It is far too early in a new US presidency to judge what toll US actions against Huawei will end up exacting, mediated by the Covid-19 global pandemic. There is no doubt though that the mood music emanating from the company sounds sweeter than it did at the height of the tensions and associated rhetorical exchanges, when Huawei itself warned of an existential threat to the company. The tone has changed from being defiant in the face of chilling adversity and intent on the part of a foreign power to destroy the company, to one of relief that the threat may not have been as great as anticipated, with growing ambivalence among many countries that had resented the political pressure and have become more motivated by commercial and technological considerations.
It may be that President Biden is intent on maintaining the pressure and may even be more effective in rallying an anti-China coalition through a more consistent and less mercurial approach than that of his predecessor. It may also be the case that the sanctions themselves will diminish Huawei’s widely perceived lead over its rivals by denying access to the latest semiconductor processes and associated technologies.
But it still looks as if many of the less US-aligned countries, including some in Latin America and Asia-Pacific – where China is making major investments as well as conducting effective Covid vaccine diplomacy – Huawei will hold on to its current position in terms of actual and prospective 5G infrastructure investments.
The optimism exuding now springs from its preliminary 2020 financial results, which were reported two weeks ago by China Business Network, showing revenues up by 11.2% at $136.7bn and profit by 10.4% to $9.9bn. Given the company had reported that initial actions in 2019 cost $12bn in lost revenues that year, followed by the subsequent two actions of 2020, those results are better than expected, with infrastructure performance outweighing a sharp decline in the smart phone business.
The upshot was that the greatest impact on Huawei so far has been in smartphones, a sector that the company could be on course to exiting as a result, only a year after briefly overtaking Samsung and Apple in early 2020 to become the world’s number one by shipments. Since then, it has sold off its low end cut-price smartphone brand Honor to mitigate the impact of the ban on Huawei using semiconductors fabricated by TSMC or any other foundry using US technology.
Huawei’s smartphone slump was a direct consequence of the three successive US moves against its supply chain, starting with the blacklisting in May 2019, banning US companies from doing business with it without a special licence. That was a major blow to smartphones because it prevented Huawei offering Google’s key services, such as Search. This hit smartphone sales only outside China, given that Google services have been blocked in the country anyway.
Then the US government extended its sanctions to stop Huawei using chips made on foreign soil that incorporated US technology, even if to Huawei’s specifications. Finally, the US Commerce Department acted to close remaining loopholes in August 2020 by prohibiting sales of any chips to Huawei made with the help of US technology. This was effectively a blanket ban on sales of semiconductors fabricated by TSMC or any other foundry using US technology such as electronic design automation (EDA).
When it comes to Huawei’s role in 5G of infrastructure, politics has vyed with commercial and technological considerations, with the sentiment varying between countries. The UK was more inclined to follow the US position, while Germany was more inclined to place greater store on technological factors.
However, the EU has swung more behind the US position during the Covid-19 pandemic, swayed by China’s clampdown on Hong Kong and the treatment of ethnic minorities, especially the Uighurs. This led to pressure from the German government on incumbent Deutsche Telekom, as well as Vodafone, to remove Huawei from 5G core network plans.
At that stage, DT still relied on Huawei for two-thirds of its RAN, but again under government pressure, in July 2020 awarded Ericsson a nationwide contract for 5G RAN equipment. DT is using spectrum sharing to combine the emerging 5G with existing 4G services. It has warned, though, that moving away from Huawei will inflate hugely cost of its 5G roll-out, having published a paper suggesting the toll might be as high as €3bn (US$3.4bn), spread over a five-year period.
Top tier operators elsewhere face smaller bills, with BT in the UK suggesting the figure would be at least £500m ($650m). But the total toll on European networks could be immense, with the GSMA estimating this at €55bn ($61bn), as well as delaying roll-out by 18 months.
Of the major European countries, France – though less inclined than many to toe the US line – is ironically best-placed to cut out Huawei given that its dominant telco, Orange, made its own decision to do so early on in 2018. It announced then it would adopt a dual-vendor strategy around Ericsson and Nokia.
Meanwhile, the Huawei crisis has galvanized European governments to seek ways of avoiding becoming too dependent on a very small cabal of suppliers, primarily Ericsson, Nokia and possibly Samsung. Germany has been at the forefront of EU actions with its ‘joint proposal for action’ to migrate away from Huawei, diverting €2bn from its larger coronavirus recovery stimulus program to encourage local suppliers to enter the 5G infrastructure market on the back of open RAN.
The draft proposal, announced in February 2021, would allocate over €300m for open RAN, €237m for a 6G research hub, €250m to accelerate 5G deployments already in train, and €550m in Europe’s microchip market through a joint project between the government, EU and local industry firms.
Meanwhile though, some countries outside Europe have been edging, if anything, in the opposite direction, Brazil being a notable example. It is true that Telefónica, which holds about one-third of the Brazilian mobile market by subscribers, has obeyed former president Trump’s original call for “clean networks” devoid of “untrustworthy” Chinese vendors as part of its global strategy. Its networks in Spain and the UK have been declared “fully clean”, while those in in Germany and Brazil were on course for “disinfection” in the near future.
But the Brazilian government has become one of the first in the world to retrench on earlier opposition to bidding from Huawei to be part of the country’s 5G infrastructure. Brazil is now allowing Huawei to participate in its 5G network auctions in June 2021 after all.
This is partly down to Trump losing the 2020 presidential election, but waning support for the USA alliance may also have a Covid-19 angle after the USA failed to deliver promised vaccines to a country that has suffered more from the pandemic than any other in the tropics. China has stepped into the breach, as it has in some other countries, by offering its vaccines or helping out with local production. This has compelled Brazil’s president Jair Bolsonaro to reverse his China skepticism, at least publicly.
Although President Biden is no dove when it comes to China the absence of Trump’s arm twisting looks like leading to further unraveling of former “clean network” plans, among many developing countries at any rate.
Huawei, for its part, is seeking to exploit doubts or even resentment over US tactics to leverage its IP by offering to make its 5G sourcecode available in open source. This approach has been gestating for at least two years, aiming at the same time to diffuse concerns over security by having the code placed in escrow and stimulating an open source community for development of 5G software, incorporating open RAN, free of dependence on individual countries or critical suppliers.
There is a geopolitical dimension here too as China seeks to woo India, despite continued border skirmishes, by supporting that country’s commitment to open source software and open RAN. The Indian government has recently indicated it would like all telcos to place their core software in escrow for security. Huawei recently chose New Delhi to reiterate its willingness to help meet this objective by openly licensing all its 5G technologies, including source and hardware design patents secrets, to stimulate global innovation.
We can see then why the mood at Huawei has brightened in recent months for a variety of reasons. The country has also benefited from faster than expected 5G roll-out in some countries that have not acted to wean their networks of Huawei, including of course China itself. This led to Ryan Ding, president of the company’s Carrier Business Group, claiming it had constructed over half of the 140 commercial 5G networks deployed in 59 countries so far, speaking at a pre-briefing for MWC Shanghai 2021.
“5G developed faster than we had expected. More than 140 commercial 5G networks have been deployed in 59 countries,” said Ding. “In China, more than 68% of smartphones shipped in 2020 were 5G phones. More than 200 5G modules and industrial devices are now available, supporting 5G application in a broad range of industries.”
Ding did admit that 2020 had been a difficult year and did not deny the impact of defections in Europe especially, with indications that is already starting to show up on the balance sheets of Ericsson and Nokia.