Donald Trump’s decision to force American companies to stop doing business with the Chinese tech giant create losers on both sides.
For months, tech researchers and scholars have pondered over which companies stand to gain from a ban on Huawei, the Chinese telecommunications giant.
Generally, it is believed there would be a collective loss to the global tech world and people who increasingly depend on technology in their daily lives if the complex supply chains behind modern gadgets are disrupted.
This week US President Donald Trump put Huawei and dozens of its affiliates on its official Entity List, making it difficult for Chinese companies to source components from American vendors.
Being on the entity list means US-based companies selling products to Huawei would require Washington’s approval before shipping goods to them. And US officials have indicated that such approvals would be few and far between.
Huawei has announced that they will challenge the decision, and claim that it will disrupt global supply chains as companies around the world depend on each other to make consumer and industrial products.
Trump’s latest move to inflict damage to the Chinese economy comes as he tries to convince other countries to drop Huawei’s participation in their planned 5G network rollout.
Huawei and ZTE, another Chinese company, are playing a crucial role in building next-generation high-speed internet infrastructure. A similar restriction on ZTE last year pushed the company to the brink of bankruptcy before a settlement with Washington turned down the heat.
The exclusion of Huawei may benefit its competitors — but only for a short while.
Battle for 5G
A few years back Chinese companies played a limited role when the 3G and 4G networks were introduced. With 5G, however, they have now come to dominate the market.
From manufacturing base stations, antennas, routers and cables to implementing the entire infrastructure, Huawei and ZTE are taking the lead.
Their importance is reflected in their role in setting technology benchmarks and standards for 5G networks in the working groups of the International Telecommunications Union (ITU).
In a nutshell, the ITU determines which company’s technology becomes the industry standard, which is then implemented by everyone else.
Under the process, companies share patented technology essential to the development of 5G.
In 4G LTE, LG and Qualcomm held 23 percent and 21 percent of the standard essential patents. ZTE and Huawei owned just 6 percent and 1 percent. By some estimates, in the 5G race, Chinese firms could come to hold around 40 percent of such patents.
Competitors and suppliers
Sweden’s Ericsson, Nokia from Finland and South Korea’s Samsung are Huawei’s main competitors in the race to supply full-scale 5G network solutions.
But other companies have a share in providing niche components such as chipsets and edge devices. That’s where America’s Qualcomm, Intel, Cisco and Broadcom have a key role.
Over the years Huawei and ZTE have spent billions of dollars on buildings factories and training workers to produce 5G equipment at competitive prices. Replacing them could take years.
Besides telecommunication equipment that most other companies use, Huawei has also emerged as the world’s second-largest seller of smartphones, just behind Samsung and ahead of Apple.
Restriction on Huawei could force Beijing to limit Apple’s access to China, its key market.
For Huawei, a bigger problem is in replacing its American suppliers such as Qualcomm and Intel Corp. Still, unlike ZTE, its exposure to US-based suppliers is not substantial as more than 40 percent of its suppliers are based in mainland China.
In 2018, Huawei bought some $11 billion worth of components from American suppliers, representing more than 15 percent of its spending in the area, according to Reuters.
Huawei has reportedly stockpiled 12 months worth of stock of key components in anticipation of the move.
In the end, Trump's decision will affect American companies as much as Chinese companes. The biggest losers will be internet users who will be deprived of faster internet if it ends up delaying 5G networks.