Suddenly, the arrest of Meng Wanzhou seems like a sideshow. The December detainment in Canada of Huawei's chief financial officer was significant mainly because it threatened trade sanctions against Huawei -- if Meng were eventually extradited to the US and found guilty of the various charges against her. But Trump and his minions last week skipped all the formalities and forbade US companies from dealing with Huawei as either buyer or seller. Google, Intel and Qualcomm -- to name the very biggest -- have moved swiftly to freeze out the Chinese vendor non grata.
Seen by US opponents as a conduit for Chinese spying, Huawei now faces an existential challenge. Its survival as a force outside China will be determined by its exposure to US suppliers, its success in finding alternatives and the strength of the US measures against it. The entire industry could be heading for the most tumultuous upheaval it has ever known.
The extent to which Huawei is dependent on US components remains unclear. Several analysts quoted in mainstream media publications believe an outright ban will be crippling. Others say Huawei is far more self-reliant than ZTE, a smaller Chinese vendor that nearly went out of business last year when US authorities raised the drawbridge.
Huawei clearly flexes a huge R&D muscle, spending $14.7 billion on R&D expenses last year -- about the same as Cisco, Ericsson and Nokia combined. A chunk of its spending was funneled into HiSilicon, a components subsidiary targeting the same opportunities as Qualcomm and other US chipmakers. But Huawei remains a customer of Broadcom, Intel, Qualcomm and Xilinx, not to mention smaller US firms specializing in optical equipment. Worried about a possible ban, it began stockpiling components last year, when inventory and related contract costs rose about a third, to $14.5 billion.
The danger is that supplies run low before Huawei has been able to find alternatives, whether by ramping up in-house capabilities or switching to "friendly" suppliers. Apple's doomed attempt to substitute Intel for Qualcomm as an iPhone supplier shows that replacing highly skilled components makers is far from easy. Introducing its own smartphone operating system as an alternative to Android -- after Google said it would no longer make parts of the software available to Huawei -- may be even harder.
It is not just about US suppliers, either. The Americans appear to have leaned on some foreign manufacturers to stop selling equipment to Huawei. Shares in Infineon, a German semiconductor firm, fell about 5% in Frankfurt on Monday after it was reported by the Nikkei to have joined US chip giants in freezing out Huawei. If the US campaign meets further success in parts of Europe and Asia, Huawei's options outside its own R&D facilities may be very limited.
Like it or not, telecom operators that shop at Huawei will have to find an alternative if their favorite vendor cannot meet their equipment demands. This will force them to look more seriously at using "overlay" technologies to ensure 5G equipment from the likes of Ericsson and Nokia will interoperate with existing products from Huawei. Stock markets have come to see any bad news for Huawei as a positive for the Nordic firms: Shares in Ericsson rose 1.7% today in Stockholm, while Nokia finished 1.1% higher in Helsinki.
On the smartphone side, the pain for Huawei could be even sharper. Fickle consumers, attracted to the Chinese vendor as a technologically advanced but low-cost alternative to better-known brands, may quickly shift to other gadgets if Huawei's phones start to miss key features. Ovum principal analyst Daniel Gleeson thinks Google's move could imperil Huawei's smartphones business outside China. Ben Wood, the head of research for CCS Insight, agrees that any disruption caused by Google would have "considerable implications" for Huawei's devices business.
The ban affecting ZTE was eventually lifted after it agreed to pay a $1 billion fine and make a series of organizational changes. Huawei, however, cannot accept culpability as a national security risk in the way ZTE could for breaching trade sanctions against Iran and North Korea. And any softening of the US position seems unlikely after the increasingly harsh rhetoric of the last few months. What could prompt a US rethink is a Chinese response that seriously hurts US interests -- a ban on iPhone sales in China, say, or even a decision that hits Western companies outside the telecom sector.
Huawei's disappearance from the international stage still looks improbable, such is the company's size and importance to the global telecom market, and it will certainly not go down without a fight. Its representatives continue to push for the cybersecurity testing of equipment from all vendors -- as if this would address concern about China's technological rise -- inviting journalists to various facilities to show how transparent it really is. That has largely been futile, and some form of retreat seems like a genuine possibility after years of aggressive expansion. The shake-up may have started this week.
- Google & Tech Giants Cut Huawei Adrift
- Huawei vs. Trump & the Casualties of War
- Trump Clears the Way for a Huawei Ban
- Huawei: US Wireless Network Business Remains Undimmed
- Vermont's VTel Strips Out Huawei Gear, Swaps In Ericsson Equipment
- So Much for the Diet: Huawei Gained 8K Workers Last Year, Report Shows
- Vodafone CEO: Huawei Ban Equals Two-Year 5G Delay
- Major telcos prep for US components ban on Huawei
- Huawei Stew Hits Boiling Point
- ZTE Returns to Profit Despite Sales Slump
— Iain Morris, International Editor, Light Reading