Sun | May 31, 2020

Facing US tech ban, Huawei emerging as stronger technology competitor

Published:Wednesday | September 18, 2019 | 12:26 AM
In this August 21, 2019 photo, a Huawei research engineer holds up a coated screw designed to reduce signal interference at the Huawei materials lab in Dongguan in Southern China’s Guangdong province.
In this August 21, 2019 photo, a Huawei research engineer holds up a coated screw designed to reduce signal interference at the Huawei materials lab in Dongguan in Southern China’s Guangdong province.

Long before United States (US) President Donald Trump threatened to cut off Huawei’s access to US technology, the Chinese telecom equipment maker was pouring money into research that reduces its need for American suppliers.

Huawei’s founder says that instead of crippling the company, the export curbs are making it a tougher competitor by forcing managers to focus resources on their most important products.

Little-known to Americans, Huawei Technologies Ltd is the No. 2 smartphone brand worldwide and the biggest maker of switching gear at the heart of phone networks. Its equipment is used by 45 of the 50 biggest global phone carriers.

Huawei is a pioneer in the emerging field of next-generation, or 5G telecoms. It promises not just faster Internet but support for self-driving cars and other futuristic applications. That fuels Western security concerns and makes 5G politically sensitive. The U.S. claims that the company might aid Chinese spying, though Huawei denies that and American officials have provided no evidence.

Huawei needs some American innovations, especially Google services used on Android phones, but industry experts say that the company is increasingly self-sufficient after spending 485 billion yuan (US$65 billion) on research and development over the past decade.

“They have a strategy to become completely independent from U.S. technology. And in many areas they have become independent,” said Bengt Nordstrom of North Stream, a research firm in Stockholm.

Ren Zhengfei, who founded the company in 1987, acknowledged in an interview that phone sales will suffer if access to technology, including Google services for smartphones, is disrupted by the addition of Huawei to a US Commerce Department ‘entity list’ that requires it to get government permission to buy American technology. Phone sales could be US$20 to US$30 billion less than forecast over the next two years, Ren and other executives said, but the company will survive.

“When the entity list came out, they hoped Huawei would die,” Ren said. “Not only did Huawei not die, it is doing even better.”

90-day extensions

The company was added to the entity list on May 16 but already has been granted two 90-day extensions after American suppliers of processor chips and other technology warned that they stand to lose billions. Intel Corp and other vendors that industry analysts say were paid a total of some US$12 billion last year by Huawei have asked the Trump administration for permission to continue sales.

The biggest potential American blow to Huawei would be the loss of Google services that are standard features on Android-based phones. Huawei could use Android, which is open-source, but would lose Google’s music, maps, and other applications, making it harder to compete with Samsung, the No. 1 smartphone brand.

“Nobody is going to spend money to buy a premium Huawei phone if it doesn’t have [Google]maps, YouTube, Google Play,” said Samm Sacks, an expert in Chinese digital policy at the New America think tank.

Ren said that he wants to keeping using Android and working with American suppliers. But as a fallback, the company unveiled its HarmonyOS operating system in August and said Android phones can be switched to the new system in days if necessary.

Huawei, with US$107 billion in 2018 sales, spent 100 billion yuan (US$15 billion) on research and development last year, more than Apple or Microsoft.

It has 76,000 engineers and other researchers at its sprawling, leafy headquarters campus in southern China and in Silicon Valley, Russia, India’s Bangalore, and other industry centres.