Huawei is on the offensive as it is still caught between US and Chinese diplomatic trade tensions. “Huawei has been treated unfairly,” Walter Ji, the head of the company's European consumer business tries to sound cheerful, and the words ‘commitment to consumers’ are repeated like a mantra during a half-hour briefing with British media this week.
The timing is interesting: just this weekend, US president Donald Trump seemed to extend an olive branch to Chinese premier Xi Jinping at the G20 Summit in Osaka, Japan and ease the blacklisting of Huawei. “US companies can sell their equipment to Huawei,” Trump said at a news conference. “We’re talking about equipment where there’s no great national security problem with it.”
The details are still hazy, but the shift could be great news for Huawei, who is the number two smartphone maker in the world and the latest pawn in US trade negotiations with China. Trump recently turned the pressure up when he put Huawei on an ‘entity list’, which stops US firms from doing any kind of business with the Chinese company. In effect, this would have been a potential death sentence for Huawei, a company that depends on Google’s Android operating system and ARM processors for its mobile devices (Huawei’s Kirin chipsets are based on ARM designs), plus all the chips from Intel and Microsoft’s Windows that power its computer business.
Ji refused to comment on the meaning or potential impact of Trump’s words, when the US president spoke of an ‘easing’ of the sanctions, saying it was too early to draw any conclusions. However his boss, and Huawei founder, Ren Zhengfei, went further telling the Financial Times that the relaxation will not have "much impact" on Huawei's business.
The world over, technology companies are now seeking guidance in confusion – after all, the US government has yet to clarify which companies can now trade with Huawei or what technologies remain impacted, says Geoff Blaber, an analyst at CCS Insight. “Crucially, Huawei remains on the blacklist, so the supply of certain technologies could still be deemed a threat to national security.”
Ji tries hard though to convince the public that Huawei is all about doing good, not undermining US national security. He spools off a long list of projects that he argues demonstrate Huawei's good intentions – from literacy projects for deaf children, to AI that supports scientists monitoring and fighting illegal logging in Central America, to facial recognition that helps people that are blind or visually impaired.
With Trump, nothing is ever certain, and if the trade negotiations do not go the way he wants, Huawei might end up back at square one. So uncertainty remains – but if Trump does indeed reverse the ban, would Huawei emerge unscathed? It’s premature to quantify business impact, of course, and Huawei’s upcoming quarterly results will show how much sales of, say, smartphones have already suffered; mobile phone carriers may not have replenished stock to limit their risks.
There is already some anecdotal evidence that suggests that Huawei smartphone sales have been slowing down, says Alan Priestley, an analyst at Gartner, with operators across many markets cutting or delaying key handset launches – particularly the cutting-edge Huawei Mate 20 X for the new high-speed 5G networks. There is also still a worry about access to Android services, which could have a huge impact on consumers outside China.
As for ARM, so far, nothing has changed. New Huawei devices in development will be potentially impacted if Trump’s ban stays in place. However, Ji says that the company doesn’t worry about the ARM situation – pointing to an earlier statement from the company that said Huawei's current smartphone models, among them the P30 and Mate 20, will update to the Android Q operating system once that’s released this autumn. Crucially, Huawei is speeding up development of its own operating system, Hongmeng OS, which it hopes to launch early next year.
For its part, ARM says it is “pleased to see the latest progress in discussions around Huawei. We are closely monitoring the situation and look forward to updated guidelines from the Commerce Department and how they apply to supplying our valued partner HiSilicon.” HiSilicon is the Chinese giant's subsidiary that manufactures phone chipsets.
Indeed, says Priestley, there's nothing that precludes the company from developing an alternative architecture for their phones. It may not be perfect, he adds, but “I have no doubt that Huawei will continue to exist.” After all, the US is not Huawei’s only market. But other analysts have recently warned that if Huawei can't have access to ARM designs, it would effectively be a death sentence for the company.
Mobile market analyst Carolina Milanese believes that Trump’s latest comment could improve Huawei’s access to ARM designs, because the company could argue that this technology is available in other countries outside the US – which “seems to be the way the US will decide which tech can be sold to Huawei.” This would be the most threatening part for Huawei, she adds, as it would prevent them from making phones altogether.
Then there is 5G. Huawei is a world leader in 5G technology, having spent millions on research and development in recent years. Without Huawei gear, the rollout of 5G infrastructure may be delayed, with Nokia, Ericsson and Samsung trying to pick up the slack where Huawei is not able to supply. “The infrastructure doesn't get put in place overnight,” Priestley says. Time gets wasted when “you are starting to evaluate the use of wireless equipment based around Huawei – and then you have to resell your project planning and go back and start evaluating the other players’ equipment.”
This is an especially big problem in Europe, where Huawei equipment is already deeply embedded in operators’ networks. “The market needs Huawei for innovation and competition,” says Blaber. A few months ago, Huawei made headlines with claims that it holds the world’s largest patent portfolio. While quality is always more important than quantity, it does show the company is paying incredibly close attention to R&D.
“Being on the bleeding edge of technology is necessary to compete in its networks business,” says Daniel Gleeson, an analyst at Ovum. Especially in the consumer market, Huawei can only charge a premium and compete with Samsung and Apple if it invests heavily in new technology and innovations. Huawei is effectively battling many Western consumers’ view of Chinese companies as producing cheap knock-offs and not having any originality of their own – so Huawei’s huge pile of patents is used as proof of its innovation and therefore a key marketing tool.
Ultimately, it’s Huawei’s smartphone business that is the company’s real problem. In China Huawei will continue to dominate with its 5G phones, while Samsung and maybe LG have – in the short-term – the biggest opportunity to gain market share for 5G handsets as the only non-Chinese vendors, says Milanesi.
Google isn’t being particularly friendly to Huawei either. In May, Google announced that it would no longer let Huawei use its version of Android. The Chinese company can instead rely on the Android Open Source Project. Earlier this year, Google announced that it was going to stop supporting Google services on the Huawei phones as of August 19. While in China that doesn't matter, because there are no Google services to begin with, the situation is different in the West, where Huawei desperately wants to expand.
Uncertainty remains despite [Trump’s] apparent U-turn,” says Blaber. “Consumers may not be able to buy certain products even if they wanted to and the damage to Huawei’s brand and business is not easily undone.”
This article was originally published by WIRED UK
