Huawei and The US-China 5G Trade Wars: Inside the raging tech trade war threatening to disrupt Huawei’s global mobile phone semiconductor supply chains and its implications for Kenya.

Huawei Technologies Director of Enterprise Daniel Yang (right), unveils the Huawei Authorized Information and Network Academy (HAINA) which was presented to The University of Nairobi in 2016. With him is University of Nairobi Enterprises & Services Managing Director John Kenduiwo (left), Huawei Academic Training Manager Wan Ting and UoN School of Computing and Informatics Agnes Wausi. / Photo courtesy/ The Executive Talk Magazine Magazine
Huawei Technologies Director of Enterprise Daniel Yang (right), unveils the Huawei Authorized Information and Network Academy (HAINA) which was presented to The University of Nairobi in 2016. With him is University of Nairobi Enterprises & Services Managing Director John Kenduiwo (left), Huawei Academic Training Manager Wan Ting and UoN School of Computing and Informatics Agnes Wausi. / Photo courtesy/ The Executive Talk Magazine Magazine

By Dickson Ogutu dickson@theexecutivetalk.co.ke

As the world battles the novel Covid-19 pandemic, another potentially radioactive trade war silently rages on between the United States and China, a war that could easily grow into an unmanageable global business crisis for mobile tech giant Huawei and one that has the potential to impact the future of global manufacturing & distribution of mobile phones in many unprecedented ways.

It all starts with one single announcement made by the US Bureau of Industry & Security (BIS) on May 15, 2020 saying the Bureau  was laying down ground rules designed “to protect US national security” by restricting Huawei’s ability to use US manufactured semiconductors to design & manufacture its own mobile phone semiconductors. 

More specifically, the US authorities stated that the new restrictions directly targeted Huawei’s semiconductor global supply chain directly as a company.

This development will directly affect mobile phone semiconductor designs made by Huawei and its affiliates such as HiSilicon, as well as chipsets produced by design specifications of Huawei and its affiliates, all considered as products listed by the US commerce department of software and technology regulations as foreign technology in the US.

While the origin of this trade war is believed to stem from competition over global development and use of 5G mobile technologies, at the heart of the push and pull lies significant US control and near monopoly of manufacturing and software designs for mobile phone semiconductor chip sets, millions of consumers and prime multi-billion dollar revenue likely to stem from development of 5G technologies, as well as revenues likely to stream in from a subsequent acceleration of technologies to 6G.

And now China’s Huawei, the tech firm that undoubtedly enjoys significant state backing from Beijing, finds itself caught in the midst of a trade war threatening to choke its strangle-hold on the international mobile phone market, where it presently stands as the second most-selling smartphone brand globally.

A graphic illustration of the global smartphone market share for the last quarter of 2019/ Source counterpoint.com

The US insists Huawei and its 114 affiliates outside the US are undermining it’s laid down export controls hence the move to amend a single export rule designed to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology.”

This development means exporters of semiconductor chip sets must obtain licenses from the US Department of Commerce. Many of the world’s leading chip manufacturers rely on semiconductor equipment produced by US listed firms. This is also the case with Qualcomm and Apple, the other big players in global mobile smartphone markets.

The new US restrictions also block shipment of semiconductor chips to Huawei Technologies and its affiliates from key semiconductor chip makers based in the US. US authorities say blocking the semiconductor chip exports to Huawei “cuts off efforts of Huawei to undermine US export controls.”

 Some of Huawei’s semiconductors are made by Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwan-based and listed firm trading at stock markets both in Taiwan & the US.

Experts say US listed companies account for about 45% of shareholding in the semiconductor manufacturing business, and TSMC will also be compelled by the new US BIS restrictions not to accept orders from Huawei effective the date of this US announcement given its US stock markets listing.

In an interview with The Wall Street Journal, Huawei’s Ren Zhengfei discussed how the Chinese technology giant plans to navigate the trade war and the concerns being raised over whether Huawei’s equipment could be used to spy on the rest of the world for for China, with Mr. Ren saying that the move to curtail Huawei’s access to semiconductors will likely damage the company’s ability to maintain its global telecommunications networks.

“The silicon war pitting the USA and China is escalating daily as we advance in technology. The battle is real and can’t be assumed, though the business impact on Huawei will be limited.”

Engineer Antonio Shem, a Poland-based Kenyan telecommunications engineering expert.

Despite US sanctions however, Huawei braved the dynamic international mobile phone market in 2019, selling 16% of the world’s total mobile phone sales for the year, a feat only second to Samsung whose sales amounted to 20% of the total global market share. 

Huawei essentially surpassed Apple as the second largest mobile smartphone seller in 2019, a development some analysts now see as part of the reasons for the escalating stringent US measures to protect US brands from succumbing to Huawei dominance.

In the Middle East & Africa Region, Huawei alone made 12% of all feature phone sales in 2019, this even as  general feature phone sales in the said region declined by 22% in 2019 in contrast to a similar period in 2018 .

In Africa and especially Kenya, the global top 10% smartphone manufacturers in which Huawei belongs held about 87% of the entire market share as recently as the last quarter of 2019.

A graphic illustration of the Kenyan smartphone market share for the last quarter of 2019/ Source counterpoint.com

The new US restrictions on Huawei could potentially push the Chinese smartphone maker to the periphery of competition in Kenya and open up its market share to vulnerability from competitors in the region.

Experts say Huawei’s competitors in Kenya and most of Africa, including Transsion Group-owned Tecno that currently holds about 44% lion’s share of Kenya’s local mobile phone market, as well as iTel, Samsung, Infinix and Nokia HMD may not benefit at all from the escalating semiconductor trade war currently at Huawei’s doorstep even if Huawei’s mobile phone market share were to be significantly disrupted by the new US sanctions going forward.

“The silicon war pitting the USA and China is escalating daily as we advance in technology. The battle is real and can’t be assumed, though the business impact on Huawei will be limited,” says Eng. Antonio Shem, a Poland-based Kenyan telecommunications engineering expert.  

“Most chip companies did not have a good year in 2019 though we can’t blame that on the current stand-off regarding 5G and semiconductors. While US companies supply components and software used in Huawei Products, the Chinese tech giant holds patents critical for mobile networks such as 5G and have deeply invested into 6G research. The world in future will be more dependent on China since it has become more of a global leader in telecommunications technology industry and is swift in implementing new technologies,” he adds.

But are these wars likely to impact Huawei product prices in third world markets such as Africa and Kenya?  Experts thinks so.

“Since the sanctions are already pushing the company to commit additional resources increasing the costs, we expect a general cost increase in the prices of the products. However, Huawei commodity prices will hardly go higher than what they are now given the stringent competition in these markets, “says Engineer Antonio Shem.

Other experts insist wat perhaps what unsettles US authorities is the fact that Huawei has recently achieved more than half of the market share in the global 5G stations bidding and it could be significantly difficult to replace much of the ground already covered by the Chinese tech firm in the short and medium term.

 The Chinese tech giant launched the Huawei Tiangang, the world’s first core chip specifically designed for 5G base stations early in 2019.

 “This decision (to impose new restrictive US regulations on Huawei) was arbitrary and pernicious, and threatens to undermine the entire industry worldwide. This new rule will impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries,’ said Huawei in a statement sent to newsrooms in Kenya on Wednesday May 20, 2020.

 

The full long term effects of the new US restrictions and how the semiconductors trade war plays out to the very ultimate end will no doubt not only leave a long lasting footprint on the telecommunications industry but also inform international tech industry trends and relationships for a long time going into the future.

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