Huawei is well prepared to weather Trump storm, says CEO
US politicians have underestimated Huawei, says the beleaguered Chinese company's CEO, Ren Zhengfei. At the same time, its chip-manufacturing arm revealed that it had long been prepared for a US ban.
Zhengfei's comments at a press conference on Tuesday, and a letter issued by He Tingbo, president of Huawei subsidiary HiSilicon, suggested that US President Donald Trump had fallen far short of the killer blow he may have imagined he was dealing to Huawei when he placed it on the "Entity List" - requiring any US company to get government approval to sell technology to Huawei.
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On the surface, it appeared this week that the ban on Huawei's supply of crucial technology would eliminate it as a global leader in smartphone sales.
Google was first to accede to government requirements, announcing that it would revoke Huawei's licence to use the Android operating system for future phone models, along with Google's app service, the Play Store.
This means that Huawei will be barred from including apps such as Google Maps and Gmail from future models. Current phones are not affected.
On Monday, the US commerce department issued a temporary licence to Huawei to keep support for existing products, but this did not prevent other companies from announcing compliance with the ban.
ARM, which Huawei relies on for designing the underlying technology for the Kirin chips that give Huawei phones artificial intelligence capability, instructed employees to halt "all active contracts, support entitlements, and any pending engagements" with Huawei. ARM is UK-based, but its designs contain "US-origin technology".
This underlying interconnectedness in technology innovation, which means almost any company in the world could claim US ingredients, is potentially as damaging as the loss of Google's software.
However, every indication is that one analyst's response to the ARM embargo, that it would be an "insurmountable" blow to Huawei's business, is probably an exaggeration. Huawei has one of the largest research and development budgets in the technology world, investing around $15bn (R216.7bn) a year, and allocating 45% of its workforce - about 80,000 people - to innovation.
These numbers reinforce the Huawei executives' arguments that they can weather the ban.
"We have some noncore products for which we haven't prepared . Plan Bs," said Zhengfei. "These products will be phased out sooner or later. So the US move will have some impact on these products. But in sectors where we have the most advanced technologies, at least in the 5G sector, there won't be much impact. Not just that, our competitors won't be able to catch up with us within two to three years."
Tingbo wrote in a letter to HiSilicon staff that the company had been secretly developing back-up products for years in anticipation of it being blocked from using US technology. This has ensured a steady supply and "strategic safety" of most products.
Zhengfei elaborated: "Even if there is an insufficient supply from our partners, we will face no problems. This is because we can manufacture all the high-end chips we need ourselves. In the 'peaceful period', we adopted a '1+1' policy - half of our chips come from US companies and half from Huawei."
Zhengfei was adamant, however that Huawei did not want to go it alone: "Despite the much lower costs of our own chips, I would still buy higher-priced chips from the US. We cannot be isolated from the world. Instead, we should become part of it.
"Our close relationships with US companies are the result of several decades of effort on both sides. These relationships won't be destroyed by a piece of paper from the US government.
"As long as these companies can obtain approval from Washington, we will continue to buy in large volumes from them.
"It may be the case that they cannot obtain approval quickly. We have ways to go through this transition period.
"Once approval is granted, we will maintain our normal trade with these US companies and work together to build an information society for humanity.
"We don't want to work alone."
The HiSilicon revelation ties in with the open secret that Huawei has also been working on its own smartphone operating system for much of this decade, with a view to eventually achieving independence from the ubiquitous Android.The Google operating system can be found on 85% of the world's smartphones, with the balance taken by Apple's iOS. A non-US operating system for phones could well find appeal among handset makers based outside the US.Combined with its 5G leadership, independence from US technology could turn Huawei into an even more significant threat to US interests.In effect, Trump will have kicked over a hornet's nest.Meanwhile, for consumers, it is business as usual. Google has committed to supporting software and updates on all existing Huawei phones, due to binding contracts.