Huawei Slams US Blacklisting of Affiliates

Huawei hit out at US authorities after another 46 of its affiliates were included on a trade blacklist that prevents US suppliers from selling components to the Chinese vendor.

The move came despite a 90-day extension to a temporary license that waives the rule to minimize disruption for companies that deal with Huawei, including rural telecom operators using Huawei's products in their networks.

In a strongly worded response sent by email, Huawei said the latest moves were "politically motivated" and had "nothing to do with national security."

"These actions violate the basic principles of free market competition," said Huawei. "They are in no one's interests, including US companies. Attempts to suppress Huawei's business won't help the US achieve technological leadership."

Huawei called for its name to be removed from the so-called "Entity List," saying it has been "treated unjustly."

The US Department of Justice added Huawei to that list in May on grounds that it poses a threat to national security as a Chinese company. Specifically, US opponents have argued that Huawei's products could include "backdoors" allowing Chinese authorities to spy on other countries -- a charge Huawei has repeatedly denied.

The US government is also pursuing criminal charges against Huawei, alleging that it sold equipment to Iran in breach of trade sanctions. Meng Wanzhou, Huawei's chief financial officer and the daughter of company founder Ren Zhengfei, has been detained in Canada since December in connection with those charges and faces possible extradition to the US.

The shrill wording in Huawei's latest statement is at odds with its repeated insistence that a US ban has not hurt its business. "Today's decision won't have a substantial impact on Huawei's business either way," it says.

Liang Hua, Huawei's chairman, previously said: "Neither production nor shipment has been interrupted, not for one single day."

But according to a new report from Bloomberg, Huawei now expects to sell 60 million fewer smartphones this year than it would have without US sanctions. The company is also said to have switched to 24-hour days, requiring its developers to work across three shifts to cope with the tough conditions.

Despite the setbacks, Huawei reported 23% growth in first-half revenues last month, to 401.3 billion yuan ($56.8 billion), compared with the year-earlier period. In June, however, it warned that full-year revenues would probably shrink to $100 billion in 2019 and 2020, from $105.2 billion last year, because of the US blacklisting.

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The measures against it are driving the company to find alternatives to US suppliers, including components it develops in-house. Accordingly, Huawei is ramping up investment in research and development and plans to spend as much as RMB120 billion ($17 billion) this year, compared with RMB101.5 billion ($14.4 billion) in 2018. Based on its sales forecasts, that commitment would equal 17% of sales, a sharp increase on the 14.1% of revenues it spent on R&D last year.

In the meantime, suppliers including NeoPhotonics and Lumentum, both of which make optical components for Huawei, have been exploiting a loophole in the rules that allows them to ship products made outside the US.

"We've acquired businesses in Japan, China and we have development centers in those countries as well. And so we have a number of products and technologies that are not subject to EAR [Export Administration Regulations]," said Timothy Jenks, the CEO of NeoPhotonics, during an earnings call with analysts earlier this month, according to this Seeking Alpha transcript.

In its own statement on the latest moves, the US Department of Justice said its licensing extension would give Huawei's US customers time to adjust.

"As we continue to urge consumers to transition away from Huawei's products, we recognize that more time is necessary to prevent any disruption," said Commerce Secretary Wilbur Ross. "Simultaneously, we are constantly working at the Department to ensure that any exports to Huawei and its affiliates do not violate the terms of the Entity Listing or Temporary General License."

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— Iain Morris, International Editor, Light Reading

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