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Home / Business / Huawei's place in the global technological ecosystem can make it too big to fail

Huawei's place in the global technological ecosystem can make it too big to fail



That kind of clout will make it very difficult for the US to stop Huawei's momentum.

It's not that the White House hasn't tried. Last month, US companies banned the use of Chinese technology technology telecommunications equipment – a source that Washington has long considered a national security risk. And the US government also forbids Huawei to buy US goods without a license. Huawei denies that it poses a security risk.

As President Donald Trump and China's Xi Jinping are preparing to meet this weekend at the G20 summit in Japan, the US must consider whether it is worth including Huawei in any deal between the two economic superpowers, especially if government officials believe that the technology company can harm national security interests.

"This is a $ 1

10 billion company that is really too big, somehow to be killed this way because it is too intertwined with the supply chain and with standards and with critical infrastructure globally," says Paul Triolo, Global Technology Policy Director at Eurasia Group

5G and Wireless Infrastructure

Huawei is the world's largest provider of telecom equipment and has invested $ 2 billion in research and development of 5G products, and also has already signed 50 Commercial contracts spanning 30 different countries for 5G technology.

The US government wants to push Huawei out of the coveted position because it fears that its equipment could be used by Chinese intelligence services to spy on other countries, a requirement Huawei has refused. The United States has also urged its allies to take similar steps to curb Huawei's ambitions.

But it would not be easy for companies that are already using Huawei to simply switch to another equipment provider.

Huawei's equipment already constitutes the infrastructure for the 4G networks of many large wireless operators in Europe and other parts of the world, which will make the transition to 5G faster and cheaper. In Europe alone, the inability to use Huawei equipment could cost $ 62 billion and delay the distribution of 5G by about 18 months, according to estimates from the mobile operator lobby group GSMA.

Huawei's absence in Europe and other developed markets would leave a huge gap in the market. It may not be a Huawei competitor, it will be able to scale up fast enough to fill, said Triolo, Eurasia Group's expert.

"If they suddenly can't trust Huawei to be there, they must consider tearing out all their base stations," he said. "You have to figure out the replacement costs and the price increase because the other competitors are more expensive."

The worst case is that we never get to 5G because of the cost, Triolo said.

  Nokia executive: Huawei's problems are positive & # 39; for us

In the United States, Huawei's equipment serves only a small percentage of networks. But these customers – small, federally-subsidized wireless networks – have claimed that the equipment is up to 40% cheaper than other companies' equipment, according to the Rural Wireless Association, a small carrier trading group.

Switching Huawei Equipment in these markets can cost $ 1 billion, according to estimates from this group. Huawei's US sales representative William Levy sits on RWA's board.
The ban on Huawei's purchase left these rural US carriers expecting new opportunities, even though they have been given a temporary policy statement.
Other companies, like competitor Nokia, have talked about replacing Huawei as a supplier in America and elsewhere. But Nokia, which is smaller than Huawei, also recognized that there are challenges.

"General uncertainty is not good for business," says Tommi Uitto, president of mobile network in the Finnish company, referring to the political situation around Chinese suppliers. "Some of our customers may postpone their decisions. If you have an operator that has Nokia and a Chinese provider, this current situation may slow down its own decision-making process."

Damage to US companies

While Trump is considering a trade agreement, he may also have to consider American companies relying on Huawei as a customer. [19659000] Huawei bought $ 11 billion in US goods in 2018, such as chips from Intel ( INTC ) and Micron () and software from Google ( GOOGL ) .

Before the export ban, Huawei was Micron's number one customer, accounting for 13% of revenue in the first half of 2019. The constraints have reduced Micron's earnings, the company said when it reported the third-quarter earnings this week.

"It had an impact because we couldn't send any product to them at nearly $ 200 million," said Micron's CEO Sanjay Mehrotra to earnings call analysts.

Micron has found ways to still trade with Huawei. The company said it has been able to start restructuring some products that are not covered by export restrictions.

And the New York Times reported this week that Intel has also resumed sales to Huawei after finding a legal way to keep the products from being labeled "American-made". Intel refused to comment on CNN Business on that report.

American chip companies want to keep Huawei as a customer, because if they don't, they fear they will lose out to foreign vendors who can continue to work with the Chinese giant. US companies may also worry that other foreign customers may see them as unreliable because of their inability to sell to Huawei.

"Every Chinese company that designs complicated circuits based on American technology must re-evaluate its strategic plan over the next five to ten years," said Triolo. He added that it could mean that Chinese companies stopped using US chips in their design.


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