US Ban on Huawei Would Trigger Turmoil in Telecom Industry
But optical systems are only one part of the story. Outside the US, where major US operators are already forbidden from using its equipment, Huawei sells a diverse array of fixed, mobile and core network equipment to many of the world's biggest operators. In Europe, service provider giants including Germany's Deutsche Telekom AG (NYSE: DT), Spain's Telefónica and the UK's BT Group plc (NYSE: BT; London: BTA) all have long-established relationships with the Chinese vendor.
And while Huawei is more self-reliant than ZTE, its product lines still use gear from US companies to varying degrees. Finding alternatives to those suppliers could be a long, arduous process.
As unlikely as a ban might seem at this stage, service providers will be edgy. If they cannot get the equipment they need from Huawei, they will also need to find alternatives. Given the role that vendors now play in managing service provider networks, swapping one for another may not always be a straightforward task.
The disappearance of Huawei as an equipment option could also lead to an increase in prices. That may sound like good news for the likes of Ericsson and Nokia, whose earnings have suffered partly because of price-based competition from Huawei and ZTE. But it would be unwelcome to service providers making costly investments in next-generation 5G networks and the supporting infrastructure.
Tension between operators and vendors is already high. At trade shows and conferences, telcos continue to grumble about the lack of interoperability between different suppliers, especially when it comes to new virtualized network products. Some of the biggest have their eyes on open source technologies and software startups as alternatives. Disruption to the equipment triumvirate could fuel that interest. (See DT Demands Automation, Cloud Tech From Pan-Net Suppliers.)
There is still hope that an investigation by the US Department of Justice will clear Huawei. It denies any wrongdoing, which would appear to include the sale of equipment to Iran. But the clampdown on ZTE and other anti-China measures do not offer encouragement. Politicians are trying to introduce legislation that would make it even harder for both Huawei and ZTE to operate in the US. President Donald Trump has proposed slapping tariffs on up to $60 billion of Chinese imports. (See Trade Warmonger Trump May Slap Tariffs on Chinese Tech – Reuters.)
Behind all this is deep-seated resentment about Chinese protectionism and the suspicion that Chinese companies have plundered US innovation. That has morphed into anxiety the US could now fall behind China in technologies like 5G and artificial intelligence. (See Huawei, ZTE in the Eye of a Trade Storm.)
But a ban on sales to Huawei could backfire, not least by hurting the US component makers that depend on business with the Chinese vendor. It could also prompt retaliatory measures. Even now there is some concern that Chinese regulators may try to block a takeover of NXP Semiconductors N.V. (Nasdaq: NXPI), a semiconductor business headquartered in the Netherlands, by Qualcomm Inc. (Nasdaq: QCOM), a Californian chipmaker.
Investors and analysts look uneasy, if not panicked. Shares were down this week in components companies, including Nvidia Corp. (Nasdaq: NVDA) and Advanced Micro Devices Inc. (NYSE: AMD), falling as much as 7% in NeoPhotonics on Wednesday. Genovese points out that an investigation could take at least one year and lead to a fine, in the first instance, if Huawei is found guilty.
"It is worth noting that ZTE's sanctions violation case brought by the Commerce Department originally resulted in fines and penalties against management and employees," he said in this week's research note. "Investors are clearly worried that Huawei may eventually be banned from buying US technology. We share this concern, but we do not think this outcome is either preordained or imminent."
Across the global telecom industry, many will pray he is right.
— Iain Morris, International Editor, Light Reading