Can Huawei survive US trade ban with its Noah's Ark?

May 21, 2019 10:27
Thanks to its founder's foresight in setting up an advanced research lab many years ago, Huawei may be able to limit the impact of the US trade ban, for now. Photo: Reuters

Huawei's Noah’s Ark plan has been an open secret. It is said that in 2009, after watching "2012", a newly-released American epic science fiction disaster film, Huawei founder Ren Zhengfei started to think about the worst-case scenario and decided to build a "Noah’s Ark Lab" for his company.

Despite the success of Huawei, Ren has always been deeply concerned about the group's reliance on overseas firms, mainly in the US, Europe and Japan, for all sorts of supplies, from chips to software, patents to production equipment.

Last week, US President Donald Trump put Huawei on an "Entity List”, a trade blacklist that will make it a lot more difficult for the Chinese telecoms equipment giant to source parts from American firms.

What Ren feared finally happened. But thanks to his foresight a decade ago, Huawei may still be able to limit the impact, for now.

Huawei set up Noah’s Ark Lab in 2012, allocating 20,000 researchers and a yearly budget of US$400 million, a very significant sum compared with Huawei’s limited profitability those days.

Some questioned this move, but Ren saw this as a strategic investment to prepare for rainy days.

“We are developing our own OS out of strategic consideration because we would be doomed if they suddenly cut off our “food”,” Ren said in an internal meeting in 2012, referring to the research lab set up in Shenzhen and Hong Kong.

“I don’t oppose buying high-end chips from the US. I think we should use their high-end chips as much as possible and try to understand how they work. When they no longer sell their chips to Huawei, we’ll be able to use our own chips; even if they’re a bit inferior, they can still suffice,” he added.

Some of these backup measures have begun to take shape. Huawei’s Kirin chipset, designed by subsidiary HiSilicon, is considered to be able to compete with Qualcomm’s high-end chips.

Nevertheless, it remains questionable whether Huawei will be able to rely on itself completely.

Huawei’s chip R&D is based on architecture authorized by ARM, and it purchases electronic design automation software from Synopsys.

Many of its core patent technologies are licensed from Qualcomm, Broadcom and Intel.

Huawei smartphones are using Google’s Android system. Google has just announced that it would comply with US government restrictions and restrict Huawei phones from accessing Android updates.

The tech industry is highly globalized and players are mostly inter-dependent on each other.

No single company can survive on its own if it is cut off from the ecosystem.

A tech cold-war could have greater far-reaching impact than a trade war. Hopefully, Washington will not want to see the world’s second-largest economy get crippled, and take steps to reach some sort of deal.

This article appeared in the Hong Kong Economic Journal on May 21

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist