Trump versus Huawei, part 2: The rematch

When he re-enters the White House on January 20, accompanied by a few sycophants and conspiracy theorists, Donald Trump will have more pressing concerns than Huawei. Yet even outside telecom circles, the Chinese equipment maker was an explosive topic during the first Trump administration, which blocked its access to essential components, pressured other governments to ban it and oversaw the long detainment in Canada of Meng Wanzhou, its chief financial officer, on fraud charges.

Four years later, Huawei has arguably been eclipsed by other matters – immigration, border walls, overseas conflicts that were not happening when Trump was last in charge, Elon Musk's interpretations of free speech and direct democracy, the state of American teeth after the RFK-proposed removal of fluoride from tap water. Oh, and tariffs.

The mix of swingeing tariffs on Chinese goods and mass deportation of illegal immigrants employed in low-paid jobs sounds like a recipe for rampant inflation. But it would also escalate the trade war with China that started on Trump's first watch, when Huawei was emblematic of China's perceived sins. Intellectual property thief, stooge of China's one-party state, cybercriminal in waiting, violator of trade rules – all are charges that Trump's lieutenants have leveled at Huawei.

Unease within the Chinese vendor, which has long denied all the US accusations, may have grown in recent days with Trump's appointment of Marco Rubio to the position of US Secretary of State. When it comes to Huawei, the Florida senator has long been a hawk with razor-sharp talons, and they have not retracted over time. In October, Rubio penned an opinion piece for the Miami Herald entitled "The goal of China's telecom giant Huawei is global domination." Among other things, it lauds the "Clean Network" as an alliance of countries and companies trying to exterminate the Huawei infestation. Latin America, especially, needs more Ericsson, Nokia and Samsung and far less Huawei, said Rubio.

There has also been speculation Keith Krach, the architect of that Clean Network policy, could be the next Secretary of Commerce, succeeding Gina Raimondo in the role. A Clean Network, in Krach's estimation, is one free of Chinese components. During the first Trump administration, under then Secretary of State Mike Pompeo, Krach formed part of the campaign to expel Huawei from European countries where it had become the dominant provider in 4G.

Biden time

But after successes on Trump's watch, when the UK and other allies did as the US wanted, the campaign has stalled under Joe Biden, his successor. Only seven of the European Union's 27 member states had implemented "5G toolbox" recommendations to remove high-risk suppliers, as the EU calls Chinese vendors, from mobile networks, complained Thierry Breton, a former EU commissioner, during a speech in Finland last year.

Worse, Germany's solution to the Huawei problem, announced this year, is to let operators keep using it, provided they remove a part of its management system and avoid it in the core, the control center of the network. It is known to have gone down like corked wine in some EU circles and it is hard to imagine Rubio, with his recently demonstrated admiration for Krach's Clean Network policy, will stomach it, either.

What can the US do? Threats to withhold US support or penalize European countries on the trade front were reported last time round, and such intimidation would surprise few people next year given Trump's political appointments so far. More than one operator is known to have sought a risk assessment from external advisors. The costs of replacing Huawei in Germany, where its 5G products are widely used, could amount to roughly €2.5 billion (US$2.7 billion), according to Barclays research. For Germany's government, the main concern is what the impact of a ban would be on lucrative sales of cars and machine tools to China.

Why should the US care? Purportedly because it does not want the Chinese snooping on NATO premises or US military and diplomatic facilities through "backdoors" installed in Huawei's products. In the event of a war, there is also supposedly fear that Beijing could simply turn off German communications with the push of a red button. Experts say those risks are not addressed by the German plan because it does not seek the replacement of Huawei's basestation software.

Clean but not American

But a more obvious incentive is surely just to cripple a Chinese technology giant with ambitions in artificial intelligence, the public cloud, quantum computing and chips. In 5G, the question is who fills the void. Back in 2019, there was concern neither Sweden's Ericsson nor Finland's Nokia, the two mainstream alternatives, really measured up. And as late as January 2021, Krach seemed to be among the champions of the open radio access network (RAN) concept, designed to aid interoperability and allow US players to slot in.

"If the mobile network equipment market became truly interoperable, it would no longer be an oligopoly," he said at the time, according to a paper on Clean Networks obtained by Light Reading. "US firms would have new opportunities to enter the market, making it much harder for Beijing to suppress competition and maintain Huawei's dominant position."

Nearly four years on, though, open RAN has failed to produce any viable US candidates on the radio manufacturing and software sides. Altiostar, a well-known developer of RAN software, was acquired by Japan's Rakuten in August 2021 and has barely advanced since then. Parallel Wireless, a rival, reportedly laid off up to 80% of its staff a year later after failing to land contracts. It is no longer in consideration for big macro network deployments.

That left Mavenir. Backed by Siris Capital and Koch Investments Group, it develops software for the core and the RAN and has in recent years expanded into the manufacture of radio units. But its only notable RAN contract is with Dish Network, an ailing "greenfield" operator in the US that is in danger of bankruptcy. Its market share has declined since 2022, when Dish was spending more freely, according to Remy Pascal, a principal analyst with Light Reading sister company Omdia. His data shows that seven RAN vendors controled 97.3% of the global market last year, with Mavenir among numerous players splitting the other 2.7%.

US hawks may be less bothered than they once were. The technology competitiveness of both Ericsson and Nokia is widely deemed to have improved since Trump's first administration. The two Nordic vendors have also made new commitments to the US in that period. Those include Ericsson's opening of a highly automated smart factory in Lewisville, Texas, and Nokia's takeover this year of Fenix Group, a US defense contractor. Samsung, the other prominent supplier of 5G products to US telcos, hails from a friendly country and has now demonstrated its capability through a major deal with Verizon.

None of this sounds especially MAGA, but Rubio's recent piece for the Miami Herald fails to identify a single US vendor as a Huawei alternative for Latin America, a region that evidently troubles him. "There's an urgent need for other 5G suppliers – Sweden's Ericsson, Finland's Nokia, South Korea's Samsung – to be made available in Latin America."

US component and cloud companies are, of course, extremely visible in many of the network products offered by all three companies. Ericsson has a very tight relationship with Intel, which also supplies chips for use in Samsung's virtual RAN products. Nokia relies heavily on Marvell Technology for basestation silicon and IBM-owned Red Hat for cloud infrastructure. Each vendor has dealings with the hyperscalers. Dell and HPE, the main server companies, cater to all three RAN players.

When the chips are down

They also rely, whether directly or through partners, on access to chipmaking tools with US origins. And the other prong of the US campaign under Trump 1.0 and then Biden has focused on cutting Huawei off from those tools and the companies that use them. It has, however, had mixed results.

Conscious of those various sanctions, many observers would not have expected Huawei to look as healthy as it did last year, when sales rose 10%, to about 704.2 billion Chinese yuan ($978.3 billion), and net profit hit about RMB87 billion ($12 billion), from just RMB35.6 billion ($4.9 billion) in 2022. Given the portfolio differences between Huawei, Ericsson and Nokia, a direct comparison is not strictly fair. But Huawei has clearly outperformed the others on headline results. It has gained market share this year, according to Omdia. Ericsson and Nokia say it has been competing aggressively on price.

There is little Trump can do about Huawei's vast domestic interests, including its 5G contracts with China Mobile, China Telecom and China Unicom, the country's three state-backed telcos. The hope was that sanctions would hurt it technologically, denying Huawei access to the cutting-edge chips it needs to remain competitive on the international stage. Key to this mission was Taiwan's TSMC, the most advanced chip foundry in the world and a major supplier to Huawei before Trump first intervened.

This was supposed to have changed when companies relying on US tools or intellectual property were forbidden to serve Huawei. TSMC was susceptible because much of its foundry equipment and software is supplied by US companies such as Applied Materials. And there appeared to be no good TSMC alternatives for Huawei. Samsung was subject to the same restrictions. China's own foundries, including SMIC, were less advanced.

Yet reports in recent weeks suggest Huawei may have been able to obtain TSMC-made chips via Chinese third parties. Earlier this month, the revelation prompted TSMC to halt shipments of chips based on the smallest transistor measurements to its Chinese customers. John Strand, the CEO of Danish advisory firm Strand Consult, reckons the success of Trump 2.0 will hinge partly on his ability to close loopholes faster than Huawei can exploit them.

But SMIC seemed to have been good enough when Huawei last year unveiled the Mate 60 Pro, a high-end 5G smartphone. Teardowns by analysts outside China appeared to reveal a 7-nanometer chip made by the Chinese company, confounding experts who previously thought it lacked the skill to produce them.

An essential part of the chipmaking process is a technique called ultraviolet lithography, which imprints circuit patterns on silicon wafers. To make chips with transistors measuring 7 nanometers or less, a version called extreme ultraviolet lithography (EUV) was thought necessary. Only one company in the world makes EUV machines – ASML of the Netherlands. And the Dutch government prohibits sales of EUV technology to China under a deal with other countries called the Wassenaar Arrangement.

Experts, however, believe SMIC used deep ultraviolet lithography – an older system likely obtained from ASML before a tightening of sanctions – and combined this with a technique called double or quadruple patterning to produce 7-nanometer chips. As its name implies, that technique repeats the lithography process to achieve the desired results. The drawback is a reduction in yields, the percentage of usable chips. SMIC's ability to keep producing 7-nanometer or even smaller chips, and do it profitably, remains in doubt.

Customers of Huawei's network products outside China have not seen US sanctions have any impact on product competitiveness so far, according to multiple sources. Nor is there much Trump can obviously do about Huawei's homegrown software expertise or investment in gallium nitride for power amplifiers, an area critical to the weight and energy efficiency of advanced radios, where it still appears to be ahead of its rivals. The main risk for HiSilicon, Huawei's chips unit, is perhaps its reliance on blueprints from Arm, a SoftBank-owned and UK-headquartered chip designer with lots of US customers.

Nevertheless, there is concern Huawei might encounter problems in the future as chips continue to miniaturize and DUV proves unviable. Trump 1.0 seemed to initiate a Huawei push for self-sufficiency in areas where it had previously been content to rely on US technology. Earl Lum, a chips expert who runs EJL Wireless Research, thinks it is only a matter of time before China catches up in EUV.

"Anyone who thinks that window will stay is completely naïve," he told Light Reading earlier this year. "They just don't understand the resources that China has to figure it out, build it and shrink it down. Almost everything else is made over there. And they have all the raw materials."

Indeed, if the US opens new fronts against Huawei, China is likely to retaliate with measures of its own, such as further restrictions on US access to rare earth metals. Prepare for 2025 to get messy.