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.

Huawei reportedly reckons it has an Android ban workaround

At a recent trade show a Huawei exec indicated that there may be a way to enable its future smartphones to access Android apps despite Google being banned from working with it.

The goss comes from Android Authority, which attended the launch of the Huawei P30 Pro at IFA in Germany. At the launch the head of Huawei’s consumer business group Richard Yu apparently told reporters he has a cunning plan to get around the catastrophic consequences of not longer having google support for Android.

While Android itself is open source and anyone is free to install their own take on it, the Play Store and Google apps such as Gmail. Maps, etc are all licensed from Google and can’t be installed on a phone without that license. If and when the US stops suspending the sanctions that come with Huawei being put on its entity list, Google will be barred from entering into further licensing agreements with Huawei.

An Android phones without Google apps and the Play Store is not worth having. There are already signs of Huawei having to adapt to that eventuality, with the P30 Pro featuring the EMUI 10 user interface that is ‘based’ on Android 10. The extent to which it deviates from Android 10 to the detriment is unclear.

In reference to the imminent launch of the flagship Mate 30 smartphone, Yu said Huawei is working on a way of letting users install Google apps on the non-official version of Android. He even went so far as to say that the process would be quite easy for users, without going into details. Even if that’s true, however, with there being so little to choose between flagship Android smartphones when it comes to hardware specs, there would still be little incentive for punters to accept any user experience compromise, so even this hope may be forlorn.

Huawei hits back, claiming US is threatening its employees

Perhaps this is the first hint of a new media strategy from the under-fire vendor as Huawei suggests the US Government is encouraging threats and menace to turns its employees against it.

Although this is only a single act, it is a very different approach to how Huawei has been managing the drama through the last 12 months. This is maybe the position it has been forced into by White House aggression; it might have to start fighting fire with fire.

In a statement, Huawei has suggested the US Government has been “instructing law enforcement to threaten, menace, coerce, entice, and incite both current and former Huawei employees to turn against the company and work for them.”

In shining a light on the bullying tactics of the US Government, perhaps the executive team is looking for sympathy from friendlier nations or for someone to step-in and suggest the actions are not proper. The US Government certainly won’t be shifted from its current course through social embarrassment but calling attention to the strategy it might sour the relationship between the US and other nations around the world.

Aside from encouraging government agencies to act through ‘unscrupulous means’, Huawei is also suggesting the US is:

  • Unlawfully searching, detaining, and even arresting Huawei employees
  • Launching cyber-attacks against the firm
  • Coercing other companies to bring unsubstantiated accusations against the company
  • Attempting entrapment
  • Obstructing normal business activities and technical communications through intimidation, denying visas and detaining shipment

Although it isn’t entirely clear what the desired outcome of this statement actually is, it is a new approach. To date, Huawei has sat back and absorbed the abuse. Its messages have focused on proving its own innocence, as opposed to tackling its opponent. Perhaps this is about to change.

With this statement, Huawei is calling attention to the less attractive traits of the US. It might consider itself as the front-line of defence, the world police in some people’s eyes, however it can also be viewed as a bully. Not only would many deem this inappropriate, if some of the claims above prove to be true, the White House might well be acting illegally.

President Trump’s administration certainly does things differently from those who have previously inhabited the White House, though the jury is still out on what this actually means. Some like the fact Trump is shaking up politics, some suggest he is an embarrassment to a privileged position of responsibility, a shambolic disaster who stumbles from one inappropriate statement to the next calamitous action.

It does seem there is an element of the ‘straw which broke the camel’s back’ here.

This chapter of the on-going saga is focused on a patent dispute with Rui Pedro Oliveira which has now being going on for two years. Circling around the development of a camera design included in Huawei smartphones, the Department of Justice has launched an investigation as a result. Huawei believes Oliveira is taking advantage of the geopolitical climate and the US Government is jumping on another opportunity to swing the stick at the firm.

Perhaps this will be the beginning of a new media strategy, drawing the attention to the US’ ugly traits. This Presidential administration has certainly taken a more combative, bullying approach to international relations, though we suspect it will not be too bothered by the Huawei statements. That said, other governments might take notice and start getting irked by the continued campaign of hate and ‘unpresidential’ actions.

Google writes opening line of Huawei smartphone obituary

Huawei’s next flagship smartphone will not feature official Google applications as the weight of the US ban finally hits home.

Speaking to reporters in the US, and first reported by Reuters, a Google spokesperson said the Huawei Mate 30 rumoured to be launched in October, cannot be sold with licensed Google apps and services. This is a significant setback to Huawei’s consumer division and begs the question as to whether anyone would now consider the devices without the Android OS and supporting app ecosystem.

The blow from Google of course leads back to the White House. In entering Huawei and its affiliate companies on the Entity List, US suppliers are banned from supplying any products, components or services to the Chinese vendor. This includes Google, with its horde of popular applications and platforms.

There has of course been a moment of reprieve for some US suppliers. President Trump said there will be an extension on the ‘grace period’ afforded to Huawei and its US supply chain, though Google has now stated this only applies to devices which are already on the market. As long as the conflict between Beijing and Washington persists, it looks like the new Huawei devices will have a Google-shaped hole in them.

Although Google has not confirmed whether it has applied for an exemption from the ban, it has said in previous months it wishes to continue working with Huawei. Of the 130 applications sent to the US Commerce Department to seek a special licence to continue working with Huawei, none have been accepted thus far.

This is of course not as simple a situation as one might expect. Google owns Android, the open-sourced operating system. Huawei is not banned from using Android, it can’t be, but it is banned from being an official Android partner of Google. This means it will not be entitled to security and performance updates as soon as there are available. It can use the basic Android building blocks, but it will effectively have to build its own OS, which it has pretty much already done, but it will be a completely different product.

The confirmation from Google here is the news many Huawei fans will not want to have heard. The Mate 30 will not feature popular applications such as Google Maps, or the Goole Play Store where users can download other apps. These are only two examples, though they are critical elements of any Android smartphone.

The question which remains is whether anyone will buy a Huawei smartphone now?

We suspect not, assuming they have kept up-to-date with developments or done the slightest bit of research. There will of course be a market for Huawei in China, there is a sense of patriotism there propping up the business, though this could be the beginning of the end for Huawei in Western (perhaps all international?) markets.

A Google-less future is the new status-quo for Huawei, and unless this changes quickly, we suspect its smartphone business will be a shadow of its former-self in a very short period of time.

For those who have been plotting and scheming the downfall of Huawei, this is the first sign of success. For months, the Chinese vendor seemed to be immune to the collateral damage from the US/Chinese trade-war, though now it has finally hit home.

The consumer business unit has been very kind to Huawei executives over the last couple of years. Thanks to the creation of consumer devices which performed well and were reasonably-priced, and an extensive above-the-line advertising campaign to drive the Huawei brand, Huawei has become one of the most popular consumer electronics brands worldwide. It has consistently been the number two smartphone brand for shipments globally in recent years, while the consumer business group is now the largest contributor to group revenues at the firm.

In its recent financial statement, Huawei reported another year-on-year revenue increase, though it did appear growth in the smartphone business was driven by domestic smartphone sales. Research from Canalys suggests smartphone sales in Western Europe were down for the second quarter by 16%, with Samsung and Xiaomi benefitting. Unless the situation changes, we cannot see anything but a dramatic decline in Huawei smartphone sales in Western markets, and perhaps this misery will spread to all of Huawei’s international market.

This is currently an incredibly profitably and valuable business to Huawei executives and shareholders, though now it appears it has been cut-down at the knees by the White House and the Trump administration.

US DoJ has found another Chinese target

The US Department of Justice is reportedly on the verge of putting the brakes on a Google and Facebook funded Pacific subsea cable over national security concerns over a Chinese partner.

According to the Wall Street Journal, the distrust between Washington and Beijing is on the verge of spreading to another company with links to the Chinese Government. The cable will be roughly 8,000 miles long, connecting Los Angeles with Hong Kong, with an initial estimated design capacity of 120 Tbps. It has been plugged as the longest and one of the fastest worldwide.

The objective of this subsea cable is to provide more diversity and resiliency across the Pacific. Most cables across the Atlantic land in Japan, though by taking a more direct route, theoretically better performance can be realised.

In itself, this all sounds reasonable, especially if companies like Google and Facebook want to increase their presence in the region, but this isn’t what officials have issue with. It is a Chinese company called Dr Peng Telecommunication and Media Group.

Cable Network

For those who aren’t familiar with Dr Peng, this company is one of the major players in the Chinese connectivity market. In years gone, Dr Peng used to be the market leader in the broadband space, though as the state-owned entities diversified into fixed line, margins and market share was squeezed. Today, Dr Peng, China Mobile, China Unicom and China Telecom control more than 90% of the broadband market.

With the three well-known CSPs putting more pressure on the broadband market, Dr Peng has looked to get out of the segment and diversify into new areas. This includes offering connectivity and customer care services to other telcos, it currently owns 15 data centres across China, and also, investments in subsea cables.

This is where the Department of Justice is finding issue with the trans-Pacific subsea cable. Like Huawei, Dr Peng’s ties to the Chinese Government has been deemed too close. The DoJ is citing national security concerns as the reason to put the brakes on deployment.

The deployment of this cable is currently being undertaken by Pacific Light Data Communication (PLDC), a wholly owned by Dr Peng Holding Hong Kong Limited and China Culture Silicon Valley Limited. PLDC is partnering Google and Facebook for investment in this subsea cable.

Once again, collateral damage to US firms has been ignored in the pursuit of national security. It is also perhaps another indication of the animosity between Washington and Silicon Valley. The occupant of the White House is not exactly on the friendliest of terms with the residents of Mountain View, so it should hardly come as a surprise this was not much of a consideration.

For Google and Facebook, this is unlikely to be welcome news. Offering better connections between the US and South East Asia presents significant opportunities to grow exposure and revenues in some fast-growing markets, such as Philippines, Malaysia or Indonesia. If the US firms do not capitalise, someone else will.

It seems that if this cable is to continue on its path, the parties involved would have to prove there is no way the Chinese Government could monitor, alter or stop internet traffic which would flow through it. Proving this resilience and security is going to be a very difficult task.

Another element to consider is the impact to the on-going conflict between Washington and Beijing. The Chinese Government has taken exception to US aggression against Huawei, and it is unlikely to be thrilled about another Chinese company being scrutinised in such a manner as it prevents it doing business.

For those who might have hoped an end to the trade-war might be in sight, the US Department of Justice might be about to add some more fuel to the flames.

US yet to grant any licenses to sell to Huawei – report

Despite a second suspension of the Huawei export ban, none of the 130 special license applications from US companies have been approved.

This news comes courtesy of Reuters, which has chatted to a few people who reckon they know what they’re talking about. They say the U.S. Commerce Department has received over 130 applications from companies for licenses to sell US goods to Huawei but three months after the export ban was suspended specifically to help them out, none of those licenses have been granted.

There’s not a lot of point in continually making concessions to soften the blow for US companies, only to fail to follow through on them. One on-the-record bloke in the Reuters piece places the blame at President Trump’s feet and the lack of guidance offered to agencies. They, in turn, are afraid of granting licenses in case they provoke the capricious commander-in-chief into some act of arbitrary retribution.

It’s almost as if the Trump administration doesn’t actually care about the impact its trade war with China may be having on US businesses and just makes shallow concessions every now and then to keep its critics off guard. Without an efficient process for granting licenses the continued suspension of the export ban is totally meaningless, which is probably what prompted the leaks in this story. Trump needs to make a call on this one way or the other because the current regulatory limbo is the worst of both worlds for US companies.

Huawei founder has been expecting 5G conflict for a decade

After Motorola pulled out of discussions to purchase Huawei more than a decade ago, Huawei founder Ren Zhengfei warned executives of a conflict, but this has exceeded what he had in mind.

With Huawei as the proxy of the on-going, and increasingly aggressive, trade war between the US and China, big changes are on the horizon. Few in the business anticipated such drama.

“I could never have expected this controversy to be so intense though,” Ren said in a recent interview with Sky. “We knew that if there were two teams climbing up the same mountain from opposing sides, we would eventually meet on the peak and we may clash. We just didn’t expect this clash to be so intense and lead to this kind of conflict between the state apparatus of a country and a company.”

Ren has reportedly sent out another memo detailing the fallout of the conflict, which does finally seem to be hitting home. Job cuts are on the horizon, with replicative staff facing the axe and a simplified management structure promised. Contracts and payments will face higher scrutiny also, to keep an eye on free cash flow, while R&D seems to have been impacted also.

This is perhaps the most worry outcome of this on-going saga. Huawei can weather the storm in terms of financial impact and reputational damage but hitting the technology roadmap is not an element anyone would have wanted to plan for.

“In August and September, we will undergo a run-in period before we can mass produce these new versions,” Ren said. “So, we can only produce around 5,000 base stations each month during that period. Following that, we will be able to produce 600,000 5G base stations this year and at least 1.5 million next year. That means we don’t need to rely on US companies for our survival in this area.”

Huawei might still be considered the leader when it comes to the radio and transmission, but we would have suspected the ‘beta’ mode of its 5G products might have been completed by now. There are customers driving towards scaled deployment today, yet they seemingly don’t have the raw materials at their disposal. This is perhaps one of the most obvious impacts of the trade war and entry into the Entity List; Huawei has had to re-jig some products to ensure a US embargo could be compensated for.

The other very obvious challenge concerns the operating system on its smartphones.

Again, Ren has suggested the prospect of such a ban has been on the horizon, Harmony OS has been an on-going project for “several years”, though we suspect this is somewhat of an exaggeration. If Ren and the management team had forecast this issue, it wouldn’t be in the sticky situation it could potentially find itself in.

“If the US doesn’t want to sell the Android system to us, we will have no choice but to develop our own ecosystem,” Ren said. “This isn’t something that can be achieved overnight. We estimate that it will take us two or three years to build this ecosystem. In light of all this, we don’t believe we will be able to become the No.1 player in the device sector any time

soon.”

This is a massive problem for Huawei. The potential damage should not be undervalued whatsoever.

If Huawei cannot resolve its relationship with Android, it potentially becomes a security risk to users, as its devices will not be treated to timely security updates. Introducing Harmony OS onto Huawei devices might be the only reasonable route forward to address security concerns, but without the supporting ecosystem it becomes difficult to justify purchasing a device.

The consequences of this conflict are starting to become very apparent. Not just in the Huawei business, but there are straining relationships between governments while telco deployment plans are potentially going to be impacted.

Ren might have been able to predict a conflict between the US and China, wrestling for control of the 5G economy, but few could have predicted the current incumbent of the White House. This is the variable factor which would have caught everyone by surprise (except the writers of The Simpsons).

To call President Trump unconventional would be one of the understatements of the century. The approach to politics, relationship management and conflict resolution currently been applied by the US Government is something which is more at home on satire than it is in the home of the worlds’ most powerful and influential nations. This is the variable Ren was missing, perhaps he was expected a reasonable, mature and measured statesman.

So far, Huawei has weathered the storm, but slowly the defences are being eroded. The damage to Huawei’s business is starting to show.

US suspends Huawei export ban for another 90 days

President Trump’s Huawei export ban is increasingly looking like a hollow bluff as it gets yet another suspension.

When the US Bureau of Industry and Security (BIS) put Huawei on its ‘entity list’, thus prohibiting US companies and any others that want to stay in the US’s good books from doing business with it, there were a number of stated reasons for doing so. Among them was the allegation that Huawei has been doing business with Iran, which is on another US shit-list, as well as unspecified ‘activities that are contrary to U.S. national security or foreign policy interest.’

Soon after, however, the new restrictions were suspended out of apparent concern over the disruption to US companies. At the time it seemed implausible that the various US agencies involved hadn’t anticipated such disruption, but given Trump’s impulsive brand of leadership most people were happy to accept that explanation.

Now, on the day that suspension was due to expire, BIS has decided to extend it for another 90 days, this time “…to afford consumers across America the necessary time to transition away from Huawei equipment…” Once more this begs the question that, if it’s reasonable to expect US consumers to take at least six months to wean themselves off what little Huawei gear they had been able to get hold of, why this wasn’t taken into account when the announcement was first made.

And what about all these national security and foreign policy concerns, let alone the punishment for working with Iran, which elicited such swift and merciless retribution for ZTE? It’s increasingly looking like the US isn’t half as bothered about this stuff as it makes out and is merely using the entity list as a negotiating chip in its broader geo-political spat with China.

“As we continue to urge consumers to transition away from Huawei’s products, we recognize that more time is necessary to prevent any disruption,” said Secretary of Commerce Wilbur Ross. “Simultaneously, we are constantly working at the Department to ensure that any exports to Huawei and its affiliates do not violate the terms of the Entity Listing or Temporary General License.”

This latest concession comes soon after President Trump had dinner with Apple CEO Tim Cook, which just happens to be a massive US consumer electronics company. Cook apparently moaned about the effects of bilateral tariffs and Trump tweeted about it as if it had only just occurred to him that they might harm US companies as well as Chinese ones. All of this is coming over as increasingly disingenuous and with every new concession the threat of the entity list becomes a less effective negotiating tool.

Tim Cook smooth talks Trump away from tariffs over dinner

Over dinner this weekend, Apple CEO Tim Cook has seemingly added to the softening position President Trump is taking on trade tariffs imposed on goods and services from China.

The last week has seen several new rumours emerge from the mill, suggesting the White House is backing away from its aggressive stance against China. It of course remains to be seen whether Congress will allow Trump to de-escalate the situation, though it does appear Trump wants to switch-up the rhetoric.

“I had a very good meeting with Tim Cook, I have a lot of respect for Tim Cook, and Tim was talking to me about tariffs,” Trump said to US reporters over the weekend.

“And one of the things is that he made a good case, is that Samsung is the number one competitor and Samsung is not paying tariffs because they are based in South Korea, and it’s tough for Apple to pay tariffs if they are competing with a very good company that is not.”

Finding consistency in the Trump rhetoric is similar to discussion the pros and cons of VAR with the Mad Hatter. Aside from these comments, some US companies will supposedly have until Christmas to work with Chinese suppliers, Huawei Technologies will allegedly be given another three months to buy from US suppliers and Trump has promised violence against protesters in Hong Kong will negatively affect trade talks.

Looking at the extension, sources are now suggesting Huawei will be granted another temporary general licence. The additional three-month window will offer another reprieve to US suppliers, though it is highly-likely Congress will start to throw a bit of a temper tantrum. Political opponents of Trump have already shown distaste for the mood swings of the President, and we suspect road-blocks will be introduced.

The only consistency from the trade conflict between the worlds’ two largest economies is inconsistency.

We are yet to read Trump’s “The Art of the Deal” but perhaps there is a chapter on shifting goal posts. The strategy from the White House seems to be escalate and de-escalate tensions regularly, perhaps to confuse political opponents in Beijing so a cohesive counter-strategy cannot be formed.

Here, Cook’s comments are exactly what you would expect from a CEO who has little concern with geo-politics. Cook and the Apple management team will not want to take sides, simply sell iPhones to iLifers, irrelevant to where they live, at a price which generates the most profit. The tariffs threaten this mission.

Apple might be able to recover its second-place in the smartphone market share rankings before too long, such is the damage which is being dealt to the Huawei consumer business, but how will Samsung benefit?

If Huawei’s international customers stop buying Huawei devices, sales will be redirected elsewhere. However, if Apple is not able to keep the price of its devices down, it will struggle to compete. Apple will firstly have to convince Android users to switch to iOS, but also not to be tempted by Samsung, or more price-sensitive brands such as OPPO, LG, OnePlus or Xiaomi.

What is not entirely clear is how broad the tariffs conversation actually was. We suspect Cook simply argued Apple should be exempt from the tariffs, why should he want to help anyone else, though there will be plenty of companies keeping an eye on the developing situation. Trump could find himself in a very difficult situation if preference is shown to a few hand selected companies.

If there is a game plan scribbled on the back of a Burger King menu somewhere in the Oval Office, it will either be the musings of a mad-man or the work of a strategic genius. The number of moving parts and dummy passes is enough to make anyone’s head spin.

Trump backs off tech tariffs as threat to consumer wallet gets real

There is seemingly only one thing which is more important to President Donald Trump than winning the trade-war, and that’s getting re-elected to the White House for a second term.

The latest message from the White House is a simple one; technology companies will largely avoid the threatened tariffs because it might punish the consumer financially. The fourth quarter is fast approaching, a period which is usually very profitable for the consumer technology giants due to Christmas purchases, the political fallout could be quite damaging.

Announced by the Office of the US Trade Representative, certain products will be exempt from trade tariffs to be introduced on September 1. These products include smartphones, laptops, gaming consoles, some toys, computer monitors, and various items of footwear and clothing. The tariffs will instead be introduced on December 15, once the store shelves have been stocked and many consumers would have completed their Christmas shopping.

“We’re doing this for Christmas season,” Trump said to US reporters. “Just in case some of the tariffs would have an impact on US customers which so far they have virtually none. The only impact is that we’ve collected over $60 billion from China.

“Just in chance it would have an impact on people, we’re delaying the tariffs, so they won’t be relevant to the Christmas season.”

This might be a short-term win for the consumer, but let’s not forget, the tariffs will be introduced eventually. Consumer goods will increase in price, as there are few firms who are patriotic. Manufacturing facilities would not be on the other side of the world if they were, they would create jobs and facilities in the US. There is a financial benefit to manufacturing products elsewhere or purchasing components from China.

Trump has stated there have been no impact to the consumer to date, but there will be. Anyone who believes the consumer will be protected from the additional cost acquired through these tariffs is either naïve or stupid.

There have of course been numerous technology companies lobbying for exemption from the tariffs however this reprieve is much more expansive. Share prices have increased by 4.5% for Apple following the quip from Trump, however toy manufacturer Mattel saw a 4.6% gain, while shoe designer Steve Madden saw a 3.4% boost.

For the moment, this is a good thing for the consumer, however it will likely only be temporary. Trump has escalated and de-escalated the trade-war with China where it suits his ambitions, and this smells like another tactical withdrawal. The aggression has been anything but consistent, with some ego stroking thrown in and the promise of a progressive phone call never too far away. This is usually followed up by a significant announcement or claim from one of the hawkish politicians.

The see-sawing might well be a ploy by the White House to destabilise trade-talks, perhaps an attempt to manoeuvre into a more advantageous position. This might well be the case here, though there is perhaps an eye being cast to the next Presidential Election.

There is now 446 days left until the next Presidential Election and the campaigning will start to ramp up in the new year. As the Democrats already have plenty of ammunition to hurl towards the Oval Office, the last thing Trump needs is fresh wounds from an overly expensive Christmas shopping list to be lurking in the already financially straining January.

This looks to a momentary reprieve in the trade-conflict which has dominated headlines in the technology world for 2019. As it stands, the tariffs will be introduced, but at least US consumers can get their hands on the latest Apple flagship device first.