A number of factors, including pressure from key stakeholders, may underpin the latest 90-day extension allowing sales of key American technology supplies to Huawei.
So say local analysts, noting the negative impact the US sanctions have on business outcomes for American suppliers, Huawei and its customers.
In May, the US Department of Commerce put Huawei on an export blacklist, citing “national security threats” due to the company’s close ties to the Chinese government. It followed up by allowing it to trade with some US companies in a series of 90-day licence extensions.
Yesterday, the commerce department issued a statement confirming the extension of Huawei’s temporary licence.
“The temporary general licence extension will allow carriers to continue to service customers in some of the most remote areas of the United States who would otherwise be left in the dark,” said secretary of commerce Wilbur Ross.
“The department will continue to rigorously monitor sensitive technology exports to ensure our innovations are not harnessed by those who would threaten our national security.”
Sabelo Dlamini, senior research and consulting manager at IDC, believes the latest extension can mainly be attributed to “pressure from US organisations who would like to sell to Huawei”.
Dlamini believes continued pressure from rural wireless service providers that would like to trade with Huawei, because of reasonable pricing to provide telecommunications services to rural areas, may be another reason.
For Derrick Chikanga, senior analyst of IT services at Africa Analysis, it is the long-standing business relationships between Huawei and US technology suppliers.
“About a third of Huawei’s suppliers are American. Hence, Huawei is a key customer of most of these US equipment suppliers, and as such, these sanctions would severely affect their business prospects as well. Likewise, a number of US operators rely heavily on Huawei’s equipment and ceasing doing business with Huawei without finding alternative technology suppliers could severely affect their operations.”
Independent analyst and researcher Dr Charley Lewis says president Donald Trump’s ill-considered and clumsy actions have demonstrated the complexities of the globally-integrated hardware and software ecosystem – and the dangers of meddling in markets by imposing reckless measures.
“The problem with political interference in global markets is that the effects are complex and often unpredicted. Trump’s trade war vendetta against Huawei has given a whole new meaning to the phrase ‘bull in a China shop’.”
Financial burden
Despite Huawei declaring it is overcoming the impact of the US sanctions, Lewis says it’s hard not to see some consequences.
In March this year, Huawei said its revenue grew 19.5% in 2018, surpassing $100 billion for the first time.However, in June, Huawei founder and CEO Ren Zhengfei cautioned that various US restrictions will take $30 billion off its top-line over the next two years.
Lewis elaborates: “The loss of default access to Google’s Play Store is surely hurting users and denting sales. Indeed, Huawei expects to take a 10% knock in revenue growth over the coming year.
“And, long-term, the lack of access to chipsets manufactured by companies with US links is a serious blow to Huawei. Whilst yet another 90-day reprieve from Trump may ease the immediate pressure, it undermines for Huawei the possibility of longer-term planning, co-operation and influence on the US chip market.”
Dlamini agrees, noting the US sanctions have had a significant impact on Huawei. “While current projects or deals may not be impacted, the company will still have challenges in developing new businesses as most countries are reliant on the US directly or indirectly.
“There are only a few countries that have taken a stand in this going forward. This provides a challenge of uncertainty on companies whether to continue doing business with Huawei or not.”
Chikanga offers a slightly different take, saying so far, the sanctions have had a minimum knock-on effect on the overall Huawei operations.
He explains: “Much of the impact has been felt with regards to the replacement of functionalities such as Google apps, which take time to develop. However, Huawei has been able to find replacements for most of its equipment and components needed to manufacture its mobile devices. Furthermore, its revenue from both technology equipment and mobile devices has continued to surge despite the US sanctions.”
Going it alone?
While there is no sign as to when the trade impasse between China and the US will cease, the Chinese telecoms equipment provider is not sitting on its hands waiting on the Trump administration.
Last week, Mohamed Madkour, VP of global wireless networks marketing and solutions, revealed the last 40 000 units of the 5G base stations shipped by the telecoms giant this year were without any American components.
Madkour noted the company is diversifying its supply chain by doing some of the components, like some chipsets, in-house. This, he said, is to minimise the impact on all of its products for customers.
According to Lewis, Trump’s actions have also had negative results for US companies. “The chipset sanctions have dented revenues for US-linked chip manufacturers, and are forcing Huawei both to develop its own hardware and to look elsewhere for less politically-vulnerable sources of supply.”
He adds the smartphone software blockage is hurting Google revenue. “The prospect of losing access to the Android operating system has already spawned efforts by Huawei to develop an in-house alternative.”
Lewis points out that despite ramping up global concern over cyber security and software vulnerabilities, the US has been less than successful in persuading its allies to dump Huawei as a network infrastructure supplier and side-line the company from playing a leading role in the development and rollout of 5G.
Responding to whether the US can do without Huawei, Dlamini says it will be difficult, but the US is a big economy and will be fine, although this will take time. “The question is about other small countries that might be forced to align with the US if they can do without Huawei.”
Chikanga adds: “Some US operators rely heavily on Huawei technology for their operations. Alternatives exist in the likes of Ericsson and Nokia, to fill the void that could be potentially left by Huawei.
“However, given the innovative nature of Huawei, the US could significantly lag behind the rest of the world from a technology perspective should it choose to block Huawei’s technologies from within its territory.”
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