The Story of the Week: Ostracizing Huawei
The U.S.-China trade tensions have been rising steadily after the Chinese trade delegation backtracked on a key point about IP protection for U.S. firms. A month ago the Washington Examiner wrote: "The U.S. Trade Representative's Office warned Thursday that China had to do more to prevent intellectual property theft, stating that country has not implemented any reforms and remains a 'hazardous and uncertain environment' to operate in. A USTR official indicated that the Trump administration could pursue additional tariffs against China if reforms don't happen." Reforms didn't happen and President Trump introduced new tariffs last Friday. More importantly, President Trump's war against China's telecom company Huawei went into high gear.
While the U.S. Government began their war against Huawei in February by warning European allies not to use 5G technology from Huawei, it was this week where the U.S. really began to turn the screws on Huawei. The headlines came in fast and furious like tightening a noose around Huawei's neck.
It was reported this week that a U.S. startup accuses Huawei executive of involvement in trade-secrets theft. The Korea Times reported today that "The United States and China hardened their stands over Huawei Thursday as Washington brushed aside claims of "bullying" and accused the Chinese tech giant of misrepresenting its ties to the Beijing government."
The Korea Times report further wrote: "US Secretary of State Mike Pompeo claimed in an interview that Huawei is not truthful about its relationship with China's government and that this means any data touched by the company is 'at risk' of falling into the wrong hands.
'To say that they don't work with the Chinese government is a false statement,' Pompeo said of Huawei."
Last Friday Patently Apple posted a report titled "The U.S. Stance on Huawei Escalates as they put 67 Huawei Affiliates on a Blacklist banning Access to U.S. Suppliers," which set the stage for this week's blockbuster revelations.
The first big news to hit the wire this week was that Google and Major U.S. chipmakers suspended critical software and hardware components to Huawei due to a U.S. government blacklist.
Reuters reported that "The suspension could hobble Huawei’s smartphone business outside China as the tech giant will immediately lose access to updates to Google’s Android operating system. Future versions of Huawei smartphones that run on Android will also lose access to popular services, including the Google Play Store and Gmail and YouTube apps."
The second big news was a bombshell. ARM suspended all business with Huawei. Huawei relies on ARM for chip designs, especially its Kirin processor.
The week ended with a barrage of negative reports on Huawei. Here are just a few that are newsworthy:
01: "UK, Japan mobile operators suspend Huawei 5G phone launches." The Korea Times report noted that "Britain's EE and Vodafone and Japan's KDDI and Y! Mobile said they are pausing the launch of Huawei smartphones, including some that can be used on next generation mobile networks, amid uncertainty about devices from the world's No. 2 smartphone maker."
02: "Huawei’s European Customers Are Put on Hold by U.S. Ban." The New York Times began their report by noting that "Europe has been one of Huawei’s biggest success stories." We reported this week on Huawei experienced 70% growth in Europe in Q1 2019.
03: "Companies in U.K., Japan, Taiwan Join Anti-Huawei Campaign.": Business Korea reported that "Japan’s three largest mobile phone companies announced that they would indefinitely postpone the release of Huawei’s new smartphones or suspend preorders. KDDI and SoftBank, the second and third biggest mobile carrier in Japan, have indefinitely delayed the launch of Huawei’s new smartphone, the P30 Lite, on May 24."
04: "Huawei is banned from using SD cards in future devices." Engadget reported today that "Things just keep getting worse for Huawei. The company was barred from being a member of the SD Association, the trade group responsible for standardizing SD and microSD cards. The change in status means that Huawei will no longer be able to offer official SD or microSD support in its devices, including phones and laptops." More on this could also be found on 9to5Google.
05: "Huawei shipments could fall by up to a quarter this year." Reuters reported that "China’s Huawei, hit by crippling U.S. sanctions, could see shipments decline by as much as a quarter this year and faces the possibility that its smartphones will disappear from international markets."
Huawei may not be the only Chinese company that will be eventually hit by the U.S. government. According to a new Bloomberg report posted today "Trump's Latest China Target Includes a Rising Star in AI." A facial recognition firm by the name of Megvii, that is backed by Giant Alibaba. Megvii isn’t well-known outside China, but it’s a fast-rising juggernaut at home.
Megvii has said that its technology is deployed in more than 260 city projects, helping police arrest more than 10,000 people. The Trump administration has hinted that their could be five other Chinese companies including Megvii that could be banned for sales in the U.S.
The stock market is jittery about the U.S.-China trade war with Dow Industrials falling for the fifth straight week.
While Apple's iPhone success has been waning in China over the last few quarters, it's been more about economics and Apple's premium iPhones being priced a little out of reach for China's middle class than politics. Though as time goes on and Huawei is seen suffering due to the U.S. blacklist, the tide could turn on Apple, being a huge U.S. technology target.
A report by the South China Morning Post (SCMP) tried to rattle the cage this week with a report titled "Apple’s China woes may worsen as Huawei ban nudges die-hard iPhone fans to switch sides." Patently Apple covered some of the anger with die-hard communists against Apple's iPhone back in late December.
The good news is that responsible Chinese business leaders are stepping up and trying to calm the loud patriotic rhetoric.
According to Bryan Ma, vice president of client devices research at IDC Asia Pacific, who expects Apple to feel some of the brunt although he cautioned against exaggeration.
“Apple is after all a luxury brand, and ultimately it all depends on the users,” Ma said. “There will be some who are nationalistic and say no to American products, but there are many other users to whom it does not matter as much.”
Even Huawei wants to play down the unbalanced patriotic rhetoric rising in China knowing that business conditions could change over time and angering potential US and European customers isn't good for the company longer term.
The SCMP report also noted that "Even Huawei’s CEO Ren Zhengfei tried to cool down the nationalistic fervor on state TV on Tuesday, saying one must not associate patriotism with buying Huawei phones.
Zhengfei specifically stated that the "iPhone has a good ecosystem and when my family are abroad, I still buy them iPhones, so one can’t narrowly think love for Huawei should mean loving Huawei phones." Whether zhengfei's TV talk was a genuine call for calm or a PR ploy is unknown at this time.
In the end, the story of the week was without a doubt the hammer falling on Huawei with a gigantic thud. Yet, in the bigger picture, it's still far too early to know how this will effect the company in a year's time. President Trump did say just yesterday that "It's possible that Huawei would be included in a trade deal. If we made a deal, I can imagine Huawei being included in some form or some part of a trade deal."
The U.S. has a good chip to play with Huawei in their trade talks with China and by adding other high tech companies every week or month to their blacklist will only up the ante. On paper it all looks good, but how it will actually play out in the coming weeks is another matter. Stay tuned, more news on this is likely to spill over to next week.
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