US-China: is Huawei ‘too big to fail’?
Washington’s latest sanctions have been likened to a ‘death sentence’ on the telecoms group but some say that is premature
For Guo Ping, chairman of Chinese technology group Huawei, Monday was a day like any other. In a
in the southern Chinese city of Shenzhen, he painted a rosy picture of how Huawei’s technological prowess and
would transform the company’s hometown into a global digital showcase city.
Hours later, that promise was shattered — shot down by an announcement from the US government that it will use the global dominance of American technology to
to
.
In boardrooms and government offices around the world, the new rules sparked frantic discussions about whether the move would deliver a fatal blow to the $122bn company, how quickly Huawei might fold, and what the collapse of the world’s largest telecoms equipment provider would mean for networks in 170 countries that run on its hardware.
While some analysts spoke of it being a “death sentence”, others wondered what lengths Beijing would be willing to go to protect a company at the heart of recent
.
One European telecoms executive calls the prospect of the leading supplier in the market collapsing “catastrophic”. Networks are already having to shoulder the cost of reducing the amount of Huawei equipment under growing political pressure in western countries from Australia
. The burden of a Huawei collapse is most likely to be felt by incumbent telecoms companies like BT, Deutsche Telekom and Swisscom, argues one executive, given their use of the Chinese company’s kit in broadband networks.
But for Washington, this is the climax of a 15-year battle against Huawei that began when the company tried to enter the US market for the first time in the early 2000s.
Longtime observers say the US is getting close to a goal that has proved elusive. “How do you kill Huawei?” asks Duncan Clark, chairman of China technology and telecom advisory company BDA, of the US dilemma. “Like with a worm, you cut off the head and it keeps going.”
Driven by the belief that Huawei could enable the ruling Chinese Communist party and its military to spy on other countries and their companies, undermine their national security and steal their commercial secrets, the US government used every option open to it. It stopped Huawei acquisitions of American companies and assets through its
. It leaned on leading US telecoms operators not to work with the company and it conducted a Congress-led probe into the firm. It pursued a criminal prosecution which put Meng Wanzhou, Huawei’s chief financial officer and daughter of its founder, under house arrest in Canada, awaiting the outcome of an extradition hearing.
Last year, the administration started targeting Huawei with sanctions, two earlier rounds of which proved porous. This time, industry experts say it is hard to see how Huawei can wriggle out of Washington’s noose.
“Handsets and base stations require semiconductors. These two business lines make up 90 per cent of Huawei’s business; without being able to manufacture these products, the company would no longer look like Huawei,” says Dan Wang, technology analyst at Gavekal Dragonomics, a research firm, in Beijing. Earlier this week, Mr Wang called the new US rules a “death sentence”.
November hope
Death, however, is not imminent. Huawei has been building stockpiles of chips since Washington stepped up the
two years ago. While industry experts say that
about it having amassed two years of inventory are overblown, they believe that Huawei has enough chips to keep it going for another six months.
That would take it past
in early November, and the inauguration of the next US president. Some analysts say the possibility that Donald Trump, whose administration has zeroed in on China as a threat to America, might be voted out of office offers a glimmer of hope to Huawei due to Democratic nominee Joe Biden’s record of a less confrontational stance towards China. Even the latest rules allow for issuance of temporary licences under which chip supplies could resume.
But those hopes are slim. “A lot of people in the Chinese government are looking at [Joe Biden’s lead in the]
right now. But long-term thinkers in China understand that the policy space for Biden will be limited as well,” says Hosuk Lee-Makiyama, director of the Brussels-based European Centre for International Political Economy, who as a trade lawyer previously investigated Huawei for the EU.
He adds that any potential honeymoon period for Beijing with an incoming Biden administration is unlikely to last because China cannot reverse the key policies and laws which have hardened western governments’ stance against Huawei and China more broadly. At its core is Beijing’s national security law, which requires companies and citizens to assist the security services in whatever they may demand and which has fed fears of spying. Another issue certain to continue to trouble relations is Beijing's move to curb
, civil rights and rule of law.
Under that scenario, Huawei’s future looks dark. Washington last week stopped rolling over temporary licences for US companies to sell chips to the company. Rules imposed in May, and the additions that followed this week, mean that no company anywhere in the world can sell chips to Huawei directly or indirectly if they were designed using software tools made by US companies including Cadence and Synopsys, or manufactured using equipment from US suppliers such as Applied Materials or LAM Research.
Taiwan Semiconductor Manufacturing Corp, the world’s largest contract chipmaker on whom most chip design houses rely to produce their semiconductors, will stop shipping to Huawei on September 15, the deadline imposed in May. Monday’s additional restrictions also block supplies of any other chips, be it memory chips from South Korea’s Hynix or semiconductors from Dutch company NXP.
“None of these companies is free from US content, the door is slammed shut,” says a European trade official in China.
The
that British chip design company Arm will be taken over by Nvidia of the US has added to Huawei’s predicament. A person at HiSilicon, Huawei's chip design affiliate, says that if the deal happens, all of the Chinese company’s chip design would be in trouble because its designs are based on Arm-licensed blueprints.
Some of the company’s almost 200,000 employees are
. “I feel that everyone is quite calm because we still have a lot of projects on hand which are not finished yet, and governmental projects are also coming,” says an employee at Huawei Cloud, adding that the division remains viable.
But experts challenge such claims. Mr Lee-Makiyama says the cloud business, which is much more profitable than Huawei’s devices arm, is in as much trouble as the rest of the group because the server hardware that any cloud services run on needs semiconductors, while much of the cloud software is American, including databases from Oracle and virtualisation services from VMware.
Some observers believe the Chinese government will step in. “Huawei is too big to fail,” says a semiconductor industry executive in Taiwan. “Beijing will surely help them.”
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