huawei ban

CAN HUAWEI SURVIVE THE U.S. AND ITS ALLIES’ BLACKLIST? – Part 2

By Charles F. Moreira, Editor

In Part 1 we described U.S President Donald Trump’s Executive Order on Securing the Information and Communications Technology and Services Supply Chain and the U.S. Department of Commerce blacklist of China’s telecommunications giant Huawei and 70 of its affiliates, which prohibits U.S. based corporations from selling or transferring technology to Huawei without a license from the U.S. Bureau of Industry and Security (BIS).

In complaince with this ruling, Google suspended its transfer of hardware, software and technical services to Huawei, immediately denying Huawei access to Google’s Android device operating system on its smartphones and tablets, and will deny Huawei access to popular Google services, including the Google Play Store, Gmail and YouTube apps on its future smartphone models.

On top of that U.S.-based chipmakers such as Intel, Qualcomm, Xilinx, Broadcom and Lumentum, as well as U.K. chipmaker ARM, Japan’s Panasonic, all of which supply key electronic components used in Huawei’s phones had suspended new deliveries to Huawei.

U.S.-based Miсrosoft, pulled Huawei’s products from its retail stores and from its Azure Stack on-premises cloud-based services, whilst U.K.-based mobile telco Vodafone announced it would suspend pre-orders of Huawei 5G handsets due to an alleged security controversy involving Huawei, while U.K.-based mobile network operator and internet service provider EE suspended launch of Huawei’s 5G phones.

Japan-based mobile operators SoftBank and KDDI said they would postpone sales of new Huawei smartphones, whilst Japan-based telecommunications giant NTT, said it would stop taking orders for the new Huawei handsets.

Amazon Japan suspended online sales of Huawei products, though it will continue to allow third-party vendors to sell Huawei’s smartphones, tablets and PCs through its site.

On top of that, whilst China is the world leader in 5G network technology, with 32% share of 5G patents and ahead of the U.S. which has 17% and South Korea with 12%, however denial of access to some 5G technologies can potentially limit Huawei’s abilities to develop and deploy 5G network equipment and systems.

This raises questions as to whether Huawei can overcome these hurdles put in its way the the U.S. and other countries and how it can overcome these limitations.

Phone OS and apps

Overcoming the denial of access to smartphone OS and applications looks like the easiest hurdles to overcome.

For starters, Huawei will continue to have access to the open source version of Android from the Android Open Source Project (AOSP), which is available for free to anyone who wants to use it but since Google will no longer provide OS updates online, Huawei will have to develop its own system to provide updates for its OS.

Anyway, this is not a big deal since there are several thousand different Linux distributions out there by development communities, institutions or companies, all of which are much smaller and with much less finnacial resources than Huawei and they all have their own software respositories from which users can download and install OS and software updates, as well as install required applications, so this is a small matter for Huawei.

Meanwhile, about a week ago, Huawei trademarked it Hongmeng OS in Peru for use in nine countries and in Europe (where it will be known as ArkOS). The OS which has been under development since 2012, after the U.S. banned fellow China company ZTE from using American products and services and Huawei is now in the process of executing its “Plan-B” with Hongmeng on its smartphones, tablets and PCs.

As for apps, Huawei will have to develop its own versions and build up its app developer and user ecosystem or it can use non-Google or non-U.S. alternatives, including China’s own such as WeChat.

Since most Google products are already banned in China, the use of alternatives will not affect Huawei’s domestic market for its devices but it could adversely impact sales of Huawei devices across the rest of Asia and in Europe, both of which are Huawei’s major markets, where U.S. based applications are popular.

For instance the WhatsApp messaging app owned by Facebook is popular across Europe and much of Asia, including in Malaysia and Singapore, whilst WeChat, an equivalent China-based messaging app very popular in China is very much less popular in Malaysia, except amongst people who have business dealings and social interactions with WeChat users in China.

As a matter of interest, whilst WhatsApp is popular in Malaysia and Singapore, the LINE mobile messaging and calling app by Line Corporation in Japan is popular in Thailand.

LINE was developed as a social messaging app shortly after the earthquake hit Japan on 11 March 2011 and Line Corporation claims it is now used by hundreds of million users across Asia. Line Corporation’s websites says that the LINE app is designed to suit the cultural norms of different countries across Asia and serves as a gateway which lets people access information and services they need in their daily lives.

This can be a lesson for Huawei which will have to overcome the challenge to quickly develop its user ecosystem of applications and hopefully win over enough users

Chips and components

HiSilicon, a fabless semiconductor and IC design company wholly owned by Huawei makes the Kirin range of procesors for Huawei’s smart devices, chipsets for networking and cellular communications, the Kunpeng series of server CPU processors based on the ARM architecture, the Ascend family of system-on-chip (SoC) for artificial intelligence (AI) applications from the data centre to the network edge and to devices, chips for smart IP cameras, smart set-top boxes and smart TVs, as well as chips of Internet-of-Things (IoT) applications.

Altogether, HiSilicon has produced over 200 chipsets and holds over 8,000 patents, with its chipsets and solutions having been certified across over 100 countries and regions worldwide, so this should greatly help Huawei make do without chips from U.S. chip makers.

However, Huawei’s 8-core Kirin 980 processor is based upon the ARM Cortex-A76 and ARM Mali-G76 graphic processing unit (GPU),which could still encounter problems for Huawei if ARM denies Huawei continued license to manufacture chips based upon ARM’s designs or instruction sets.

The U.K.-based ARM is owned by Japan-based Softbank, however its chips contain “U.S. origin technology”, as ARM develops some of its processors in Austin, Texas and San Jose, California and could come under U.S. restrictions, and without continued license to ARM’s technology, Huawei may not be able to continue to produce phones, until it develops its alternatives based upon its own or another company’s technology, a possibility being Taiwan-based Mediatek.

The U.S. restrictions deny Huawei use of Corning’s Gorilla Glass for phone screens but  whilst not as “sexy”, Huawei could instead use Dragontail glass from Japan’s AGC Asahi Glass.

Whilst Huawei loses use of the storage chip from U.S.-based Micron, it could replace this with equivalents from Toshiba or Samsung, though HiSilicon is believed to be working on developing its own proprietary Nano memory cards.

For instance, Huawei’s P30 Pro uses Skyworks and Qorvo front-end modules from the U.S., which neable the phone to work with 3G and LTE bands around the world, so without these, Huawei will need to develop its own alternatives if it wants to maintain compatibility with certain network operators around the world.

OLED displays

Huawei is unlikely to have problems obtaining OLED screens for its phones, since it already sources these from Samsung and LG, as well as from a smaller Chinese manufacture BOE or from Japan Display which has recently begun to produce OLED displays.

Cameras and RAM

Camera’s and RAM should not be a problem for Huawei, since the camera array in the P30 Pro is provided by China-based brand Sunny Optical and is said to have excellent low-light performance, whilst the RAM in the P30 comes form South Korea-based SK Hynix.

However, since HiSilicon’s processors are optimsed for phones, Huawei’s loss of access to Intel and Qualcomm chips could adversely impact its notebook PCs, such as the Huawei MateBook X Pro.

Network equipment

For starters, Huawei’s Chief Executive Officer Ren Zhengfei is confident that its 5G plan will not be affected by the U.S. blacklist, since he believes that others will not be able to catch up with Huawei’s lead in high-end products and 5G technologies for two to three years.

Faced with U.S. attempts to get western countries to shun Huawei over alleged security issues, Huawei has move to strengthen its position in Africa where it is already well established, and at the beginning of June 2019, the company signed an agreement to strengthen its cooperation with the African Union.

Huawei has established itself across Africa since it launched in Kenya in 1998, and now operates in 40 countries, providing 4G networks to more than half of the continent.

It will also showcase 5G – the next-generation mobile phone network that will transmit data much faster speeds – in Egypt for the Africa Cup of Nations, which will be held from June 21 to July 19.

“This was a way to show that Huawei is still present in Africa and that they want to remain a major player by positioning themselves in this very important growth sector,” said Ruben Nizard, an economist and Sub-Saharan Africa specialist at the French financial services firm Coface.

“Africa is a market Huawei had identified and which they conquered thanks to a very aggressive strategy based on cheap financing and speed of execution,” Aly-Khan Satchu, an independent economic analyst based in Nairobi told AFP. “The fact that Huawei has equipped the African Union says it all,” he added.

In South Africa, Huawei provides training at the country’s top universities and launched a specialised course in 5G this year.

Kenya’s government signed a 17.5-billion-shilling (US$172 million) deal with Huawei in April to build a data centre and “smart city” services.

Huawei also offers a “safe city” surveillance programme which its website claims “can prevent crimes targeted towards the normal citizen, tourists, students, elderly persons etc before they occur”.

This system has been deployed in Kenya’s capital Nairobi as well as Mauritius, with 4,000 “smart” surveillance video cameras set up at 2,000 sites across the Indian Ocean island nation.

Also, Ghanaian Security Ministry Albert Kan-Dapaah says that Huawei’s video surveillance technology helps catch criminals. “When a crime has been committed, thanks to the cameras, we work magic,” Kan-Dapaah says in a promotional video for Huawei.

Also, Huawei Marine, its submarine cable arm, is helping to deploy a key 12,000km cable system connecting Africa to Asia.

Meanwhile as the U.S.-China trade war escalates, nations around the world are faced with the dilemma of having to choose a side between the world’s two top economies.

On 7 June 2019, Russian President Vladimir Putin slammed U.S. attempts to try to drive Huawei out of the global market, whilst earlier that week, Russia’s MTS telecoms giant signed a deal with Huawei to develop a 5G network in the country.

As guest of Putin a the economic forum in Saint Petersburg, China’s President Xi Jinping said that China was “ready to share technological inventions with all partners, in particular 5G technology”.

Spiting its own face

Meanwhile, the effects of Trump’s executive order which led to Huawei being blacklisted is hurting U.S. chip suppliers to Huawei.

Semiconductors are one of the U.S. biggest technology exports and China is a crucial market because of the amount of electronics manufacturers relying on U.S. chips, and as a result, U.S. semiconductor stocks have been hit hard in the May following U.S. the blacklisting of Huawei,

Some of Huawei’s U.S. suppliers have said the blacklisting will affect their financial performance. Qorvo, Skyworks and Lumentum, have all downgraded their revenue forecasts for the current quarter. Qorvo shares are 13.6% lower this month, while Skyworks and Lumentum are down nearly 20% and 28.5%, respectively.

“Huawei is blacklisted, which has made investors worry about the (second half of 2019) demand, forced a few tech/semis companies to cut guidance accordingly,” said Sebastian Hou, an analyst at CLSA who focuses on the semiconductor industry. He aded that concers over the U.S. restricting technology to Chinese firms also contributed to the decline.

According to people familiar with the situation, U.S. chip suppliers, including Qualcomm and Intel, are quietly pressing the U.S. government to ease its ban on sales to Huawei.

Tit for tat

Meanwhile, China has retaliated with its own blacklist of what it regards as “unreliable entities” that could damage the interests of its domestic firms. Whilst any foreign firms on China’s list have not yet been announced, however there are fears that it could target U.S. firms, including chipmakers.

Also, if China chooses to retaliate, it could disrupt the global supply chain in electronics, which would affect countless companies.

For instance, China produces 80% of the world’s rare earth elements. Rare earths are 17 minerals used to make cell phones, hybrid cars, weapons, flat-screen TVs, magnets, mercury-vapor lights, and camera lenses, whilst its also used in anti-cancer medicines,  and one way for China to strike back at the U.S. tariffs is is to cut off supply of rate earths to the U.S.

As a result of this threat by China, Malaysia’s Prime Minister Tun Dr. Mahathir Mohamad said whilst on a state visit to Japan, that Australian rare earths producer Lynas Corp would continue to bel allowed to operate its rare earths processing plant in Gebeng, Pahang.

Lynas is the only significant producer of rare earths outside China and Malaysia stands to potentially earn much needed foreign exchange should China play hardball and carry out its threat.

IT BYTES Back Says: Wonder how long will Trump’s US continue to spit in its own face with self-damaging bans?