The international backlash against Huawei has heightened a risk that China will ban Nokia in retaliation, according to a leading equity analyst who covers international equipment markets.
Michael Genovese, an analyst with MKM Partners, drew attention to the danger for the Finnish equipment vendor in a research note issued this week.
"The way things are headed, there is a chance Nokia could be banned from Greater China as Huawei is banned from non-Greater China," he said. "We estimate this could cost Nokia 7-8% of its total addressable market given its market share limits in China."
Several countries and service providers have now imposed some restrictions on Huawei Technologies Co. Ltd. amid apparent concern that its products could include spyware used by Chinese authorities. (See Where Huawei Fears to Tread and (doclink 748157}.)
Australia and New Zealand have taken steps to exclude Huawei from their 5G markets, while Japan has banned government use of Chinese network equipment -- a move that would prevent major operators from dealing with Huawei and ZTE. (See Japan Next in Line to Block Huawei, ZTE, New Zealand blocks Huawei from 5G deal with Spark and Australia Excludes Huawei, ZTE From 5G Rollouts.)
Both companies have effectively been locked out of the US market since 2012, when a government report identified them as a security threat.
European nations including Germany and the UK are said to be weighing their options. In addition, France's Orange (NYSE: FTE) has said it will not use 5G equipment from Huawei in its domestic market, while the UK's BT Group plc (NYSE: BT; London: BTA) is stripping Huawei gear out of its mobile core and optical networks. (See Orange Rules Out Huawei for 5G in France and Huawei Cut Out of BT's Mobile Core, Optical & Edge Plans.)
In the meantime, Meng Wanzhou, Huawei's chief financial officer, is in Canada facing extradition to the US on charges of fraud. Measures previously taken against ZTE suggest US action against Huawei might include a ban on its purchase of US-made components, which are used in various Huawei products. (See Huawei Founder Warns of Job Cuts – Report and Amid the rubble of L'Aquila, ZTE tries to rebuild.)
The anti-Huawei campaign has fueled concern that Chinese authorities might respond by imposing similar restrictions on Western equipment makers such as Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK).
Despite that concern, Genovese rates the possibility of a Chinese ban as "neutral to slightly positive" for Nokia, pointing out that it is likely to pick up some of Huawei's non-Chinese business.
"If Huawei were to be banned from all remaining countries outside of Greater China, then Nokia would pick up an additional 8-10% of TAM [the total addressable market]," he writes.
Last year, Nokia made about 11% of its total revenues in China, while Ericsson said that 12% of its sales came from North East Asia. (See Nokia Sitting Pretty After Week of Turmoil for Huawei, Ericsson.)
Huawei, by contrast, generates nearly half of its revenues outside China and has network deals in place with many of the world's biggest service providers.
Chinese authorities may be wary of banning Western vendors because of the impact it would have on the country's own telcos. Excluding Ericsson and Nokia would limit the choice of suppliers for China Mobile, China Telecom and China Unicom -- China's three national operators -- and could lead to an increase in prices.
Similarly, some European operators are likely to be frustrated at the clampdown on Huawei and ZTE given the competition they have brought. Technology executives have frequently remarked on the high quality of Huawei's technology. During a conference in November, Neil McRae, BT's chief architect, even described Huawei as "the only true 5G supplier right now." (See BT's McRae: Huawei Is 'the Only True 5G Supplier Right Now'.)
Ericsson CEO Börje Ekholm this week said the moves against Huawei were creating "uncertainty" among telcos, according to a report from CNBC.
"We haven't really seen anything in our order books, but we see worried customers and concerned customers I think that is never good for the investment climate," he is quoted as saying.
— Iain Morris, International Editor, Light Reading