Don’t Worry About a U.S. Component Ban on Huawei

(Bloomberg Opinion) -- With Huawei Technologies Co.’s chief financial officer Meng Wanzhou released on bail in Canada, attention now turns to the U.S. case against the Chinese company and any likely penalties.

A U.S. ban on the use of Huawei equipment by telecom providers wouldn’t be a huge loss to the telecom equipment maker, as I wrote on Tuesday, because the Americas as a region accounts for less than 7 percent of revenue.

Don’t Worry About a U.S. Component Ban on Huawei

A bigger pain would be a block on selling U.S. components to Huawei. 

While the company is technologically more robust than smaller compatriot ZTE Corp. — which has already faced and ultimately escaped such sanctions — cutting Huawei off from U.S. semiconductors would be a crippling move. The firm is yet to become fully independent of U.S. components. Even if Huawei requires just one chip from, say, Broadcom Corp. or Qualcomm Inc. in its phones or routers, the lack of that single item could kill a product.

Don’t Worry About a U.S. Component Ban on Huawei

Such an eventuality is a long way off. ZTE was subject to a suspended ban, which went into force in April this year after the company violated the terms of a settlement with the Commerce Department. The company eventually evaded sanctions by paying a $1.4 billion fine, following the intervention of U.S. President Donald Trump.

Huawei should be given a similar deal, enabling the company to keep buying U.S. components provided it took whatever actions the U.S. deemed necessary. In ZTE’s case, that included paying fines, changing business practices, and reprimanding some employees. Even if Huawei reneged on such a deal, the example of ZTE suggests it might be able to circumvent a ban by paying a bigger fine.

Trump boasted of the ZTE settlement — which enraged senators who sought to reinstate the harsher sanctions — and told Reuters this week that he may intervene in the Huawei case by linking it with trade negotiations.

The president’s penchant for dealmaking and Huawei’s importance to China’s technological ambitions suggest its fate, like ZTE’s, is for sale. All of this suggests that Huawei is unlikely to be shut out of buying U.S. components.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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