Huawei Ban Approaches, National Security Expert Says EU Report Amplifies Concerns
Huawei Technologies Co. this month posted surprisingly strong financials, considering its on-edge relations with the U.S. and the mistrust from some other markets. While some markets continue to welcome business with the giant, experts say the ban on trade with American suppliers will heavily impact the company.
In an optimistic mid-October post, Huawei said it had more than 60 commercial contracts for 5G with carriers around the world, while its production and supply "grew steadily." It reported $85.6 billion in revenue for the first three quarters of 2019, at a 24% growth year-over-year, and net profit margin of 8.7%. Already, Huawei said it reached 200 million smartphone shipments – two months earlier than it did last year.
The company also unveiled its foldable smartphone in October, the Mate X. Like the new Mate 30 Pro, it comes without the Google ecosystem thanks to the U.S. ban.
CapitalWatch talked with Nate Snyder, senior advisor at Cambridge Global Advisors LLC, a national security consulting and strategic communications firm.
"It is really interesting that they are projecting that despite the U.S. ban the growth of Huawei and its progress in 5G networks has not slowed down," Snyder said in an interview.
At the same time, he added, that report should be taken with skepticism.
"We've known for quite some time – and this is an understood fact – that Huawei's technology and business have largely been subsidized by the Chinese government," Snyder said. "This gives Huawei a competitive commercial advantage […] and they could also potentially doctor their reports. In anticipation of the U.S. ban, perhaps they're not telling the full story. They want to be able to show to end-users, customers and investors that their business is not being impacted."
Snyder is the former appointed Obama Administration counterterrorism official and advisor to the Department of Homeland Security, Department of Justice, Federal Bureau of Investigation and National Counterterrorism Center.
Meanwhile, the end of the waiver on the ban with the Chinese smartphone giant is fast-approaching. U.S. firms will no longer be permitted to supply Huawei with technology after November 19 in a move Washington implemented after the company allegedly broke U.S. trade sanctions and conducted business with North Korea, Syria and Iran.
Asked whether some U.S. companies might get exemptions on the supply ban from the Trump administration, Snyder said, "Could be," though Bloomberg reported that another extension of the reprieve is unlikely.
Snyder said, "There were discussions on easing restrictions on technology that may already be globally available to Huawei. But I don't know if that is set in stone."
He also said the easing of the ban "would not be a good idea."
"The easing of trading with Huawei is still a vulnerability that we need to take seriously, because if we're going to trade with Huawei on technology, software, or hardware and those are used to ultimately build or become a part of our domestic 5G network – from a national security perspective, or even a cyber perspective, it will then open up that infrastructure with various access points," Snyder stated, adding that Huawei understands this and is looking for "any way" to expand its tech footprint in the U.S. market.
How effective would the ban be? Could some companies circumvent the restrictions? Snyder said the sensitivity and risks in the issue and its high visibility should hold U.S. technology makers from trying to find loopholes to maintain their profits.
EU Issues Cybersecurity Warning, Leaves Out Huawei
Earlier in October, the European Union published a risk assessment report on cybersecurity in 5G mobile networks, warning of cyber attacks from outside. The European Commission, however, did not call out Huawei as a threat, in contrast to the Trump administration.
Germany, in particular, argued that banning the Chinese company would delay the launch of 5G networks for several years and add billions of dollars to their expenses. Some media reacted with headlines like "Merkel Chooses Huawei Over US and EU Objections" to Germany's openness to the trouble-ridden telecoms giant.
Huawei, which has always denied that its technology could be used for spying, as well as its ties to the government, said at the time, as reported by Reuters, "We are pleased to note that the EU delivered on its commitment to take an evidence-based approach, thoroughly analyzing risks rather than targeting specific countries or actors."
The argument that shunning Huawei would hold back 5G development is one that the Chinese company itself has been using, Snyder commented. He also said that while it may impact some U.S. providers, the costs on the other sides of the scales are too high.
"We'll be relying on telecommunication infrastructure that as reported by the EU report has massive vulnerabilities, code that is not efficient, with multiple holes and is open to attack by state and non-state actors, organized crime and potential terrorism," Snyder said.
He continued, "We want to be careful of who's listening in and or has access to the network to intercept what would be sensitive information. And from that perspective it is still really concerning and goes back to my previous argument that – yes, this may slow down development and implementation – is it worth the risk of potentially leaving ourselves open to attacks, to exploitation, etc. – for years to come?"
Further, Snyder concluded, "If this is a race of who can get the 5G network fastest – one of the ways that we can close the gap and distance with Huawei in this race is having U.S. providers work on interoperable solutions as an alternative to Huawei as a single provider. If they're able to do that, then not only will you unlock the commercial potential of competition from the economic standpoint, you will also be able to diversify the threat and mitigate a number of the vulnerabilities. Sure, it may be not as fast as Huawei can set up a network, but if the providers and the U.S. government were to provide the necessary incentives, we could close the distance with Huawei and therefore mitigate the time it would take to set up a network."
(Co-authored by Belinda Zhou and Anna Vodopyanova)
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