Abu Dhabi, UAEMonday 13 July 2020

Huawei’s earnings to be hit by US restrictions, top official says

Exclusive: The company's chief security officer says China's largest technology company wants to buy American, but will not return to US markets if forced to go elsewhere

Andy Purdy, chief security officer of Huawei in the US, said that the company is working on a plan B to find new customers and suppliers outside the US. Alkesh Sharma / The National
Andy Purdy, chief security officer of Huawei in the US, said that the company is working on a plan B to find new customers and suppliers outside the US. Alkesh Sharma / The National

Huawei, the world's largest telecoms equipment maker, said the US blacklisting will impact the company's revenue in 2020 and could lead to permanently shifting its supply chain.

The company was placed on a Security Entity List by the US Department of Commerce in May 2019, following an executive order by President Donald Trump. The order prohibits Huawei from buying products and services from US companies.

“The US campaign has two aspects – it is limiting our ability to sell in the US and its allies and it is creating roadblocks before us to buy from nearly 300 American companies,” Andy Purdy, Huawei's chief security officer in the US, told The National.

“Last year’s revenue were impacted by both [aspects] … it is definitely affecting us. Our expectation is that 2020 will again be difficult,” Mr Purdy added.

We still prefer to buy from US companies but if we have to leave them, we can go elsewhere. And if things won’t change soon, we won’t come back.

Andy Purdy, Huawei

Mr Purdy said the company needs access to US markets. “For example, we need to deal with Google to run the Android platform on mobile devices and we have to buy semi-conductors from American manufacturers for smooth supply,” he said. “Huawei spent about $11bn yearly in purchases [of components] from the US that comprises about 40,000 to 50,000 American jobs. So huge value is at stake."

China's biggest smartphone maker saw its annual revenue rise 18 per cent to more than $122 billion (Dh447.7bn) in 2019, which was lower than projected. In 2018, the company had grown revenue by 19.5 per cent.

To mitigate the fallout from the restrictions placed on it, Huawei is sourcing suppliers outside the US. This shift in supply lines could become permanent if the situation regarding its status in the US does not change, Mr Purdy said.

“We are looking for new alternatives. It is clear from my recent meetings at the company’s headquarters in China that Huawei is successful in finding those alternatives," he said. “We still prefer to buy from the US companies but if we have to leave them, we can go elsewhere. And if things will not change soon, we will not come back."

Mr Purdy is a senior cyber-security expert in the US who has served in the Department of Homeland Security, where he helped form and launch the National Cyber Security Division and the US Computer Emergency Readiness Team.

Given his past experience with the US government, he is supervising the cyber-security operations for Huawei in 26 countries, including in the Middle East.

Huawei is a key provider of 5G components but the US government alleges it is using its equipment to spy for the Chinese government – a claim the company denies.

By the end of last year, Huawei said it had managed to secure 77 5G contracts globally, of which 12 are in the Middle East. Nearly half of its contracts are in Europe, where it faces tough competition from local companies such as Nokia, which has 63 contracts, and Ericsson with 81.

Mr Purdy said European manufacturers such as Ericsson and Nokia should face the same level of scrutiny as they also deal with Chinese manufacturers and customers.

“One should not assume that a non-Chinese company can be trusted and their equipment is safe. We cannot blindly trust anyone because they were trusted in the past,” he added.

Huawei has been locked in a dispute with the White House for months, with US prosecutors last month accusing the company of stealing trade secrets and helping Iran track protesters.

Mr Purdy said the US restrictions are driven by the “trade war and geopolitical factors” and will hurt American companies more than Huawei.

“When you are caught up in trade wars, you do not think objectively about the pros and cons involved. That is why they [the US] are not ready to discuss things and mitigate any risks if there are any," he said. “China has made tremendous strides in research and development in the last 10 years … still the US is way ahead. However, China’s economic strength is a matter of great concern for them."

Huawei is one of the world’s largest investors in research and development. The company invested $15bn in R&D in 2018 and has plans to invest an additional $100bn over the next five years.

Updated: March 10, 2020 12:12 PM

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