Huawei was cut off from American technology

AMERICA IS NOT Huawei fan. Its officials have warned for months that the Chinese giant's smartphones and networking equipment could be Trojan horses for Chinese spies (which Huawei has repeatedly denied). They threatened to deny information to the allies that would allow the company to enter. On May 15, they increased the participation. President Donald Trump has banned US companies from using telecommunications equipment manufactured by companies with a "national security risk." His order did not name any name. But his target was simple.

Despite all the drama, the ban on imports does not matter. Huawei has long been excluded from the United States, in practice if not on paper. The Commerce Department announced the same day that it was adding Huawei to a list of companies with which US companies could not do business without official authorization. This equates to a ban on exporting American technology to Huawei.

It's a seismic decision because no technology company is an island. Supply chains are highly specialized and connected globally. Cutting them – "interdependence of weapons", in jargon, can cause serious disruption. When ZTE, another Chinese technology company, received the same treatment in 2018 for violating US sanctions against Iran, she was threatened with bankruptcy. He survived only because Mr. Trump intervened, saying it was a favor for Chinese President Xi Jinping.

Huawei has more than ZTE. It is the largest Chinese high-tech company and is considered a national champion. His name translates roughly to "Chinese achievement". Revenues of $ 105 billion place it in the same category as Microsoft. Only a South Korean company, Samsung, sells more smartphones. Huawei holds many essential patents on SuperFast 5g mobile networks, and is the largest manufacturer of telecommunications equipment. If it went under the water, the shockwaves would shake everybody's technology.

On May 20, the impact of the ban became evident. Google has announced that it has stopped providing Huawei with the proprietary components of its Android mobile operating system. A string of US chip makers, including Intel, Qualcomm and Micron, has also ceased sales. Later in the day, the Commerce Department slightly relaxed its range, indicating that companies could continue to provide Huawei for 90 days, but for existing products, for example with software updates for Huawei phones already in use. New sales, on which Huawei's future revenues depend, remain prohibited.

Interdependence, of course, goes both ways (see graph). Shares in US tech companies fell after the announcement because Huawei is a big customer. Qorvo, which employs 8,600 people and manufactures wireless communication chips, earns 15% of Huawei's revenues. Micron is in the memory business, of which Huawei is a big consumer. A report from the Information Technology & Innovation Foundation, a think tank also released on May 20, said export controls could cost up to $ 56 billion to US companies for sales. lost over five years.

Unlike Intel, Qualcomm or ZTEHuawei is privately owned and therefore lacks publicly traded shares whose price fluctuations would predict the magnitude of its distress – although the price of its publicly traded bonds has fallen to 94 cents per dollar. In public, the cabinet remains calm. Ren Zhengfei, founder of Huawei, said that everything would be fine without access to American technology. Huawei talked about activating a "plan B"Designed to keep it running despite US sanctions." It has been storing critical components for months and has consciously pushed its forces to rely less on US technology in recent years.His phones, in particular, make extensive use of engineered chips. by HiSilicon, its internal chip design unit.

Yet few analysts are as optimistic as Mr. Ren. Three sectors of activity in particular seem vulnerable. Without the cooperation of Google, the new Huawei phones will not have the latest versions of Android and popular applications such as Gmail or Maps. It may not be in China, where Google's apps are banned. But it could be crippling in Europe, Huawei's second largest market. Its telecommunications industry needs Intel's robust server chips. The supply of software to manage these networks could also dry up. Huawei is developing replacements for all three, but they are far from ready.

According to Dieter Ernst, a chip expert and observer from China's East-West Center, a Honolulu-based think tank, two questions will determine whether or not Huawei can withstand the storm. The first concerns the motivations of America. The timing of the ban, a few days after the end of the expanded trade talks between China and the United States, was suggestive. In one reading, it is a tactical gesture designed to gain concessions from China. If this is the case, it could be short-lived and Huawei's stocks could defeat it.

Paul Triolo of Eurasia Group, a political risk advisory firm, is uncertain. Rather than a tactic of negotiation, he considers the ban as "the logical end of the game". WE campaign to bring down Huawei ". A long-term ban would force the company to look for chips and alternative software that Chinese suppliers would find difficult to provide.

The second question concerns the scope of American power. Because of the entangled nature of supply chains of the chip industry, Ernst says, many non-US companies use US components or intellectual property. They may therefore consider themselves covered, in whole or in part, by the prohibition. Take Arm, a UK-based company, whose technology powers the chip in virtually every phone in the world, including those manufactured by HiSilicon. Arm says he will comply with the rules of the Commerce Department. This suggests that Arm will not grant new licenses to Huawei. It is not clear, however, whether Arm will offer assistance for existing licenses. As Arm's technology evolves, Huawei risks being left behind.

Other non-US companies are equally important. An industry insider with contacts in Taiwan said US officials were pressuring Taiwan Semiconductor Manufacturing Company (TSMC), a leading state-of-the-art chipmaker, who will abandon Huawei, its third customer. It would be a blow because Chinese chip factories are not able to produce sophisticated HiSilicon designs. TSMCSamsung is the only competitor – and South Korea is another ally of the United States. TSMC said on May 23 that he would continue to provide Huawei at the moment.

Even if the optimists are right and the ban is lifted in exchange for trade concessions, a return to business as usual seems unlikely. America has twice demonstrated its willingness to choke the big Chinese companies. Confidence in American technology companies has eroded, Triolo said. China has already committed billions of dollars to strengthen its national chip and technology capabilities. US bans underscore the urgency of this policy for its leaders. According to Ernst, it will not be easy to catch up, as chips and software are the most complicated products made by man. But, he says, if you talk to people in the Chinese technology industry, they all say the same thing: "We have no other options left."