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Huawei is using its extra time buying US tech to plan its next move

Huawei is planning for a future without companies like Google and Intel

This article originally appeared on ABACUS
Huawei Technologies, the world’s largest telecommunications equipment supplier, may have an opportunity to draw up new plans after Washington granted it a further reprieve to buy major components from American hi-tech companies.

US Commerce Secretary Wilbur Ross had earlier confirmed in a US television interview that Huawei’s “temporary general license,” which would have expired on Monday, will be extended for another 90 days until November 19 and that another 46 affiliates of the Chinese company was added to the government’s trade blacklist.

The company remains banned from buying American parts and components to manufacture new products without a special Commerce Department license.

“As we continue to urge consumers to transition away from Huawei’s products, we recognize that more time is necessary to prevent any disruption,” Ross said in the Commerce Department announcement.

“Simultaneously, we are constantly working at the department to ensure that any exports to Huawei and its affiliates do not violate the terms of the Entity Listing or Temporary General License”, he said, referring to the mechanism that allows US companies to continue buying and selling with Huawei despite the inclusion of the company and many of its affiliates on the list.

Concerns about Huawei being involved in critical 5G infrastructure have led to pressure to restrict Huawei's access to US technology. (Picture: Arnd Wiegmann/Reuters)

Shenzhen-based Huawei, which is also the world’s second biggest smartphone vendor, was initially issued that license on May 20 after the company and its 68 non-US affiliates were placed under that trade blacklist over national security concerns. The aim of the temporary license was to minimize disruption to the company’s existing networks and mobile services, which include many US rural networks.

Analysts see Huawei continuing to deal with adversity as it remains embroiled in the US-China trade war and under Washington’s Entity List, which restricts its ability to buy hardware, software and services from American hi-tech companies.

“We believe that Huawei will not be able to return to normal operations until a comprehensive trade agreement is reached between the US and China,” said Jean Baptiste Su, a principal analyst with Atherton Research in San Jose, California.

Su said Huawei “will have to contemplate launching future smartphones and network equipment with its own operating system and permanently find a replacement for its US suppliers, including Microsoft, Intel, Nvidia, and Broadcom” if the trade war and its blacklisting are not resolved.

Organizations or individuals on the Entity List are required to apply for a license from the US government before they export, re-export or transfer any items subject to trade restrictions, including software and other technologies from US companies. Applications for a license, however, will be subject to a review policy of “presumption of denial”, which means that these will be denied in most cases.

On Monday, Huawei decried the move to add more of its affiliates to the list. “This decision, made at this particular time, is politically motivated and has nothing to do with national security,” the company said in a statement. “These actions violate the basic principles of free market competition. They are in no one's interests, including US companies.

“We call on the US government to put an end to this unjust treatment and remove Huawei from the Entity List.”

After Huawei’s blacklisting was announced on May 16, a memo from the president of its semiconductor unit HiSilicon revealed that significant resources have been devoted to stockpiling essential products, including chips, to ensure the survival of the group.

The company’s financial results have so far not been affected by the trade ban, as it posted a 23.2% increase in first-half revenue on the back of higher smartphone shipments and robust demand for its 5G mobile network equipment.

As such, the next 90 days could give Huawei some more indication on what its next move will be or to continue with its recent actions.

“Extending the reprieve period for Huawei effectively helps reduce [some of] its business risks,” said Charlie Dai, a principal analyst at Forrester Research.

Other analysts cautioned against viewing the 90-day extension as a softening of the US stance against Huawei.

The extension “should be viewed primarily as a technical matter and not a signal that the United States is closer to a long-term accommodation toward Huawei doing more significant business in the United States, or a broader attenuation of the US-China trade conflict”, said Stephen Ezell, vice-president of global innovation policy at the Information Technology and Innovation Foundation.

“If anything, the extension was granted in the interest of actually further decoupling US telecommunications networks from components made by Huawei, which is likely reflective of the Trump administration’s broader goal of decoupling technology ecosystems and supply chains between the United States and China,” Ezell added.

Huawei recently launched its self-developed mobile operating system on new smart displays by Honor, one of its brands, as it prepares for a potential future without access to Google’s Android platform.
Huawei announced its own operating system, HarmonyOS, on August 9. (Picture: Reuters)

The company has also targeted a significant increase in its share of China’s smartphone and telecoms network equipment markets to help offset potential losses overseas because of the US trade action, according to a Post report in June, citing people familiar with the matter.

At a press conference last month, Huawei chairman Liang Hua warned of possible headwinds that Huawei might face in the second half of this year. He also said the company is currently focused on “fixing the holes” in its consumer business after patching certain deficiencies at its carrier equipment business. Huawei has taken to referring to itself as a bullet-ridden warplane that still continues to fly.

Liang said the US trade ban had forced the company to abandon some non-essential products, but had not impacted its roll-out of 5G mobile networks for various telecoms operators.

Huawei has secured 50 commercial 5G network supply contracts globally to date, 28 of which were signed in Europe, to lead global sales of next-generation telecoms gear. Finland’s Nokia and Sweden’s Ericsson had secured 43 contracts and 22 contracts, respectively, as of the end June, while Huawei’s crosstown rival, ZTE Corp, has publicly announced 25 commercial deals.

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