Huawei had been on the radar of Intelligence agencies for many months before it was officially blacklisted. There were concerns that Huawei’s ambitious 5G technology could be used by the Chinese government to spy on countries that used it. That was until last week when the Commander-in-Chief decided to take action following rising trade tensions between America and China.
On 15th May, the president signed an executive order that asked the Commerce Department to regulate transactions between American companies and any Chinese ICT company that poses a national security threat. Since Huawei Technologies is seen as posing a national security risk, the Commerce Department blacklisted it after the executive order was signed by President Trump.
What the Ban means for Huawei
Immediately after the ban was put in place, Google decided to that it was best that it cut ties with the technology company. Luckily, the Commerce Department came to Huawei’s rescue and decided to give them a 90-day grace period. The waiver allowed Huawei to trade with US companies and buy supplies and software that will allow it to maintain its current systems. Interestingly, the ban prohibits the purchase of supplies that are intended to build new products.
This means that Huawei can sort out any maintenance issues linked to their current line of Huawei and Honor products. Since Huawei phones use Android OS, Google has agreed to allow the company’s Android users have access to the Play Store and allow for system updates. However, going forward, Huawei may have to develop a different operating system for all its phones and electronic devices. This is because Google plans to stop further support in the coming months.
Interestingly, the firm doesn’t really do much business with America. Their phones and electronic gadgets are not that popular with the American consumer. The ban is likely to affect their production of telecom equipment. This is because they outsource most of the supplies from American firms.
Huawei depends on Flex, a Nasdaq listed company, to provide phone and laptop parts for its phones. After the ban, Flex stopped doing business with Huawei. Most operations in their Chinese factory have stopped or slowed down.
Another firm that Huawei does business with is Seagate Technologies, which supplies their hard drives. The company has ceased all transactions with the Chinese firm. Chipmakers like Qualcomm and Broadcom have also stopped providing the firm with chips. Corning Inc., which supplies glass screens for Huawei phones has also cut ties with the firm.
If you look at most of these suppliers, they provide hardware components for Huawei phones. The 90-day grace period means that these firms may continue to supply Huawei with what they need for maintenance purposes. This means that if you have a Huawei phone, you won’t be affected until the 90-day grace period is over. By then, Huawei may have come up with a solution.
How Much Inventory is Available?
Since the ban largely affects the manufacturing of new Huawei products, the company has to rely on the sales of its current inventory to keep its operations intact. According to official company reports, Huawei has about 6 months of smart phone inventory and a year’s supply of 5G technologies.
However, the biggest concern for Huawei is the Taiwan Semiconductor Manufacturing Company, which supplies the majority of Huawei’s chips. If this company decided to restrict business with Huawei, the firm would be in serious risk. Luckily, that looks highly unlikely at the moment.
Is there Hope for Huawei?
In anticipation for such an event, Huawei formed a subsidiary, HiSilicon, to manufacture their chips. The good thing is that the firm has been slowly growing in terms of capacity and capability. Currently, Huawei claims that HiSilicon can be able to meet at least 80% of their chip needs.
Huawei could also seek some supplies from Samsung. In addition, Huawei had been stockpiling supplies months before Trump issued the executive order. This means that they could have enough supplies for another year as they try to look for new suppliers and long-term alternatives.
In addition, there are also ongoing trade negotiations, which could mean that the restrictions could be eased even further. Thus, it’s highly unlikely that all American firms will cease doing business with Huawei.
The blacklisting of Huawei could make the company stronger by making it less dependent on external suppliers. Furthermore, it’s highly unlikely that European countries will stop using Huawei’s 5G networking company because they are also eager to try out this new technology. In addition, there’s no other company that can rival Huawei’s 5G technology at the moment. Thus, Huawei is far from collapsing.