It is just absurd how anal this Administration and its bobbleheads are about China. Is there no end to this isolationist mentality coming out of the Whitehouse? This is not President Donald Trump’s TV show. You just do not say, to the world’s largest communications OEM, “you’re fired” and expect them to tuck their tail between their legs and limp away, and everybody else just says okay.
Now that some time has passed and the world had time to digest this, it is starting to backfire on the Administration. They continue to come up with new ways to try and derail Huawei, yet more and more countries are standing up Trump and saying they will do what is in their best own interests, not those of the U.S.
The latest attempt, out of Washington, comes from the FCC. They want to use their position to further limit what Chinese equipment vendors can do here in the States. At the World Radiocommunication Conference FCC Chairman Ajit Pai said that it is moving to deny federal funds to any company that does business with any company that “poses a national security threat.” Obviously, that is directed at Huawei. It is doubtful that it includes Vladimir Putin and Kim Jong-un, however
It has already been shown that current decisions made by the Administration are having a stinging effect upon wireless and other industries as well. This added move is just as ridiculous as earlier directives. First of all, it will be extremely difficult to root out all the existing Huawei equipment. Second of all, not all that many companies, vendors and end-users are on board with banning Huawei.
The current draft, which gets voted on the 19th of November, contains a discovery clause that is intended to find out how much equipment is actually in use by carriers. It does not address other users such as wireless Internet service providers (WISPs), for example.
This is a complex issue. The cost, in time and money, to replace all of the Huawei hardware is monumental (if the carriers even play ball). It could likely end up on the end user’s bill (another inflationary cost from the Administration’s actions). With such a cost, some of the carriers are suggesting there are insufficient funds in the Universal Service Fund to cover their costs, and they may forgo FCC funds and leave the equipment in place. In any event, there is likely to be strong pushback.
In another vector, but within the same vein, I had a discussion at the Mobile World Congress last week with an in-the-know executive from a top semiconductor manufacturer/device supplier. He told me, in no uncertain terms, that the decision by the Administration to do its best to eliminate Huawei from our chip, wireless, and other communications hardware, will be a heavy blow to the semiconductor industry as it exists today. In fact, he used the words “it could change the semiconductor landscape forever.”
While that is a strong statement, it is not all that far-fetched. This company is in the know. And, they are not strongly wed to Chinese chip manufacturing (their fabs are not all in China).
The industry has been sluggish for the past couple of years. And, the Administration’s stance has hurt them even deeper. Some examples of this include:
· Micron, who is heavily dependent on China, (as are many other technology companies who are a supplier to Huawei), is paying a heavy toll. Total revenues for the final quarter of 2019 stood at $4.87 billion. This is a slight increase quarter-on-quarter, but down roughly 43 percent compared to the $8.44 billion brought in for Q4 2018. Net income came to $561 billion for the three-month period, compared to $4.33 billion in the same period of 2018. Net income dropped to $6.313, down from $14.135 billion. This is devastating for them. Unless the China landscape changes, the future for Micron looks bleak.
· Skyworks Solutions, a supplier of semiconductors to Huawei, reported revenues of $767 million during the latest financial results, compared to $894.3 million in the previous year – down nearly 16 percent. However, there are expectations that the financial hole will be substantially bigger the next time Skyworks Solutions addresses investors.
· Finisar, an optical solutions company that depends heavily on chips from China, is another U.S. firm that saw revenues decrease to $285 million from $317.3 million year-on-year. That is 11 percent and Finisar attributes that directly to the Administration’s position on China.
· Qorvo, which offers foundry services and 5G devices. They are forecasting revenues of $745 million to $765 compared to $884.4 million which was brought in for the same quarter of 2018, prior to the Huawei debacle. These are just a few of the semi-related companies taking it on the chin.
As well, do not forget Google, Intel, and Qualcomm, all of which are going to lose revenue if the present trend continues.
As I had noted earlier, more and more countries are jumping off the Trump bandwagon. There is real concern that not using Huawei equipment will set back 5G development.
Countries such as the United Kingdom, which initially gave some lip service to the Administration, are ready to go back to Huawei. Just recently, U.K. Prime Minister Boris Johnson indicated the U.K. will allow Huawei to continue to be a supplier.
Another country is following that trend. UAE telco du has confirmed it will continue to work with Huawei, ignoring the security complaints and warnings emanating from the U.S. Other countries that are starting to resume relationships with China are Germany, the Nordic countries, Hungary, Switzerland, and others. In fact, Huawei has inked over 50 commercial contracts, worldwide, to supply 5G communications hardware since the ban.
The embarrassing part is that what Trump is doing is having little long-term effect on Huawei. They have regrouped and simply changing direction away from the U.S. Market. They recently started producing 5G base stations which do not contain any U.S. components.
From all of this, it is obvious pressure from the Administration is no longer having much of an effect. And Huawei is doing quite well without the U.S. Huawei smartphone sales were up 26 percent for the first nine months of 2019 (and up 66 percent in China, alone – they have dominated the market there). As well, during the first three quarters of this year, Huawei brought in CNY 610.8 billion in revenue, which was a year-on-year increase of 24 percent. The first two quarters of the year recorded 23 percent revenue growth so, if anything, business is humming along, swimmingly.
Huawei is the biggest telecom equipment manufacturer and there are plenty of buyers outside the U.S. In the long run, if Huawei restructures its supply chain to remove U.S. dealings it will have a significant effect on 5G deployments in the U.S. It is unlikely U.S. companies can make up the technology for some time to come.
As this has now had legs for a while and the outcome is, fortunately, not what this “shoot from the hip” President expecting. What his actions have done is cost this country a ton of money, slowed 5G progress and created ill will with our allies. One would think he would get a grip.
Occasionally, when I write such missives, I get accused of being anti-American. While it may seem that way in my writings, from time to time, in this case I am anti-Trump. The truth is that I believe what this Administration is doing is bad for this country and, luckily, I am in a positon to comment on that. It would be remiss on my part to put on horse blinders in the name of America, love it or leave it. I am as pro-America as I can be and believe the greatest patriots are also its strongest critics.
I do this because I believe this current leadership does not understand the current global ecosystem and what they are doing will only hurt this country in the long run.