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The US government made two announcements that threaten Huawei’s ability to do business in the US and abroad. First, the US Commerce Department placed Huawei on an "Entity List" that bans US suppliers from selling components or parts to the Chinese telecom without government approval, according to Reuters.
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Additionally, President Trump signed an executive order that prohibits telecoms from buying foreign-made equipment that’s deemed a risk to national security, laying the groundwork to effectively stop US telecoms from using Huawei equipment on their networks.
The Trump administration’s actions are in response to fears that Huawei’s technology is being used to spy for the Chinese government, but this is also another move in the growing tit-for-tat US trade war with China.
Here’s what a ban would mean for Huawei:
Potentially losing access to US suppliers could hobble Huawei’s global smartphone efforts in the short term. When a similar ban was levied against Chinese smartphone maker ZTE in 2018, the company was nearly crippled as it was forced to temporarily shut down "major operating activities."
If Huawei can no longer lean on US suppliers, such as Qualcomm or Intel, it could see delays in smartphone shipments while it scrambles to find new supply chain partners; of the $70 billion Huawei spent in 2018 on component procurement, roughly $11 billion went to US companies, according to Reuters. Shipment delays would surely see Huawei lose the positive movement it’s seen in smartphone markets such as Europe and, ultimately, could lead to rivals recapturing market share.
Here’s what a ban would mean for the US:
A ban on Huawei equipment could hurt the US 5G market. Huawei is considered to be a global leader regarding 5G technology: It’s designed a number of 5G products, ranging from smartphones to its own network equipment, and has already signed 40 commercial 5G contracts.
By banning Huawei, the US not only loses out on the company’s 5G solutions but also its global experience in launching such solutions. And if a ban ends up slowing down the development of 5G in the US, the country could end up missing out on a valuable opportunity: Even accelerating the deployment of 5G by one year could result in an additional $100 billion in economic impact over the following three years.
The bigger picture: While a ban is unlikely to be in the best interest of either party, Huawei’s already taken steps to help insulate itself from significant losses.
- Huawei’s been preparing for a possible ban by developing in-house alternatives to US components. Huawei supplies over half (54%) of its own smartphone modems, only sourcing 22% from US-based Qualcomm. Also, the company revealed in March that it’s built its own proprietary smartphone operating system that can be used as a backup in case it can no longer use Google’s Android OS on its devices. Huawei’s ability to develop alternative components highlights that a ban would likely only temporarily slow down the company before it could lean on its own technology to overcome lost suppliers.
- So far, Huawei’s been able to grow without leaning heavily on the US market. In 2018, Huawei saw global sales revenue jump almost 20% year-over-year (YoY) to reach 721 billion CNY ($105 billion). However, of that total, the Americas only accounted for 48 billion CNY ($7 billion), or less than 7% of Huawei’s global sales. The US represents only a portion of that 7%.
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