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US ban unlikely to dent Huawei’s revenues any time soon, says analyst

Crisis? What crisis? This is one analyst’s view of the potential effect on the bottom line of the infamous US trade ban on Huawei products and services in telecoms networks

Despite the opinion of many of its peers to the contrary regarding the effect of supply bans on the controversial Chinese communications technology supplier, leading IT and comms analyst GlobalData is predicting that the US ban on Huawei Technologies will not significantly impact the company’s revenues.

US federal agencies put Huawei on a blacklist in May 2019, barring the Chinese telecoms giant from doing business with US tech companies, and in October 2019, US telecoms regulator the Federal Communications Commission (FCC) ratcheted up the pressure on Huawei and other leading Chinese technology suppliers with new proposals ostensibly designed to protect US communications networks from national security threats, but which would ban carriers in rural America from using the Universal Service Fund (USF) to buy such companies’ products.

Huawei has not taken the matter lying down, and in December 2019 the company confirmed that it was mounting a legal challenge to the regulator’s ban.

Since this, the company has received notice that its products and services will not be allowed in the core 5G network of UK carriers, and only in the radio access network. The European Union (EU) then published guidelines advising member states to either limit access to or ban technology from suppliers such as Huawei from the core elements of their countries’ telecoms networks.

Yet in analysing the ongoing effect and ramifications of any ban in the US, GlobalData noted that Huawei would be barely affected, in the short term at least, as it generates less than 1% of revenue from the US.

Furthermore, it noted that reportedly, Huawei generated 52% of its global revenue from its domestic market, China, in 2018, with Europe, the Middle East and Africa (EMEA) accounting for 29% of revenue in the same year, as per its 2018 annual report.

In spite of the ban on US exports starting in May 2019, the company reported an 18% jump in revenues to more than $120bn in 2019.

GlobalData said that in making their move, the EU countries had realised that banning Chinese companies for telecommunications equipment would add US$62bn to the cost of 5G and eventually delay the technology by about 18 months. “Europe is a key market for Huawei to deliver next-generation 5G equipment,” said Kantipudi Pradeepthi, a research analyst at telecoms market data and intelligence firm GlobalData.

Huawei board member and senior vice-president Catherine Chen said that so far Huawei had won more than 50 worldwide 5G commercial contracts, of which 28 were signed with European operators.

Huawei has identified cyber security as a major threat, and to counter this risk it allocated US$2bn. Huawei opened the European Cyber Security Transparency Centre in Brussels in March 2019. Competitive prices and technology give Huawei advantage over its 5G competitors such as Ericsson and Nokia.

In the Asia-Pacific region, Australia uses Huawei for 4G networks, but not for the core network. Australia’s Vodafone Hutchison stated that Huawei equipment would not be part of its 5G network, as it switches from Huawei to Nokia equipment. However, the operator’s radio access network remains separate and standalone.

The 4G average revenue per user in Australia is expected to decrease from US$32.25 in 2018 to US$24.22 by the end of 2024. According to GlobalData’s Asia-Pacific mobile broadband forecast pack, 5G is expected to hold 21.3% of the total subscription share in the region by the end of 2024. However, 4G will remain as the dominant leader during the forecast period.

“A rapid reconfiguration of the supply chain has also allowed the company to shrug off the US sanctions,” Kantipudi added. “On the other hand, the world’s second largest telecoms market India has recently permitted Huawei to participate in the trials of its 5G spectrum. As a result, the company may retain its position in the global telecoms market in the near future.”

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