Why Huawei can hope for easing of the US sanctions

June 18, 2019 15:08
Huawei's founder Ren Zhengfei has said the impact of US sanctions on the telecoms equipment firm has been greater than anticipated. Photo: Reuters

Huawei Technologies has broken its silence on the impact of US government sanctions, with its founder and CEO warning that his firm could see its original projected revenue for this year get eroded by as much as US$30 billion.

On Monday, Ren Zhengfei admitted that the Trump administration's move to put Huawei on a trade blacklist, which prompted many partners and suppliers -- including Android developer Google and several chipmakers -- to cut or limit ties with the Chinese firm, was causing more pain than previously expected.

“We cannot get components supply, cannot participate in many international organizations, cannot work closely with many universities, cannot use anything with US components, and cannot even establish connection with networks that use such components,” Ren said during a panel discussion in Shenzhen, Reuters reported. 

Following Washington's curbs, Huawei expects revenue of only around US$100 billion this year and the next, Ren said, revealing a steep downward revision from previous projections.

Huawei had previously said that it was targeting revenue of up to US$130 billion for 2019, after clocking a figure of some US$104 billion) last year.

Ren's latest remarks can be taken as clear distress signals from the firm, adding to pressure on Beijing to try and help sort out the problems facing the nation's biggest telecoms equipment maker.

Given that US President Donald Trump has said publicly that a trade deal with China could include Huawei, the Chinese government may seek some broader deal that could allow Huawei to come off the hook. 

And it's not only Beijing that has an added incentive to strike some agreement; even Washington has good reason to make a retreat.

The ban on Huawei may be hurting a big Chinese tech company and curtailing its global ambitions, but it is also an indisputable fact that the supply restrictions are hurting a lot of American firms.

According to reports, Huawei had procured components worth US$11 billion from American firms last year, with the suppliers list including names such as Qualcomm, Intel and Micron.

But now, the restrictions on business dealings with Huawei mean erosion of all that business and potentially much more, given the opportunities in the unfolding 5G era.

This is something that the American firms can hardly afford at a time when the broader industry as well as the macro environment is plagued by several uncertainties. 

So, it's not surprising that the US firms would also want a quick resolution of the Huawei issue and a lifting of the supply ban.

Reuters has reported that some Huawei suppliers, including Qualcomm and Intel, have been quietly talking to the US government in a bid to get the Huawei sanctions eased.

American firms have as much at stake in the Huawei saga as the Chinese firm itself, it has been pointed out.  

Ren's remarks on Monday and the news of US firms lobbying for easing of sanctions on Huawei suggest that the Chinese firm may have kicked off a new round of public relations work.

Using a softer and indirect approach, the telecoms equipment giant is sending a message to both Beijing and Washington that the company shouldn't be a collateral victim in the trade war between the two sides.

The Semiconductor Industry Association (SIA) acknowledged it arranged consultations with the US government on behalf of chipmakers in relation to the Huawei issue.

“For technologies that do not relate to national security, it seems they shouldn’t fall within the scope of the order. And we have conveyed this perspective to government,” Reuters quoted Jimmy Goodrich, vice president of global policy at SIA, as saying.

Chipmakers are said to be arguing that Huawei's products such as smartphones and computer servers use commonly available parts and are unlikely to present security concerns.

Earlier, we had news that Beijing had summoned senior executives of US tech firms to warn them that they could face consequences if they discriminate against Chinese companies in relation to supply of components and technologies.

While Huawei has claimed it can manufacture smartphones without foreign support, the fact is the Chinese firm is still using lots of foreign-made components in its devices and equipment. The company will be in big trouble if it cannot quickly get its supply chains back on track.

A Huawei executive has said the firm's laptop computer business has been suspended due to lack of key support from US partners. He could be referring to Microsoft as the laptop computers need the Windows operating system.

The lack of Microsoft support means Huawei cannot launch a complete laptop product to the market. That could hurt both Microsoft and Huawei.

Intel is also another victim of the Trump administration's ban on Huawei. The trade conflict between China and US could slow Intel’s business growth and cast a shadow on the firm's prospects, observers have warned.

Returning to Huawei, the company is scaling back production in the wake of the supplier and partner troubles.  

According to a Bloomberg report, Huawei is preparing for a slide of anywhere between 40 percent and 60 percent in overseas smartphone shipments. 

As it adjusts its production for the near term, the company would no doubt do all it can to get the US supply ban lifted and have its operations return to normal. 

There will be quiet lobbying in both Beijing and Washington, either directly or through partners, even as the Chinese firm steps up R&D work and tries to reduce its reliance on foreign technologies for the long term.

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EJ Insight writer