That kind of clout is going to make it really hard for the United States to stop Huawei’s momentum.
As President Donald Trump and China’s Xi Jinping prepare to meet this weekend at the G20 summit in Japan, the United States has to consider whether it’s worth including Huawei in any deal between the two economic superpowers, especially if government officials think the tech firm could harm national security interests.
“This is a $110 billion company that is really too big, in some sense, to be killed in this manner because it’s too tightly intertwined with the supply chain and with standards and with critical infrastructure globally,” said Paul Triolo, global technology policy director at Eurasia Group.
5G and wireless infrastructure
The American government wants to push Huawei out of that coveted position because it fears the company’s gear could be used by Chinese intelligence services to spy on other countries, a claim Huawei has denied. The United States has also been urging its allies to take similar actions to curb Huawei’s ambitions.
But it wouldn’t be easy for companies that already use Huawei to just switch to another equipment provider.
Huawei’s absence in Europe and other developed markets would leave a huge gap in the market. That might not be one Huawei’s competitors would be able to scale up quickly enough to fill, said Triolo, the Eurasia Group expert.
“If they suddenly can’t count on Huawei to be there, they have to consider basically ripping out all of their base stations,” he said. “You have to figure out the replacement costs, and the price increase because the other competitors are more expensive.”
The worst case scenario “is that we never get to 5G because of the cost,” Triolo said.
In the United States, Huawei’s equipment serves only a small percentage of networks. But those customers — small, federally subsidized wireless networks — have relied on the fact that the gear is up to 40% cheaper than other companies’ equipment, according to the Rural Wireless Association, a trade group for small carriers.
“Uncertainty in general is not good for business,” said Tommi Uitto, president of mobile networks at the Finnish company, referring to the political situation surrounding Chinese suppliers. “Some of our customers may be delaying their decisions. If you have an operator who has Nokia and a Chinese supplier, then this current situation may delay their own decision-making.”
Harm to American companies
While Trump considers a trade deal, he may also need to take into account that American companies rely on Huawei as a customer.
“It had an impact because we could not ship at that time any product to them of nearly $200 million,” Micron CEO Sanjay Mehrotra told analysts on an earnings call.
Micron has found ways to still do business with Huawei. The company said it has been able to restart shipments of some products that are not covered by the export restrictions.
American chip companies want to retain Huawei as a customer because if they don’t, they fear they’ll lose out to foreign suppliers who can continue working with the Chinese giant. US companies may also worry that other foreign customers could see them as unreliable because of their inability to sell to Huawei.
“Any Chinese company designing complicated circuitry based on US technology has to rethink its strategic plan out the next five-to-10 years,” Triolo said. He added that could mean that Chinese firms stop using American chips in their designs.