Abu Dhabi, UAEFriday 19 July 2019

US restrictions on Huawei to have “wide-ranging” impact, S&P says

Embargoes will prompt Huawei and the Chinese government to accelerate technology investment

Last month, the White House placed Huawei on a commerce blacklist, barring US companies from doing business with it. Reuters
Last month, the White House placed Huawei on a commerce blacklist, barring US companies from doing business with it. Reuters

The Trump administration’s decision to try to cripple Chinese equipment manufacturer Huawei through a sales ban and further embargoes could have “wide-ranging impacts” on the global technology industry, according to S&P Global Ratings.

The “supply ban” will prompt Huawei and Chinese government to accelerate their technology investment to “reduce reliance on foreign suppliers”, said S&P, adding, this could eventually “lower” the long-term growth prospects of US technology firms.

"Currently, we view the short-term risks to tech as more prominent than for telecom companies," said S&P Global Ratings credit analyst Mark Habib.

However, Mr Habib said restrictions on Huawei will not be “enough to move (S&P’s) ratings”.

On May 17, the White House placed Huawei on a commerce blacklist, barring US companies from doing business with China's biggest technology firm. With no alternative, US technology companies such as Google - owner of the Android operating system - complied.

The following week, however, the White House backtracked on the immediate Huawei ban, granting the company a three-month reprieve after US technology stocks tanked. Washington accuses Huawei of aiding Beijing in espionage, a claim the company denies.

S&P said with broader trade discussions still underway between the US and China, it expects further developments. The ultimate scope and duration, and therefore the impact, of any bans on Huawei are not yet certain.

"Though we believe the short-term consequences for technology and telecom companies are manageable, the long-term stakes - particularly for tech - could be decisive," Mr. Habib said.

He added that the consequences for the telecom industry will vary from country to country and largely relate to fifth-generation - 5G - investment decisions.

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

S&P noted it is too early to forecast if restrictions on Huawei will slow down China's 5G ambitions or if it will backfire instead on the US.

“Much will depend on how badly Huawei is constrained and how ready competing equipment makers are to take the lead,” it added.

Huawei shot to the centre of the US-China dispute last December, when its chief financial officer Meng Wanzhou was detained in Canada on a US warrant. In March, Huawei also filed suit against the US government in a Texas court, challenging the constitutionality of an American law that restricts the Chinese company from doing business in the country.

Huawei, whose revenues grew 39 per cent year-on-year in the first quarter, said it is expecting a slowdown in growth towards the end of this year.

Updated: June 16, 2019 05:54 PM

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