Download now: How To Invest in the Coming Bitcoin Boom

The Arrest of Meng Wanzhou: What it Means for China, the U.S., and Big Tech

Written by Jason Stutman
Posted December 8, 2018 at 7:00PM

Meng Wanzhou.

You've probably never heard the name before this week, but her recent arrest warrants the attention of anyone with interest in the consumer technology industry.

These days, that pretty much amounts to everyone, but the news should be of particular interest to the investment community.

Meng Wanzhou is not your typical detainee. She's the daughter of the founder of one of China's largest technology giants.

She's also the CFO of that very same company, none other than Huawei Technologies.

While most Americans may tilt their heads thinking, “Hua-what?” Huawei Technologies is nothing to scoff at. The firm ranks as one of the largest technology companies in the world.

By revenue, it comes in at number seven, right between U.S. tech giants Microsoft and IBM.

Huawei has historically been billed as a Chinese telecom giant, but the company has recently expanded to become much more diversified in its product offerings and international reach.

Notably, Huawei has grown its global share of smartphone shipments substantially over the last half-decade or so. Since 2012, the company has managed to climb from 3.3% of quarterly global smartphone shipments to 15.8%.

For perspective, Apple Inc. (NASDAQ: AAPL) only claims 12.1% of global shipments.

Granted, we're talking units shipped and not revenue here, but, as it trails only behind Samsung in the former regard, it's safe to say that Huawei is on par with the biggest device makers in the world.

With that context in mind, the arrest of Huawei darling Meng Wanzhou represents a highly sensitive political ordeal.

Meng was arrested in Vancouver on December 1st and is now facing extradition to the U.S. News of the arrest became public this week.

If we're to swap shoes for a moment, this is akin to Russia arresting Apple CFO Luca Maestri and extraditing him to China. To most Americans, this would be seen as an act of foreign aggression.

Not surprisingly, China is demanding that Canada and the U.S. immediately release Meng and clarify the reasons for her detention. At the time of this writing, though, that has not happened.

While the specific charges remain unknown, there's not too much to speculate on here. The U.S. has been probing Huawei over violations relating to sanctions against Iran, so it's safe to assume there's a connection there.

Considering the politically embarrassing arrest for China, many were initially concerned that the recent 90-day tariff truce between the U.S. and China could fall apart. But China announced in a regular press briefing on Thursday that it would "immediately" implement the measures agreed upon at G-20.

China's unwillingness to escalate tensions further in the midst of Meng's arrest could be a telling signal. The nation's leaders, at least at the moment, seem to be ceding ground to the U.S.

But if that's the case, then why?

America's Leverage: Next-Generation Networks

As a backdrop to Meng's arrest, a growing coalition of Western countries is moving to restrict the use of Huawei technology.

Specifically, the U.S., Australia, and New Zealand have all blocked the use of the company's telecommunications equipment in infrastructure for upcoming 5G mobile networks. Even Japan is currently planning to ban the use of Huawei's technology.

Additionally, UK telecom firm BT Group (NYSE: BT) confirmed on Wednesday that it would not be buying 5G equipment from Huawei.

In doing so, the West has thrown a major wrench into the company's ambitions in next-generation tech. After all, virtually every emerging technology worth investing in over the next decade will be powered by 5G.

In being cut out of the infrastructure at this critical period of deployment, Huawei's technology leadership within telecom will now likely be contained to the Asia Pacific region. 

To date, there have only been three companies to release a 5G chipset, the component that will allow smartphones and other mobile devices to connect to 5G networks. Two of those companies are located in the U.S.: Intel Corporation (NASDAQ: INTC) and Qualcomm Inc. (NASDAQ: QCOM). The other company is Huawei.

Some would argue, actually, that Qualcomm is the only company to have yet produced a "real" 5G chipset with its Snapdragon 855. The 855 will be the first to appear in purchasable 5G phones, but that's a bit beside the point.

The takeaway here, if it wasn't apparent already, is that a battle is brewing between nations over technological leadership, particularly as it relates to 5G. The West is forgoing the benefits of free market trade in favor of technological isolationism. Fears over foreign espionage and privacy violations, coupled with insecurity about economic leadership, have led to this new trade dynamic.

More than any other nation, this hurts China, which is likely why the country's leaders are being so timid around Huawei. Just as we watched happen with telecom giant ZTE, China could be folding to reach appeasement.

Perhaps the biggest concern of the West is Huawei's 5G chipset, as it contains the potential for spying on consumers. Huawei has denied all allegations that it could be collecting intelligence for the Chinese government, but that will obviously be taken with a grain of salt.

All the while, America has been making major strides in penetrating the international market with 5G.

Qualcomm has already found its way into Samsung's 5G-powered Galaxy S10, expected in the first half of 2019.

More crippling for Huawei, Qualcomm has found its way into competing Chinese devices as well. China Mobile Communication Group, Xiaomi, OnePlus, OPPO, Vivo, and ZTE are all developing 5G mobile devices featuring the Snapdragon 855.

The obvious indication here is that Huawei's 5G chipset probably isn't any good. The only mobile device OEM planning to use the chipset seems to be Huawei itself.

Clearly, this is all great news for Qualcomm, but it's also good news for American companies providing 5G infrastructure. With Huawei being boxed out of major Western markets, this is just another competitive edge for U.S. 5G firms.

And with the world's first 5G smartphones just months away, this select group of stocks is seriously heating up.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

Comments

Buffett's Envy: 50% Annual Returns, Guaranteed