Huawei says China will retaliate against the U.S. if Trump disrupts the flow of chips

Huawei says China will retaliate against the U.S. if Trump disrupts the flow of chips
Huawei this morning announced that it generated $123 billion in revenue last year, which happened to be exactly what the company forecast at the start of last year. However, back in April, one month before getting banned from its U.S. supply chain, the manufacturer hiked its estimate to $135 billion. As a result, the company considers the $12 billion shortfall to be the price of getting placed on the U.S. Commerce Department's entity list last May. Profits rose 5.65% to $9 billion, but the growth rate was much slower than the 25% and 28% the firm reported in 2018 and 2017 respectively. Revenue from its consumer unit, which includes smartphones, rose 34% last year.

Trump administration plans on tightening the screws on Huawei

And now that the costs of being called a national security threat in the U.S. have been determined, Huawei is ready for revenge. According to Reuters, the company's current chairman (Huawei has a rotating list of executives who fill this position) has spoken out. At the event held to announce the release of its 2019 results, Eric Xu said that if the U.S. further restricts Huawei's access to supplies, "The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board. Why wouldn't the Chinese government ban the use of 5G chips or 5G chip-powered base stations, smartphones and other smart devices provided by American companies, for cybersecurity reasons?"

And besides being blocked from the U.S. supply chain it spent $18 billion on in 2018, President Donald Trump is looking to tighten the screws on Huawei by cutting off access to chips that the company designs and has manufactured by Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest independent foundry. TSMC manufacturers Huawei's Kirin and Balong chips. Under the Foreign Direct Product Rule, the U.S. can place export controls over products that contain 25% or more U.S.-origin content by value. But the Trump administration has hinted at a reduction in this threshold down to 10%. That would allow the U.S. government to potentially block TSMC's chip exports to Huawei.

Xu stated that if the Trump administration were to reduce the threshold of the Foreign Direct Product Rule to 10%, the Chinese government would take drastic measures aimed at tech firms in the states. "If the Chinese government followed through with countermeasures, the impact on the global industry would be astonishing," Xu said. "It’s not only going to be one company, Huawei, that could be destroyed."

Huawei's ties to the communist Chinese government have resulted in the firm's inclusion on the entity list. Lawmakers in the states fear that Huawei uses its phones and networking equipment to spy on behalf of Beijing. Huawei has denied this repeatedly and there is no definitive proof that backdoors are placed inside its products.

Unable to license Google Mobile Services, the firm's new handsets cannot run apps like the Google Play Store, Google Maps, Google Search, Gmail, Google Drive, Google Translate and others. This doesn't matter inside China where most Google apps are banned but does matter to international consumers. Huawei just developed its own Mobile Services ecosystem and it debuts on the just-announced Huawei P40 series which will be released starting next month. The ecosystem includes Huawei's own AppGallery app storefront.

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Thanks to an increased sense of patriotism in China, where Huawei is considered a victim of U.S. bullying tactics, Huawei's phones had 38.5% of the domestic market up from the previous year's 27%. Globally, the company moved ahead of Apple to finish second after shipping approximately 240 million units worldwide in 2019 up 15% from the total shipped in
2018. 6.9 million of the handsets shipped were 5G enabled.

Huawei is also the largest provider of networking equipment in the world. The U.S. has asked its allies not to use Huawei's gear in their new 5G networks. While Australia and Japan have heeded the warning, Germany and Britain have not.

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