Days after Huawei was placed on the U.S. Commerce Department's Entity List preventing the company from accessing its U.S. based supply chain, the Trump administration gave the Chinese manufacturer a 90-day reprieve. During the period, U.S. companies were allowed to ship to Huawei parts and software "necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches." With that 90-day period set to expire this Monday, unnamed sources told Reuters that the U.S. will extend the "temporary general license" for another 90-day period.
Huawei is being punished by the U.S. for being a national security threat; that's because the Chinese government can demand that the manufacturer spy on its behalf at any time. U.S. lawmakers fear that the company has installed backdoors into its devices that will send information to Beijing once enabled. Huawei, of course, has denied this repeatedly and Chairman Liang Hua has offered to sign a "No-Spy" contract. Even though the ban is supposed to hurt Huawei, last year the latter spent over $11 billion on U.S. sourced supplies and that is revenue that firms like Qualcomm, Intel and Micron will find hard to replace. Huawei was Micron's most important customer last year and the memory chip purveyor won't be able to make up the lost revenue from other firms.
Huawei shipped 118 million phones globally during the first half of this year
Huawei's ban also remains a possible bargaining chip that the U.S. can play in an attempt to get favorable terms out of China during future trade talks. Both countries are engaged in a trade war that will escalate on September 1st. That's the date when a 10% tariff (or import tax) will be placed on over $300 billion worth of additional Chinese goods imported into the states. While certain products like cellphones (in particular the Apple iPhone) are included in this tier of products, President Trump has pushed back the imposition of the tax on certain products (like the iPhone) until December 15th. The president said that he did this so as not to make this group of products more expensive during the holiday shopping season.
However, some popular Apple devices like the AirPods wireless Bluetooth earphones and the Apple Watch will be hit with the 10% tax starting on September 1st. Apple will have to decide whether to absorb some or all of the additional tax or pass some or all of it on to consumers in the form of higher prices. Certain cases for the iPhone and iPad already are charged a 25% import tax, but Apple is paying the additional costs to keep the retail price of these accessories the same.
Huawei was expected to become the largest smartphone manufacturer in the world by the fourth quarter of this year. Last year the company shipped 206 million handsets to finish third behind Samsung and Apple. For the first quarter of this year, the company delivered 59 million units, up more than 50% on an annual basis. That placed it second, ahead of Apple but behind Samsung. While the company shipped another 59 million phones during the second quarter, the three month period from April through June historically has resulted in strong sequential gains from the first quarter. The flat results achieved during this year's second quarter do not bode well for the company and indicates that even though it delivered 118 million phones in the first half of 2019, the ban has severely hurt Huawei's smartphone business.
Last month, Commerce Secretary Wilbur Ross said that his office had received more than 50 requests for special licenses to sell to Huawei and that he expects to receive more. As of late Friday, the Commerce Department had no comment on the rumor.