Huawei tears into new U.S. sanctions
HONG KONG -- The latest U.S. sanctions on Huawei threaten to
devastate the company and disrupt technology industries worldwide, the Chinese
tech giant said Monday.
Huawei Technologies Ltd. is one of the biggest makers of
smartphones and network equipment, but that $123 billion-a-year business is in
jeopardy after Washington announced further restrictions on use of American
technology by foreign companies that make its processor chips.
Huawei spent the past year scrambling to preserve its
business after an earlier round of U.S. restrictions imposed last May cut off
access to American components and software.
"Our business will inevitably be impacted,"
Huawei's chairman, Guo Ping, said at a conference Monday with industry
analysts.
"In spite of that, the challenges over the past year
have helped us develop a thicker skin, and we are confident about finding
solutions soon," Guo said.
The company said Monday that it would need some time to
"understand the impact" of the latest restrictions.
The conflict is politically explosive because Huawei is more
than just China's most successful private company. It is a national champion
among industries the ruling Communist Party is promoting in hopes of
transforming China into a global competitor in profitable technologies.
On Monday, China's Ministry of Commerce warned it will
protect "the legitimate rights and interests of Chinese enterprises,"
but gave no details of potential retaliation. Beijing has threatened in the
past to issue an "unreliable entities list" that might restrict
operations of American companies in China.
SOURING RELATIONS
Friction over Huawei adds to a broader deterioration of
U.S.-Chinese relations.
The two sides have declared a truce in a trade war, but
arguments over the origin of the coronavirus pandemic that is roiling the
global economy have raised worries that agreement might fall apart.
Huawei is at the center of the U.S.-Chinese conflict over
Beijing's technology ambitions, which Washington worries might erode American
industrial leadership.
Huawei has few alternatives if Washington refuses to allow
Huawei's suppliers to use U.S. technology. The company has developed some of
its own chips but even the biggest non-U.S. manufacturers such as Taiwanese
giant Taiwan Semiconductor Manufacturing Co. need American components or
production equipment.
"Every electronics system that Huawei produces could be
negatively impacted," Jim Handy, semiconductor analyst for Objective
Analysis, said in an email. "Most China-based alternatives haven't yet
been established."
New curbs announced Friday are the third round of sanctions
aimed at cutting off Huawei's access to U.S. technology and markets.
In a statement, Huawei criticized the U.S. decision as
"arbitrary and pernicious" and warned it will affect operation and
maintenance of networks installed by the company in more than 170 countries.
"The U.S. government has intentionally turned its back
on the interests of Huawei's customers and consumers," it said.
The statement said the decision "will damage the trust
and collaboration within the global semiconductor industry," harming other
industries that depend on it.
The Trump administration says Huawei is a security risk,
which the company denies, and is trying to persuade European and other allies
to shun its technology for next-generation telecom networks.
Chinese officials accuse Washington of raising phony
security concerns to hurt a rising competitor to American tech companies.
The potential fallout extends far beyond Huawei. The company
spends tens of billions of dollars a year on components and technology from
U.S. and other suppliers, purchases that might be disrupted if output of
smartphones and other products is blocked.
U.S. COMPANIES PROTEST
U.S. suppliers already have complained to Washington that
restrictions imposed last May on Huawei's access to American components and
other technology will cost them billions of dollars in lost potential sales.
The company's telecoms market in the U.S. evaporated after a
congressional panel in 2012 labeled Huawei and its Chinese competitor ZTE Corp.
security risks and told phone carriers to avoid them.
Last year's sanctions require U.S. companies to obtain
government permission to sell chips and other technology to Huawei. The company
can keep using Google's Android operating system on its smartphones but lost
the ability to pre-install music, maps and other Google services customers
expect on phones.
Huawei has launched its own smartphone operating system and
is paying developers to create apps to run on it. But the company says sales
have suffered.
Despite that, Huawei reported a 2019 profit of $8.8 billion
and said total sales rose 19% over a year earlier.
The sanctions highlight Huawei's reliance on technology
suppliers despite having one of the world's biggest corporate research and
development budgets.
Huawei has its own semiconductor unit, HiSilicon, but needs
manufacturers including Taiwan Semiconductor to make the most advanced chips.
Beijing has spent the past two decades and billions of
dollars to create a Chinese semiconductor industry. But its biggest producer,
Semiconductor Manufacturing International Corp., can only make chips that are
two generations behind Taiwan Semiconductor.
"Huawei had already begun to shift some production from
TSMC to SMIC, although SMIC cannot yet produce Huawei's latest Kirin 980
chipset," said Neil Thomas, a research associate at U.S. think tank
Paulson Institute. "But SMIC can probably manufacture earlier-generation
Huawei chipsets."
Then-chairman Eric Xu warned in March that more U.S.
pressure on Huawei might provoke Chinese retaliation that could disrupt its
global industry.
Beijing will not "just stand by and watch Huawei be
slaughtered," Xu said. "The impact on the global industry would be
astonishing."
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