Huawei and the Fight for 5G
The race among 5G providers isn’t just domestic; it’s international. Thankfully, we've established our own vendors in the U.S., but in other highly populated nations, Huawei (SZ: 002502) is a known name.
Huawei is a large telecom company that manufactures phones for large countries like the UK and Brazil.
Founded by Ren Zhengfei, Huawei being the tech giant that it is has made Zhengfei quite the billionaire.
Zhengfei founded Huawei about 33 years ago after he served as an engineer in the Chinese military. Today the company takes in over $100 billion in annual revenue. We’ll get into Zhengfei more later.
The first round of 5G phones are here, but are they vulnerable to 5G networks across the world?
Because of companies like Huawei and the track record they have, the screen staring back at us could have much more than wires and chips behind it.
Over the years, even reaching back to the early years of the Obama administration, allegations have been made against Huawei.
All point to the possibility of the company using advanced technology, seeping through the casual use of our mobile phones, to get deep into U.S. government infrastructure.
Many resources supplied by Huawei are suspected to be subject to exploitation. The company has denied this just as much as it's been accused.
As a nation, we are going to grow more reliant on 5G; connectivity is key in a world that relies on productivity regardless of distance.
Law and Order
Since 2012, Huawei tech has been investigated. In a 2012 report, suspicions of threats to national security via Huawei and another Chinese telecom company, ZTE (OTC: ZTCOY), were brought to light.
The U.S. Department of Justice recently charged Huawei with racketeering and conspiring to sell trade secrets earlier this year.
Refusal to adhere to that U.S. investigation didn’t help Huawei’s cause. Intellectual property was at stake on both the U.S.'s side and Huawei’s side.
Huawei released a statement stating the charges made were based on decades-old allegations and a clear attack on the reputation of the company. “Unfounded and unfair” were the words used.
It doesn’t help that the CFO of Huawei, Meng Wanzhou, was charged for evasion and bank fraud by the U.S. government, arrested in Canada in December 2018, and is facing possible extradition to the U.S.
Wanzhou is also the daughter of Ren Zhengfei.
The charges could highly damage Huawei’s reputation.
A damaged reputation leads to inevitably damaged revenue.
Both ZTE and Huawei failed to submit anything to tame the tensions, causing U.S. Intelligence Committee Chairman Mike Rogers to air his fears of American phones and other tech granting access to Huawei's espionage.
Allegations of assisting the Iranian government and conducting business deals with North Korea have added more tumult to the already rocky relationship between the U.S. and Huawei.
The U.S. has also thrown three rounds of sanctions at Huawei, blacklisting it all the way back in May 2019.
The vote to ban U.S. corporations from any sort of business with Huawei was unanimous, with vendors such as Ericsson (NASDAQ: ERIC), Nokia (NYSE: NOK), and Apple (NASDAQ: AAPL) preferred.
As of July, Huawei ended Samsung’s (KRX: 005930) long reign as the world’s largest phone maker, shipping more phones worldwide than any other vendor.
For the first time in nine years, the dominant phone vendor was not Apple or Samsung. Huawei beat this record in the second quarter of 2020, shipping out over 55.8 million devices compared to Samsung’s close 53.7 million.
Huawei supplied Brazil for over 22 years... until the U.S. decided to change things up and sign a memorandum to block Huawei from the 200 million-strong population.
But how would such a populated country find an alternative to a long-term supplier?
The U.S. came prepared.
With $1 billion offered to Brazil, the U.S. has proven the severity of its cause against Huawei monopolizing the 5G world.
Robert O’Brien, U.S. National Security Adviser, named innovation in 5G and energy as a main focus in the memorandum. The intent is to “identify potential opportunities” for Brazil, though cybersecurity is on the line.
Of course, a spokesperson for Huawei contradicts these matters, claiming that in its 30 years of service to over 170 countries there have never been any major incidents regarding cybersecurity.
That statement may have held up if it weren’t for multiple countries once supplied by Huawei beginning to block the company.
Sweden already completely banned Huawei. Ericsson, a large competitor of Huawei, is based in Sweden.
The United Kingdom is in talks to phase out Huawei in favor of Nokia powering its 5G networks instead.
As of late August, India plans to quietly remove Huawei equipment from its networks, though this choice relates more to the tensions at the border that India and China share.
Seventy percent of Huawei’s sales DO come from mainland China, but 27% of its overseas shipments fell thanks to the U.S.’s aggressive restrictions.
Recently, both Poland and Romania have chosen to exclude Huawei, with Poland drafting new cybersecurity legislation back in September. The two countries are also contributing to a proposal that the EU ban Huawei altogether.
On the first of November, Romanian Prime Minister Ludovic Orban made his intent to part ways with Huawei very clear. Romania’s security qualifications are not met through Huawei, so it plans to choose a company that “poses no threat to national security.”
A Tough Fight
The heavy loads of negative press would be a major blow to any company’s reputation, but Huawei is determined now more than ever to thrive in the 5G world.
Despite the multiple (and pending) bans, Huawei is refusing to go down without a fight. The company launched a new flagship phone that boasts the world’s first 5-nanometer 5G chipset.
The chipset is said to support three generations of smartphones, intended to outlive the conventional 5G smartphone in the U.S. according to Ma Jihua, a close Huawei follower.
Richard Yu, the CEO of Huawei’s consumer division, claims the chipset has a 30% efficiency over Apple’s A13. Yu also claims the smartphones support the fastest 5G speeds, 2.6–6.8 times faster than the average 5G phone.
Smartphones in the Chinese market will increase due to this innovation — the home field advantage indeed a large factor.
The sympathy card is one way to play consumer pathos, and Zhengfei has taken a hit in net worth thanks to the multiple sanctions against Huawei.
His wealth shrank 10% in the past year because of the U.S. government’s intervention in his company's international business affairs.
In 2019, Zhengfei opined to the BBC about working 16-hour shifts in the fight to keep Huawei alive.
Pathos card indeed: In 2019, Zhengfei claimed to still “have trust in the UK,” though even then, it was in talks to follow through on the phasing out plan it's enacting now.
The U.S. isn’t the only hurdle facing Huawei in the 5G race.
The 5G tug of war with the U.S. isn’t the only one Huawei is waging; its has competitors within mainland China that also pose an economic threat.
Though Huawei is the largest phone manufacturer in the world, one might argue it has too much focus on international affairs.
But why shouldn't it? It’s a lucrative business and shows a willingness to use diplomacy to accomplish its goals.
But Chinses companies, like Huawei's long-time rival Xiaomi (OTCMKTS: XIACF), now fill the gaps Huawei may have been able to fill.
Not only did Xiaomi grab market share in China, but it also grabbed it in Europe... where Huawei is trying to maintain dominance... where countries are drafting an EU-wide ban on Huawei.
In fact, Xiaomi saw an 88% jump in shipments to Europe when Huawei fell behind.
Amongst the iPhone releases, Xiaomi was the only company that recorded growth in the current quarter.
The second-largest cellphone maker in China is Oppo (NYSEARCA:IPO), which is also taking advantage of Huawei falling behind in Europe.
The fastest-growing market in Europe is Western Europe, where Oppo’s sales have tripled within the past year.
Oppo recently signed a deal with Deutsche Telekom to sell 5G smartphones in Germany, the Netherlands, and Poland.
Remember how Poland is campaigning for Huawei to be banned from the EU?
Huawei has seen a 16% market share plunge in Europe — now we can see why.
While many countries view Huawei as a threat, it also faces many threats itself. With a CEO who has a military mind, it will likely be a long fight to the top as Huawei goes for the 5G gold.
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