Global geopolitics and its effect on Huawei

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Global geopolitics and its effect on Huawei

Shrey Srivastava

17th January 2019

 

The news coming out of Berlin is the latest in a long string of blows for the Chinese telecoms company Huawei. The German government has announced that it is to ban Huawei from supplying its 5G phone network in the country, following that of America and Britain after being lobbied by Washington [1]. This is because these three countries believe that the Chinese government, through Huawei, could take advantage of Huawei’s presence there to spy or conduct cyber-attacks on them. The suspicion is that Huawei in the first place has ties to the Chinese government. For Huawei, the news represents a spanner in the works for what is undoubtedly a growing company. Last year it leapfrogged Apple to become the second largest maker of smartphones in the world, behind Samsung [2]. Moreso, Apple’s unusual revenue warning was necessitated in part by the competition provided by the rise of Huawei.

As such, recent news from some of the world’s most powerful governments again highlight how geopolitical tension can affect private corporations. The news entered the public eye when the CFO of Huawei (who is also the founder’s daughter) was arrested in Canada on a US warrant [3]. Since then, many governments across the world have raised a suspicious eyebrow at Huawei’s activities, as its potentially large market share in a sector such as telecoms (which is crucial to national security) could give China unparalleled access to sensitive data. Such concerns are especially well founded given that in 2017 Huawei had a market-leading 28% worldwide telecom equipment market share [4]. 

What then, could the precise impact of these national governments’ actions be on the business of Huawei itself? The most obvious element to note is that the firm will likely begin to lag behind competitors in the telecoms space. Globally, the US exerts huge power and influence and although it remains to be seen whether other countries will follow suit in its actions, the fact that Huawei is shut out of such a crucial market globally will scupper its business tremendously. The EU is also considering shutting out Huawei’s attempts to provide 5G access across the bloc, so if this happens then two of the biggest markets globally are already out of reach for them. However, as mentioned before, they are emerging as behemoths in the smartphone market, so given their relatively diversified business the impact on profits could be relatively muted.

Moreso, within the smartphone market Apple is seeing a greater number of customers retaining their iPhones as opposed to purchasing new ones [5]. This indicates that a growing emphasis is being placed by the smartphone consumer base on price as opposed to brand value. Huawei benefits from this given that their business model is predicated upon low cost, reliable handsets. Through a counterbalancing effect, then, wider trends in the market for smartphones are likely to divert attention from the telecoms sector of Huawei’s operations, and more so help their bottom line.

To conclude, the ban from the USA, UK and Germany on Huawei providing its 5G services within those countries is symptomatic of a wider trend in global geopolitics. This is that of further polarisation, with the trade spat between US and China making countless headlines recently. Such disputes make it unlikely that the ban on Huawei will end any time in the near term, so we could be seeing the action from these three leading economies affecting Huawei’s bottom line in the long term. Whether the leadership sees this as an opportunity to move out of the telecoms space further into the smartphone market is another matter, however recent events do seem to provide an incentive to do so. The business is fundamentally solid and has been on a significant upward trend in recent years so to expect the ban to halt all of that would be unrealistic, however investors in Huawei in my opinion would be wise to cut their expectations for future top and bottom line growth. Overall, though, competition in the telecoms sector is likely to increase and so too are geopolitical tensions, especially between China and America. It turns out that a simple telecoms dispute, then, can have wide ranging geopolitical and economic causes and ramifications.

 

Bibliography:

[1] Ft.com. (2019). Germany looks to ban Huawei from 5G | Financial Times. [online] Available at: https://www.ft.com/content/8f08f824-1a5f-11e9-b93e-f4351a53f1c3 [Accessed 17 Jan. 2019].

[2] Gibbs, S. (2018). Huawei beats Apple to become second-largest smartphone maker. [online] the Guardian. Available at: https://www.theguardian.com/technology/2018/aug/01/huawei-beats-apple-smartphone-manufacturer-samsung-iphone [Accessed 17 Jan. 2019].

[3] CTVNews. (2019). Huawei founder thanks inmates, Canadian justice system for treating daughter well. [online] Available at: https://www.ctvnews.ca/canada/huawei-founder-thanks-inmates-canadian-justice-system-for-treating-daughter-well-1.4256018 [Accessed 17 Jan. 2019].

[4] Capacitymedia.com. (2018). Ericsson, Nokia lose infrastructure market share while Huawei continues to grow. [online] Available at: https://www.capacitymedia.com/articles/3794074/Ericsson-Nokia-lose-infrastructure-market-share-while-Huawei-continues-to-grow [Accessed 18 Jan. 2019].

[5] Reuters. (2019). Apple shares dive; rare revenue warning drags global markets. [online] Available at: https://uk.reuters.com/article/us-apple-stocks/apple-shares-dive-rare-revenue-warning-drags-global-markets-idUKKCN1OX0ZZ [Accessed 18 Jan. 2019].

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