Smart Industry 1/2020

faces stinging fines and their top executives
could, at least theoretically,
go to jail. Google was one of the first
companies to comply, canceling billions
of dollars’ worth of contracts
with Huawei and, in the process,
demonstrating just how globally interdependent
the tech industry has
become.
Huawei is one of only a handful of
suppliers for 5G technology in the
world but, not only that, the company
is also a leading manufacturer of
smartphones using Google’s Android
operating system. Due to the ban,
the Chinese will not be able to supply
their customers around the world
with updated software versions and
new-model phones will no longer be
equipped with Google apps such as
Maps or Gmail. Access to the Google
Play Store will also be denied.
Only One of Nine
Software is only part of the problem.
Huawei’s 5G network hardware is
crucially dependent on US technology
from companies such as Qualcomm,
Xilinx, Intel, and Broadcomm
– all of which have confirmed they
will no longer deal with Huawei. The
problem is that Huawei is one of only
nine companies globally that sell
5G radio hardware and 5G systems
for carriers. The others are Altiostar,
Cisco Systems, Datang Telecom, Ericsson,
Nokia, Qualcomm, Samsung,
and ZTE. Datang and ZTE are also
Chinese companies but have not
been banned under the software
controls.
Operators like Deutsche Telekom,
Vodafone, and Telefónica rely heavily
on Huawei systems for their new 5G
networks, some of which are already
running or are planned to go online
over the next year or two. The decision
by US policy makers could throw
a monkey wrench into the worldwide
launch of 5G services to millions of
customers in scores of countries. The
US is also applying pressure on its allies
to cancel all orders with Huawei.
Australia and New Zealand have already
announced their compliance
but, so far, Great Britain and Germany
have refused.
In Germany, Deutsche Telekom has
continued to roll out systems using
microcontrollers and circuitry based
on Huawei technology, as has Infineon
(formerly Siemens), arguing that
these components are not manufactured
in the United States and do not
fall under US jurisdiction. Infineon is
especially proud of its Trusted Platform
Module (TPM) products, which
it sells in large numbers to Huawei as
well as to US players like VeriSign.
Huawei also has an ongoing partnership
with ARM, a British semiconductor
maker, which operates factories in
the US. That means it will be unable
to sell technology developed by its
subsidiaries to Huawei. Already, US
banks have started circulating lists of
companies and individuals who are
forbidden to trade with the Chinese.
As a result, bank accounts have been
frozen and executives face arrest if
they enter the United States.
Huawei has said it will defend itself
through a variety of measures. The
company has already announced its
HarmonyOS smartphone platform will
replace Android in domestic and foreign
markets. The company’s billionaire
founder Ren Zhengfei has also set
out a three to five-year plan to build an
“invincible iron army” that will protect
it from ongoing US sanctions while
defending its lead in next-generation
wireless. The consumer business, Ren
wrote in a blog post, faces a “painful
long march” – a reference to the Communist
Party’s historic cross-country
trek during the civil war.
Huawei hasn’t been clear about how
US administration curbs would impact
its 190,000 employees worldwide,
but the company has begun to
lay off US-based staff, the Wall Street
Journal reported.
So far, China seems unwilling to back
down. The hawkish new commerce
minister Zhong Shan told the South
China Morning Post that China must
uphold “the spirit of struggle” in defending
national interests. For the
global IT industry, this martial chestbeating
signals troubled times ahead.
Companies and managers will need
to devise a new set of rules governing
the world IT markets and their
A Step Back
decisions about where and how to
do business. Suppliers and programmers
will need to consider who to accept
as customers – and who not to.
If China masters the obstacles put in
its way by the US sanctions, the nation
could emerge as a new IT superpower.
In the meantime, 5G operators
will need to find solutions fast or
face potentially debilitating losses as
deadlines for the introduction of 5G
are missed. Whatever happens: the
global IT markets will never be the
same again.
■ Economic History
The monsters of protectionism are rearing their ugly heads
once more. Nothing new there: 300 years ago, European rulers
struggled to achieve dominance over their neighbors by introducing
and enforcing strict tariffs and closing their borders. Under the
term “mercantilism,” a popular economic philosophy in the 17th
and 18th centuries, governments sought to ensure that exports
exceeded imports and to accumulate wealth in the form of bullion,
mostly gold and silver.
In the 20th century, communist regimes in the Soviet Union and
the Eastern Bloc opted for central control of the economy through
its politburo. Investment, production, and the allocation of capital
goods took place according to economy-wide production plans.
In the end, kings, queens, and communists were all thwarted. The
People’s Republic of China only managed a turnaround by introducing
so-called special economic zones (SEZs) with free-marketoriented
economic policies and flexible governmental measures,
creating an economic management system that is more attractive
for foreign and domestic firms to do business. As a result, China
went from third-world country to one that ranks as the second
largest in the world, by nominal GDP and the largest in the world
by purchasing power parity, in less than 30 years. Markets, not
Mao, were the key to China’s success.
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