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Huawei is planning to invest up to $800 million over the next three years to expand its presence in Brazil via a new manufacturing facility in São Paulo, according to Reuters. The purpose of the proposed factory is likely smartphone production, as the company told Reuters that the project depends "on the performance of the smartphone operation in the local market."
The Chinese communications technology titan already has roots in Brazil: It has operated in the country for over 20 years and employs 2,000 workers at a networking-equipment manufacturing plant in São Paulo. The news comes amid continued threats of bans that would block US companies from conducting business with Huawei.
Here’s what it means: Huawei is investing in its Brazilian operations to secure its spot in a burgeoning market.
Brazil’s upcoming 5G auction and large smartphone market present the company with two opportunities to sell its 5G products.
- Telecoms are gearing up for a massive 5G spectrum auction and will need networking equipment like Huawei’s to deploy networks using their licensed spectrum In March 2020, Brazilian telecoms will bid on spectrum in the 2.3 GHz and 3.5 GHz bands, and possibly the 700 MHz and 26 GHz bands as well — making it the world’s largest 5G spectrum auction by the amount up for bid, according to Nokia Latin America CTO Wilson Cardoso cited by Reuters. By establishing a local presence, Huawei will be readily available to supply the necessary equipment. Adding more facilities could also help sway contract decisions in Huawei’s favor. Brazil’s vice president said the country doesn’t plan on banning Huawei from providing 5G equipment to telecoms. However, the country’s unpredictable President Jair Bolsonaro could go against this sentiment and, following the US’ lead, ban Huawei; Bolsonarotouts himself as a "pro-America president" and has said he wants closer ties with the US.
- The company can grow its small share of the South American smartphone market. In South America, Huawei is the fourth-largest smartphone vendor, behind Samsung, Motorola, and Apple, with an 8% market share, according to Statcounter. Brazil’s mobile phone market holds a growing revenue opportunity despite decreased unit sales due to macroeconomic factors — revenue from phone sales jumped 8% year-over-year (YoY) to 13.7 million reals ($3.5 million) in Q1 2019, according to IDC data cited by ZDNet. A local factory could help the phonemaker reduce device prices, as it would no longer have to ship devices from its factories in China. This could make the phones particularly attractive in the cost-sensitive Brazilian market.
The bigger picture: Huawei is investing in production facilities around the world to build goodwill and placate security concerns in an effort to maintain its presence in international markets.
Huawei is likely ramping up investment in local production and jobs to counter US pressure on countries to stop doing business with it. By establishing a physical presence, Huawei hopes it will make authorities reluctant to push back and potentially cost voters their jobs.
Huawei has promised billions of dollars in new facilities and thousands of jobs to countries that give its brand a fair shot. For instance, in Italy, Huawei announced plans to invest $3.1 billion over the next three years and create 1,000 jobs, but called for fairness in the country’s 5G deployments — a thinly veiled pitch for Italy to include Huawei equipment in those deployments.
And in Poland, the company said it would spend almost 3 billion złoty ($789 million) over the next five years, though it also said the investment was dependent on its role in Poland’s 5G deployments, according to Reuters. Both Italy and Polandhave previously questioned the security of Huawei’s technology, so pledges of local production and investment is likely a move to assuage lawmakers’ concerns.
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