Last week, the US government effectively banned American companies from doing business with Huawei without permission. As such, Huawei has been shut off from one of the world’s largest markets – significantly hurting its B2C and B2B operations with the US, and eventually the world.
Why Huawei, and why now?
Last week, on May 15th, US President Donald Trump put into effect an Executive Order that allows the US to restrict transactions with any foreign entity it considered compromised national security through information and communications technology and the services supply chain.
It so happens that the US is embroiled in a trade war with China, with the Trump administration having just hiked duties on $200 billion worth of Chinese products from 10% to 25% earlier this month. All the meanwhile, Huawei has been in the crosshairs for over a year.
Now, the axe has dropped, and Huawei and 70 of its “affiliates” are up next on the chopping block. They have been put on an American blacklist.
“The primary source of the controversy… is the long-held belief from lawmakers and the US intelligence community that Huawei acts on behalf of the Chinese government, undermining US national security and posing cybersecurity and privacy risks for American and UK customers,” The Verge explained.
Huawei has long denied these claims, but this has not stopped the US from enacting this blacklist effort.
What will this mean for Huawei?
First and foremost, the blacklisting bans Huawei from buying parts and components from US companies without US government approval.
“US officials said the decision would also make it difficult if not impossible for Huawei, the largest telecommunications equipment producer in the world, to sell some products because of its reliance on US suppliers,” the South China Morning Post (SCMP) reported.
This leaves Huawei with a murky outlook, especially given its glowing performance last year.
2018 was a great year for the telecom giant, where its smartphones sales exceeded Apple’s in Q2 and Q3, making it the 2nd most selling brand of smartphone devices behind Samsung.
This success continued into 2019.
According to SCMP, Huawei reported first-quarter revenue of $27 billion last month and said it had shipped 59 million smartphones in the first quarter.
The new ban will put its competitors way ahead of it, and jeopardize the company’s future.
After all, “[Chinese telecommunications equipment maker] ZTE Corp. almost collapsed after the U.S. Commerce Department banned it for three months in 2018 from buying American technology,” Fortune noted. “Trump undid the sanctions at [Chinese President] Xi’s request and directed his commerce secretary to negotiate a settlement with the company.”
It doesn’t help that Android-developer Google has also mostly cut ties with the Chinese phonemaker.
While general consensus in the market isn’t this gloomy, as Huawei has a much more diversified product portfolio and very strong presence in markets such as its homeland China, the company will feel the sting of Trump’s ban.
Fortunately for the company, it has been taking precautions.
“Huawei has been preparing for the US move since at least the middle of 2018, hoarding components while designing its own chips, according to people familiar with the matter, and is said to have stockpiled enough supplies to keep its business running for at least another three months,” Fortune explained.
In fact, reports are indicating that the company has been low-key developing their own Play Store in anticipation of the ban.
What will this mean for Huawei consumers?
One of the greatest hits to current Huawei customers is the loss of Google.
“As things stand, Huawei is losing its licensing agreement with Google for the provision of Google Play Services and access to the Google Play Store on new Huawei Android devices,” The Verge explained. “Existing customers won’t be affected, though without Google resuming business with Huawei, they also won’t get any further Android OS updates.”
Honor, Huawei’s wholly owned subsidiary, will suffer a similar fate.
Still, Huawei has taken Google’s partial departure optimistically, sharing with AMEinfo and the press the following:
“Huawei has made substantial contributions to the development and growth of Android around the world. As one of Android’s key global partners, we have worked closely with their open-source platform to develop an ecosystem that has benefitted both users and the industry.”
They continued: “Huawei will continue to provide security updates and after sales services to all existing Huawei and Honor smartphone and tablet products covering those have been sold or still in stock globally.”
However, Google has been allowed to work with Huawei for 90 days following the blacklisting to allow it to support the Chinese developer and ensure users are not compromised following the ban. The exemption allows Google to send software updates to Huawei phones which use its Android operating system through to August 19, CNBC reported.
Similar leeway has been given to mobile phone companies and internet broadband providers in the US.
What will this mean for everyone else?
The Trump administration has left many casualties in the wake of its market-shattering decision.
Chipmakers are some of the companies most affected by the ban, such as the Intel Corporation.
Naturally, tech stock reflected the blacklist shock, with chipmaker share value seeing a sharp drop. This decline was mitigated eventually by the temporary exemptions the US is giving out.
It’s important to remember that there will be some indirect fallout to the Huawei restriction, too.
According to Peter Garnry, Head of Equity Strategy at Saxo Bank, Beijing is certain to retaliate with similar restrictive measures of its own.
The following US companies with significant revenue exposure to Greater China (both the mainland and Hong Kong) are the ones facing the most downside risk from any further escalation of the trade war:
– Broadcom Inc.
– Intel Corp.
– Apple Inc.
– The Boeing Co.
Some European companies are reconsidering trade with Huawei too, it seems. The Nikkei Asian Review (NAR) reported that “German chipmaker Infineon suspended its shipments to Huawei. Another European chipmaker, STMicroelectronics, was expected to hold meetings this week to discuss whether it will continue shipping to Huawei.”
As for the impact of the greater US-China trade war, the US has compiled a list of approximately 6000 products that could be affected as tariffs continue to be doled out. These goods include certain food products, TVs, electronics, clothing, and a lot more. Expect a similar impact to these products’ prices here in the Middle East.