Huawei and Donald Trump’s ban – Here’s what investors need to know
US President Donald Trump has made another characteristic retraction, this time on his ban on Chinese smartphone manufacturer and telecommunications giant, Huawei. At the close of the G20 Summit in Japan on June 28, Trump indicated that US companies would be allowed to sell to Huawei again, backtracking on an earlier executive order he signed in May.
However, there is little clarity on its implementation at this point, because of ongoing trade talks between China and the US, as well as the backlash Trump faces back home.
If you haven’t already heard about this, here’s what you need to know.
US blacklist of Huawei
Huawei has been in the news limelight for several months now, starting with the arrest of Meng Wanzhou – daughter of Huawei’s founder Ren Zhengfei and the CFO of Huawei – over charges of alleged financial fraud back in December 2018. The arrest was allegedly ordered by the US government, with a possible extradition of the Canadian permanent resident to US.
More recently, Huawei was placed on the Entity List by the Bureau of Industry and Security (BIS) under the US Department of Commerce in May, alongside 140 other Chinese companies and over 300 Russian entities. The blacklisting – which is limited to companies that pose a risk to US national security – came amid allegations that the Chinese company was using its smartphones to spy on the US for the Chinese government. Huawei has repeatedly denied those allegations.
US president Donald Trump later issued an executive order, to restrict US companies from selling to Huawei without government approval. In the immediate aftermath of that order, Alphabet Inc’s Google blocked Huawei from the Android partner program, effectively banning new Huawei smartphones from using the popular operating system. US chipmakers like Qualcomm and Intel made similar announcements to limit the sales of components to the Chinese company.
End of the road for Huawei? Not really
Many assumed that would spell the end of the smartphone maker. But would it really?
Huawei has had to cut back on its orders to suppliers, as a result of either lower than anticipated handset sales, or a reduction from its earlier stockpiling exercise. Market watchers worry that Huawei may not be able to get all their necessary components for their next line of smartphones.
On the other hand, Huawei is the leading global telecom equipment provider for 4G and 5G wireless technology, and will likely be the forerunner for 5G rollout worldwide. They are also currently one of the largest mobile phone manufacturers in the world, second only to Samsung. In March, Huawei’s reported revenues exceeded US$100 billion for the first time, and earnings rose 25% to over US$8 billion.
A ban from the Android OS might prove to be a small blip in the light of the Chinese company’s ambitious expansion plans, as Huawei’s mobile chief Richard Yu told German media that the Chinese company had already been developing its own proprietary OS since 2012. Huawei would be prepared to roll it out as a last resort.
Donald Trump’s apparent U-turn on the ban might also be a sign that the ban may be hurting Huawei’s US suppliers more than Huawei itself. Huawei’s US-based suppliers include big names like Broadcom, Qualcomm, Qorvo, Micron and Intel, and for companies like Micron, the revenue they earn from Huawei is significant. If the ban continues, these companies may even be at risk of being replaced entirely by chip manufacturers outside of US in the medium term.
Investing in Huawei
So, amid this impasse, what should investors do if they want to invest in Huawei?
Huawei remains a privately held entity, but many of its major suppliers are listed and have already seen a short-lived price rally following Trump’s latest announcement. These stocks could be a close proxy to Huawei’s business ups and downs.
Those include, Shenzhen-listed BOE Technology Group, who makes OLED display panels, Shanghai-listed Shenzhen Goodix Technology, who makes fingerprint sensors, and Taiwan-listed Foxconn and TSMC.
US-listed suppliers include Qualcomm, Intel and Microsoft, while Japan suppliers include Sony and Fujitsu.
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