5G Battle Heats Up Between US and China

Huawei’s annual three-day analyst summit just wrapped day one. This year’s event is unique not just because it’s the first one to be held mostly online due to the ongoing coronavirus pandemic, but it takes place just three days after the U.S. government dealt another major blow to Huawei’s business, based on accusations of the Chinese tech giant being a security threat.

On Friday the U.S. Department of Commerce announced a new rule preventing any company using U.S. software or technology to do business with Huawei without specific U.S. approval. This move is intended to block semiconductor sales to Huawei, specifically Huawei’s own Kirin chips which are manufactured by Taiwan Semiconductor Manufacturing Co. (TSMC).

Huawei’s current chairman (the company operates on a rotating system) Guo Ping addressed the issue at the start of the summit, admitting the move will “inevitably affect Huawei business,” but added he is “confident” Huawei will “find a solution.”

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An official statement released by Huawei later takes on a less optimistic tone: “this new rule will impact our network and communication business worth hundreds of billions of dollars in 170 countries.”

This chip ban leaves Huawei with one viable manufacturer: Shanghai-based Semiconductor Manufacturing International Corporation (SMIC), which manufactured Huawei’s recent mid-tier Kirin 710A. Other major chipmakers, such as Samsung Foundry and Globalfoundries, are likely using some American tech or software.

Before the potential hardware ban, Huawei had been dealing with a software ban for a year, ever since the U.S. government placed Huawei on its “entity list” around this time last year, which essentially blocked Google from working with Huawei.

Since the entity list, Huawei has increased its efforts to build its own ecosystem as an alternative to Google’s. Guo said the company decided to invest heavily into building its own ecosystem, investing 131.7 billion yuan ($18.5 billion)—about 30% of its total 2019 revenue—into R&D and ecosystem development.

“The U.S.'s continual attack on Huawei will not lead to Huawei closing up, but instead we will open up more and work with other partners,” said Guo. To that end, Huawei has partnered with European software companies such as TomTom in the Netherlands to develop its own mapping system.

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Guo said Huawei is open to collaboration with all—“we purchased $18.9 billion in supplies from American companies last year,” he said—but these increasing restrictions will lead to a fragmentation of the tech and telecommunication industry.

That’s certainly the view shared by some analysts and insiders. At the very least, it will ramp up trade war tensions between China and the U.S.

In fact, China could potentially retaliate, with a report by China’s state-run news organization Global Times saying Beijing was ready to come up with an “entity list” of its own that would target American companies such as Apple (AAPL) and Qualcomm (QCOM).

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Read more from Ben Sin at Forbes.com

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