuit from the Berman Law Group which is attempting to claim the Chinese Communist Party is not entitled to immunity as it is not a foreign government or an official agency of the Chinese Government.

Legal experts have suggested these lawsuits will fail, the Foreign Sovereign Immunities Act of 1976 states governments cannot be sued, but it can serve as a temperature test for the political administration.

With sentiment once again turning against the Chinese in the US, the White House is effectively being given an endorsement to be combative with the Chinese Government. Unfortunately for Huawei, this could mean the current sanctions enforced to the letter of the law, as well as further actions being taken against the firm in the future.

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.