Dead in the water. This is, pretty much, the very bleak future facing Chinese tech giant Huawei after suffering its latest blow: the decision by chip designer ARM – based in Cambridge, England, but owned by Japan’s Softbank – that it has to suspend all business dealings with Huawei to comply with US sanctions.
That’s because just as the whole world of mobile and embedded devices depends on ARM’s design for powerful but energy-efficient chips, they in turn are underpinned by a few bits of technology that originate in the United States. “This would seem to be as close to a death sentence as you get, and I'm not sure honestly how they would recover from that,” says Christopher Balding, an economics professor at Fulbright University Vietnam and an expert in Chinese policy. Short of American president Donald Trump and his Chinese counterpart suddenly finding some settlement in the next twist of the trade war, the future may be bleak for Huawei.
The US legal action against Huawei is ostensibly about cybersecurity and whether the company's devices have deliberate security flaws that would make it possible for Chinese government agencies to spy on data traffic or break into Western computer systems. (Huawei has always denied this is the case and offered to work with governments around the world).
However, it also has to be seen in the context of an economic and political rivalry that has been heating up for months. For Huawei, it culminated in the US government banning all American firms from doing any business with it without explicit permission. Quickly, Huawei found itself in technological quicksand, as it lost access to US computer chips from Intel, the full-strength version of Google’s Android operating system and many other fundamental parts of the modern technology ecosystem. All hammer blows, but – maybe – just about manageable.
Then, however, the BBC broke the story – based on a leaked internal memo – that ARM employees had been instructed to stop “all active contracts, support entitlements, and any pending engagements” with Huawei and its subsidiaries to comply with US sanctions.
Hours later, ARM confirmed the ban. “ARM is complying with the latest restrictions set forth by the US government and is having ongoing conversations with the appropriate US government agencies to ensure we remain compliant,” an ARM spokesperson said in a statement. And ARM chip architecture is at the heart of Huawei’s Kirin processors, and some of the chip designs include “US origin technology” – made in Texas and California.
This is a much more significant blow to Huawei than all the others, though, and one it may not be able to recover from, says CCS Insight analyst Geoff Blaber. There simply is no alternative to ARM technology in the world. The company’s chip design is used in the overwhelming majority of mobile device processors globally. That kills Huawei’s core mobile devices business, if it can't access the technology going forward. Current products are not impacted.
Chips with underlying ARM design also power Huawei’s 5G base stations (which are at the heart of the cybersecurity dispute), so the firm’s all-important mobile networking business is in limbo too. At present, the company will also no longer be able to source Intel or AMD chips either, so its laptop and computer business will suffer. In this context, the fact that Huawei will have to replace the Android operating system as well is a mere distraction.
“You can understand Huawei's frustrations, because it’s embroiled in a far bigger political dispute,” says Blaber. The timing is sensitive, as 5G networks and phones are in the process of being rolled out globally. The question is how long the order from the US government will last for. “
Read more: What Google's Huawei ban means for millions of Android owners
We are confident this regrettable situation can be resolved and our priority remains to continue to deliver world-class technology and products to our customers around the world,” Huawei said in a statement. The company has also said it has been developing its own software for a new operating system. Reports have stated the company has stockpiled enough chips and key components to keep its business running for at least the next three months.
The situation isn’t without precedent. Last year, Trump also blocked another, smaller, Chinese phonemaker, ZTE, over the violation of sanctions against Iran. But Trump then quickly made a deal with China’s president, and many of the restrictions on ZTE were lifted. Whether Huawei will get that lucky is impossible to predict. “In the meantime, Huawei’s smartphone business is completely hamstrung. It’s very difficult to see how it can continue being a viable commercial enterprise in the same shape that it was before this determination,” says Blaber.
The US has pinpointed Huawei for two reasons. One, the firm is a global leader in 5G and therefore of strategic importance to the Chinese government. Two, as a consumer electronics leader, it is at the heart of China’s economic strategy to turn itself from being the workbench of the world to become a technology leader. There is even the possibility that the US clampdown could be extended to other companies. Suggestions have been made that drone manufacturer DJI could be penalised.
All that could force China to come to the table, Blaber says. China, of course, also has a few moves at its disposal – from owning a huge amount of US government debt to being the manufacturing location of choice for many American companies. On online forums, Chinese consumers are expressing their support for Huawei, while Chinese officials and academics argue that the Trump administration is violation international law.
“US politicians just demonstrate their real face behind the mask of free trade and even fair trade, bringing disaster to the global economy as a cost of their hegemonic position; all sides will suffer,” says Yong Wang, a professor at the Center for International Political Economy at Beijing University.
Just weeks ago, Huawei announced it was going to make a chip-making plant in Cambridgeshire, not far from ARM. But even if it does, that won’t help – because ARM designs the architecture on which the chips would be based. Huawei “are wholly dependent on ARM, regardless of any manufacturing capability – whatever they build, they will need the ARM instruction set,” says Blaber. Whoever makes chips in the mobile space, whether that’s Qualcomm, Samsung and many others, they are often all ARM licensees. All apps are written to the ARM instruction set.
Huawei can’t simply go and develop its own chip design, bring that to market “and then deliver that and produce smartphones – because, firstly, the amount of time and resource and R&D that that would take,” Blaber says. “And but more importantly, you need an ecosystem that supports it. It is not possible for Huawei to simply replace the system overnight. Or even over years.”
Take HiSilicon, a China-based company owned by Huawei, which supplies some of Huawei’s chips. They are also based on ARM’s underlying technology. The next generation of Huawei devices are supposed to be based on HiSilicon’s new – yet to be unveiled – Kirin 985 chip. This chip will probably not yet be affected by the ban, but its successor – updated and even more powerful – will have to be made from scratch.
The suggestions that Huawei has stockpiled chips and other components will allow the company to keep operating. But the supplies won’t last indefinitely, and at most, up to several months. More importantly, would consumers buy hardware where they don’t know whether its operating system and apps will still be upgraded one year from now? It’s an even more acute question for mobile network operators making massive, long-term investments in networking infrastructure.
So is Huawei’s death inevitable? Keeping in mind the importance of Huawei for China, it’s highly unlikely that China will simply let a trade war destroy it. “I think diplomacy will have to play a role and I doubt China will let Huawei die,” says mobile analyst Carolina Milanesi. “We will see if they respond with retaliation or by getting to the negotiating table around tariffs, as I still think that Huawei is a pawn in the trade war.”
This article was originally published by WIRED UK
