Despite Trump’s Sanctions, Huawei Thrived in 2019
Try as it might, the US has been unable to crush Huawei. Sanctions and efforts to exclude it from the world's 5G networks have yet to prove fruitful; despite concerted efforts from lobbyists and former politicians. In fact, the last few weeks have been pure insult and injury to those that look to ostracize the telecom giant: in late December it reported record revenue, and in mid-January United Kingdom Prime Minister Boris Johnson gave a tepid endorsement to integrating the company's kit into his country's network while other countries around Europe have signed deals. Is Huawei entering 2020 as an unstoppable juggernaut?
Huawei scored a strategic victory in late December when it announced that in the face of sanctions and tech tensions revenue rose to a record $122 billion this year. Of course, this was lower than initial forecasts, but those forecasts were made before Huawei became a primary target in the trade war. But for Huawei, this respectable number was the fruition of a dual-pronged effort to find commercial success while avoiding the US market. A focus on China, emerging markets around Asia, and Europe would mean it could still have a large and dynamic market without having to capitulate to the US. While the US shuns its 5G gear, dozens of countries around the world have put pen to paper and signalled their openness to its tech.
A Welcome Home in Europe
On the topic of 5G, the UK looks to be a promising market for the company. While the country is a stalwart American ally, and is delaying its decision thanks to US pressure, its PM Johnson had this to say to Huawei's critics: "Tell us what the alternative is." In an interview with the BBC, Johnson said that as PM he had to balance the interest of allowing the British people to have access to the best most cost-effective technology with security concerns.
"Now, if people oppose one brand or another, then they have to tell us which is the alternative," Johnson is quoted as saying. "I don't, as the UK prime minister, want to put in any infrastructure that is going to prejudice our national security or our ability to cooperate with Five Eyes intelligence."
Aside from the UK, throughout Europe Huawei has signed 65 commercial deals with carriers in 2019 to build out their 5G networks. Germany and France have given Huawei a provisional approval, provided its equipment passes their respective security checks. In addition, Norway, and Italy look to be headed in the same direction.
Huawei's American Achilles' Heel
While all of this might look like Huawei is an unstoppable juggernaut -- and it needs to be reiterated that US sanctions have yet to seriously harm this company -- there is the issue that tech seems to be the one sector not on the table for the upcoming trade deal and reduction in tariffs. In fact, according to a report by The Wall Street Journal, things are headed in the opposite direction: The Commerce Department is reportedly trying to close all loopholes and vehicles being used by US suppliers to sell to Huawei. With the export license required, Huawei would likely turn to other suppliers -- despite the potential loss in quality -- as the bureaucratic headache would make it not worth it to buy American. Without its American supply chain, Huawei would survive, but it wouldn't be a company that posts $122 billion in revenue even in its most challenging year. There are competitors to the likes of Snapdragon chips, TSMC foundries, Android OS, but they simply aren't as good and consumers will take their dollars elsewhere. This will ultimately be what cripples Huawei, and the White House knows it: Soybeans may be up for negotiation, but silicon is not.
As Huawei is a privately held company, it doesn't file with the SEC so no 13F data is available. However, many of Huawei's suppliers are public. TSMC (NYSE:TSM) would likely be at most risk here, and while it's a Taiwanese, not US company, the US can play gatekeeper to its access to lucrative defense contracts and the market in general. Some might say it's caught in a tug of war. According to reports, Huawei has directed its HiSilicon chip unit to order the fabrication of 14nm chips from China's leading foundry, SMIC and not TSMC. Though it will still use TSMC for its 7nm and 5nm process node for the Kirin 990 and Kirin 1020 SoCs. TSMC reports earnings on Jan. 16, and more information on what risk Huawei plays to its earnings forecast will be available then.
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