Abu Dhabi, UAEWednesday 26 June 2019

Google and Microsoft may face the ripple effect of US confrontation with Huawei

The stakes are high for American entities involved in the global supply chain

Apple is continuously losing revenues in China while Huawei derived half of its revenue from the same market in 2017. AP
Apple is continuously losing revenues in China while Huawei derived half of its revenue from the same market in 2017. AP

The Trump administration’s decision to try to cripple Huawei through a sales ban and threats to hinder the growth of the Chinese tech industry by further embargoes could come back to bite US technology companies such as Google and Microsoft.

The stakes are high for American entities involved in the global supply chain, making them vulnerable to the ripple effects of any disruption brought about by US policymakers, analysts said.

Abbas Ali, managing editor of TechRadar Middle East, said the blacklisting of Huawei by the US is bad for the entire industry. “There is a good chance that [Huawei ban] will affect the bottom line of many businesses, some of which will be US-based companies such as Intel, Microsoft and Qualcomm,” Mr Ali told The National.

On May 17, Washington added Huawei to a blacklist, thereby banning companies in the US from doing business with the tech giant, based on the accusation that it aids Beijing in espionage, which the company refutes.

The following week, President Donald Trump threatened to put restrictions on another five Chinese video surveillance companies.

Microsoft told the US Department of Commerce that the constraints on Huawei could isolate the US from lucrative global research partnerships, Bloomberg reported. All of Huawei’s laptops run on Micro­soft’s Windows operating system, which is subject to the new restrictions on supplying to Huawei.

“China will pour significant capital into its domestic market to help accelerate its own internal supply chain and that could cut off a significant growth market for many US suppliers,” said Neil Campling of Mirabaud Securities.

Chinese companies are building their own infrastructure, such as large data centres in China, and many US companies, such as Nvidia and Microsoft, supply materials to them, said Mr Campling.

Huawei-made equipment is expected to be used on a vast scale when the fifth-generation – 5G – wireless network comes online, powering everything from self-driving cars to the Internet of Things.

Although Huawei largely depends on imports from the US for components used in its 5G towers and cables.

While Huawei will feel few initial shocks, it will adapt fast and find ways to continue its business, said Mr Ali.

“Huawei will make sure it either builds everything in-house or diversify its suppliers to never be stuck in a similar situation in the future.”

Bloomberg analyst Anthea Lai said Huawei could move away from US manufacturers and start buying components from South Korea’s Samsung and Mediatek of Taiwan.

Samsung’s System LSI unit already provides mobile chips to Meizu, another Chinese smartphone manufacturer. Mediatek announced its 5G modem chips last December that will be available by 2020.

Industry experts say challenges could also arise for US tech major Google if smartphone manufacturers contemplate alternatives to its Android operating system.

“It could prompt discussions around Google’s broader dominance in the technological ecosystem, perhaps lending greater credence to the idea of developing a truly open-source operating system [for smartphones],” said Matthew Kendall, chief telecoms analyst at the Economist Intelligence Unit. An open-source operating system would be free for all users and a developer anywhere around the world could contribute to build a new application.

Mr Kendall said while Google’s decision to suspend services to Huawei was described by the company as a simple matter of “compliance”, the US company is thought to be “unhappy” with the situation.

Chinese leaders could meanwhile be drumming up support for a more hard-line position against US companies and prepare for a long-drawn conflict, said Eli Lee, head of investment strategy at Bank of Singapore.

Goldman Sachs estimated Apple could lose up to 29 per cent of profits if China retaliates by imposing bans on its products.

Apple is already feeling the heat of a fluctuating Chinese economy: in the first six months of the financial year 2019-20 ending on March 31, Apple lost $7.6 billion (Dh27.9bn) in revenue from the Greater China market.

Huawei’s founder and chief executive, Ren Zhengfei, said last week the US ban will not have a “huge impact” on the company manufacturing smartphones or 5G equipment.

Updated: May 26, 2019 08:07 PM

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