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Huawei warns ban will hit US software suppliers

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Washington’s move to blacklist Huawei is set to hit about 1,200 US suppliers to the Chinese telecoms group, including companies that provide most of the backbone of the company’s cyber security system.

Senior executives told the Financial Times that the Trump administration’s decision to add the Chinese group and 68 affiliates to its prohibitive “entities list” — which effectively bars US companies from selling to them — would have ramifications beyond Huawei.

The ban is due to come into force in mid-August, following a three-month reprieve granted by Donald Trump, the US president, to allow American companies to manage the disruption.

Huawei, which is already facing the prospect of being shut out of Google’s Android smartphone operating system, warned that the impact of the ban could extend beyond handsets to software used in its equipment and other businesses.

“It is a huge impact but not a crisis because we have been preparing for this since a long time ago,” said Dang Wenshuan, Huawei’s chief strategy architect, in an interview.

Huawei’s vulnerabilities to a sudden loss of access to US suppliers include two critical areas: cyber security and semiconductors, according to people with knowledge of the company’s operations.

Two-thirds of the 19 commercial cyber security software tools that Huawei uses come from US suppliers and one-quarter of the roughly 200m smartphones it shipped last year contained chips from Qualcomm, the US company, according to the people with knowledge of the company’s operations.

Huawei spent about $11bn last year in buying components and services from US companies.

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The company’s heavy usage of US cyber security tools, including scanning tools NMap and Nessus, reflects American dominance in the field. One of the people with knowledge of the company’s operations said the contracts were usually signed annually, meaning many would run beyond Mr Trump’s three-month reprieve.

A factory tour in Dongguan revealed some US companies also provide the equipment that Huawei uses to make its latest P30 smartphone. Machines bearing the logos of Dell and Camalot Prodigy, equipment produced by Illinois-based company, were seen on the 130-metre production line.

Executives added that the company has built up stockpiles of key US components while preparing to find alternatives before the ban comes into effect. This includes almost six months of smartphone inventory and 9-12 months of 5G base station inventory, according to estimates from CLSA.

Song Liuping, Huawei’s chief legal officer, warned that the ban would hit what he claimed was Huawei’s 3bn customers and said other companies could be similarly targeted.

“When such things happen, the consequences would disrupt supplies and related services to customers,” he said. “Today, it’s telecoms and Huawei. Tomorrow it could be your industry, your company, your consumers.”

Washington’s actions are already affecting non-US companies. Several, including Japan’s Panasonic, have said they will stop shipping some components amid fears they could be caught up in the ban given their own use of US technology.

Huawei also faces losing its place in industry standards bodies. JEDEC, which sets guidelines for semiconductors, said Huawei suspended its membership and the SD Association and WiFi Alliance restricted Huawei from their industry bodies late last week.

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Nevertheless, the Chinese company is confident it can cope with the disruption.

“We are looking into all possible measures to solve this issue,” said Catherine Chen, a board director. “But I don’t know if a single company is capable of doing that. And it seems the US government has little intention to solve this issue. They want only to take us down.”

Mr Dang said that Ren Zhengfei, Huawei’s founder and chief executive, had long expected a conflict with the US as the Chinese company became more competitive.

“He always argued that our business should be ready to prepare a plan B,” Mr Dang said.

The executives added that some parts of the business, such as the rollout of 5G telecoms services, have yet to see an impact.

Bob Cai, chief marketing officer for the carrier business group, said 42 commercial contracts for 5G have been signed and 100,000 base stations shipped, up from 30,000 at the start of the year.

“Every week we are updating shipment volumes for 5G,” he said.



Via Financial Times

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