It was May 2019 when President Donald Trump carried out an executive order which seeks to ban US companies from doing business with companies that are considered a threat to national security. Huawei, a Chinese multinational technology company, is one of those companies accused of working with the state to spy on America through backdoors that can be built into the products they manufacture. At the time of the ban, Huawei was in the second place as the highest-selling phone globally. No evidence has been presented to justify this accusation, however, many US-based companies such as Google and Microsoft have already cut ties with the smartphone company. Huawei users are now being restricted from accessing services from Google, though already existing Huawei smartphones are not affected in any way. This ban against Huawei is the stone thrown that caused the ripple effect of misfortunate events and factors.
Today, Huawei is the only Chinese mobile phone manufacturer that is able to research and develop large-scale mobile phones that uses its own mobile phone chips. Compared to Huawei, Xiaomi may have previously conducted R&D and manufacturing, but it is still in the stage of small-scale tests. The way Huawei develops its own chip for its products is absolutely rare in the scenario of global smartphone industry, as big-time companies like Apple and Samsung are one of whom manufacture their own chip for their smartphones. Not only mobile phone chips, but Huawei is also one of the top telecommunications equipment suppliers in the world. This means that its products cover consumer-end equipment and communication products for telecommunication companies.
The extensive distribution and wide scope that Huawei has makes it difficult for the outside world to independently and thoroughly review its activities in the communications process. This is how the U.S government deemed Huawei as a “threat” to National Security, since the parts of its equipment may be used for monitoring communications and compromise information security. Despite the company’s repeated denial of the allegations of security breach as its products have been sold in hundreds of countries yet there are still no reports of any incidents up to date, the U.S remains firm on its ban.
Digging deep to the ban’s roots, analysts claim that another reason for banning Huawei mobile phones in the United States is the economic interests of the United States. As the China-based company played a very active role in setting the standard for communication or designing the 5G network, latest statistics show that Huawei has exceeded Ericsson of Sweden last year and became the world’s largest telecommunications equipment manufacturer. Not only Huawei, but China also has other telecommunication equipment manufacturers such as ZTE. Yet, these companies lay far behind Huawei as they generally do not produce their own parts but purchase large quantities from foreign companies such as Marvell and Broadcom. Huawei’s access to artificial intelligence, including consumer products and telecommunications equipment business has the United States shaking as it obviously does not want Huawei to lead the next-generation communications technology.
It was on August 17 this year when the Commerce Department took everyone off the hook when it announced new restrictions on Huawei’s ability to buy semiconductor chips – electronic circuits that store computer data. Such measure prohibits all firms from selling any chips made with U.S technology to Huawei, regardless of whatever circumstances, whether the chips are tailored to Huawei’s user specifications. Taking effect on Tuesday, these new U.S sanctions pose as a great threat to cripple production at a company that suppliers from different Asian countries depend on for parts sales worth tens of billions of dollars annually.
Intended to block Huawei from sourcing critical parts for its smartphones and base stations via outside suppliers, it is certain that the impact will spread far beyond the Chinese company. U.K. research firm Omdia director Akira Minamikawa released estimates on the affected companies, wherein Japanese, Taiwanese, and South Korean companies together supply 2.8 trillion yen ($26.4 billion) worth of parts to Huawei yearly. If the company’s production was to be disrupted, the ripple effect will take place, leaving the business in limbo.
Supplying nearly 30% of Huawei’s components, Japanese companies would suffer the largest blow. Sony alone reportedly sells billions of dollars worth of smartphone image sensors to Huawei each year, as these image sensors are especially profitable for Sony. Furthermore, Taiwanese companies like Taiwan Semiconductor Manufacturing Co. and MediaTek, will also be affected by the aforementioned measures. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, is believed to earn well over $5 billion in annual sales from Huawei, while MediaTek, a Taiwanese semiconductor designer, does nearly $500 million worth of business with the company each year.
As an alternative, Huawei has reached out to procure Chinese-made chips, wherein it is outsourcing more production to Semiconductor Manufacturing International Corp., a major chipmaker supported by China’s government. However, Washington is now moving to sever this route, by considering adding SMIC to a trade blacklist, according to U.S Media. Indeed, there is a ripple effect from the ban of Huawei, to the millions of money lost due to those who mainly depend on the Chinese companies supply.