Sanctions on the once-mighty Chinese telecom giant have plunged it into survival mode
Craig S. Smith 29 Sep 2021
US sanctions targeting China’s telecommunications giant Huawei Technologies have crippled the company, effectively forcing it out of the global smartphone market and now threatening its domestic phone business as well. They have also shrunk Huawei’s market for fifth-generation wireless network infrastructure around the world.
Huawei chairman Eric Xu said last week that the company’s smartphone revenue will drop by $30 to $40 billion in 2021 from the $136.7 billion reported last year, adding that there are no prospects for recovering that money in the next few years. Xu had said earlier that the company’s goal now is to simply survive.
Xu’s latest comments came as the US dropped its extradition battle over Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder, who had been trapped in Canada for three years. That led to the release two Canadian citizens who had been held hostage in China as a result. But it may also signal a de-escalation of the pressure Washington has brought to bear on the Chinese company now that Huawei is on its heels.
What’s at stake is control of international 5G networks, which are expected to transform global communications.
Three years ago, Huawei was on the cusp of dominating the world’s 5G infrastructure with equipment priced far below competitors. That alarmed the US, which equated Huawei’s dominance with Chinese-control of global telecommunications—under a 2017 Chinese law all domestic companies are compelled to help the Chinese intelligence services on demand. Huawei has said it would not comply with such a request and believes that it cannot be legally forced to do so.
Washington embarked on an intense campaign to block Huawei, and Ms. Meng’s arrest on fraud charges was widely seen as part of that campaign.
Huawei has long been regarded as a rogue player in the international telecoms market with deep ties to the Chinese Communist Party. It was founded in 1987 by a former People’s Liberation Army officer and Party member and got its start reverse engineering telephone switching equipment from Hong Kong. By the mid-1990s, China was promoting it as a ‘national champion’ in the country’s effort to build up industrial giants that could compete on the world stage.
In subsequent decades, the company was accused of stealing Western intellectual property, supplying sensitive telecoms equipment to North Korea and Iran, and expanding its global market share by undercutting Western telecom equipment prices by as much as a third. Huawei benefits from various Chinese government policies that act as subsidies to its operations.
With the UK’s ban, four of the countries in the Five Eyes intelligence-sharing network—Australia, New Zealand, the UK, and the US—have now formally blocked Huawei from 5G networks. The fifth member, Canada, has effectively done so, forcing its telecom companies there to seek other vendors. Other countries are following suit, though Huawei still has a stronghold in Africa and Southeast Asia.
The troubles quickly spread to Huawei’s smartphone business. With US companies barred from doing business with Huawei, Google could no longer license its Android operating system—the operating system that runs most of the world’s phones—to Huawei. So the U.S. search giant stopped Huawei from offering Google-run services, such as Gmail, YouTube and carrying Google’s Android app store, Google Play.
As a result, Huawei, which was briefly the largest smartphone supplier in the world, has dropped out of the top five.
Worse for Huawei, the tightened sanctions cut Huawei off from TSMC, the Taiwanese semiconductor foundry, which manufactured Huawei’s 5G chips. In the run-up to the April 1, 2020 ban—the US gave Huawei several months notice—the Chinese company furiously stockpiled 5G chips.
How many chips Huawei was able to collect has been a matter of debate, but a series of statements and actions by the company indicate that it is running out. It sold its low-end Honor phone business last year, and in July this year it released the P50 series without 5G capability—using instead 4G chips that the US has allowed Qualcomm to sell to the company. This month, Huawei released two more smartphones without 5G, the Nova 9 and Nova 9 Pro.
Meanwhile, the outlook for Huawei’s fabless semiconductor company, HiSilicon, which designs and packages Huawei’s 5G chips is increasingly dim. Without a manufacturing partner it cannot produce its flagship 5nm, 5G-enabled Kirin 9000.
Huawei has delayed the release of its high-end Mate 50 smartphones. They are supposed to be powered by the Kirin 9000.