Huawei Digs in for Long Battle With US

Huawei says it stockpiled months' worth of US parts before Washington announced the ban.

By Jeanne Whalen, The Washington Post | Updated: 24 June 2019 16:12 IST

At the gleaming new offices of Chinese tech giant Huawei, an employee cafe last week was festooned with an intriguing image: a photo of a bullet-riddled Soviet plane from World War II.

A laminated copy of the photo had been placed at every table, along with a rousing caption: "Wounds and scars toughen you up, and great hardships make true heroes," it said, noting that the Ilyushin Il-2 aircraft "kept on flying and made it back safe" despite sustaining gunshots.

The message was a call to arms for Huawei's 188,000 global employees as the world's biggest seller of telecom-network equipment and second-biggest seller of smartphones prepares for a protracted struggle with the United States.

The Trump administration has called Huawei a threat to US national security and has taken several steps in recent months to undermine Huawei's business. Some of those tensions could be smoothed over this week when President Donald Trump meets Chinese President Xi Jinping at the Group of 20 summit in Japan on Friday and Saturday to discuss the countries' sustained trade battle.

But the mood around Huawei's headquarters in southern China suggests the company is girding itself for a future in which the United States is more bitter rival than friend.

Huawei founder and CEO Ren Zhengfei last week suggested the Trump administration's recent move to cut off the companies' US suppliers was motivated not by a desire to protect national security, but by a wish to check a fast-growing Chinese rival.

"We realised when we reached a certain level there would be competition, but it didn't occur to us the US government would be so determined to take such extreme measures against Huawei," said Ren, a former soldier in the People's Liberation Army, during a panel discussion Monday at company headquarters.

As Washington stops Huawei from buying US software and chips, the Chinese company is scrambling to roll out its own smartphone operating system and to redesign some telecom-network equipment to exclude US elements, according to industry analysts.

Huawei says it stockpiled months' worth of US parts before Washington announced the ban, in anticipation of the conflict.

"The company has known this could be a possibility for many years. We have invested heavily and made full preparations in a variety of areas, including R&D and business continuity," Huawei Deputy Chairman Ken Hu said in a May 16 memo to employees.

Some industry analysts doubt Huawei's defensive actions will be enough to save the company's sales or maintain its global lead in sales of fifth-generation (5G) wireless equipment, which underpins the superfast networks that will help expand future technologies such as driverless cars and smart appliances.

The Trump administration has expressed concerns that the Chinese government could force Huawei to use its 5G gear installed overseas to spy on Western countries - a fear Huawei has dismissed as unfounded. In addition to banning technology sales to Huawei, Washington has blocked Huawei from installing telecom equipment in the United States and pressured allies to shun Huawei gear, with mixed results.

If the US ban on technology sales to Huawei remains in place, the company won't be able to produce cutting-edge equipment and "will be effectively boxed out of the global telecommunications equipment market where it has become a dominant player over the last decade," analysts at the consulting firm Eurasia Group wrote in a June 13 research note.

Ren says Huawei will lose $30 billion in anticipated sales during the next two years because of US penalties, keeping Huawei's global revenue around $100 billion in 2019 and 2020, compared with about $105 billion last year.

But he said Huawei will survive and thrive, and continue investing in new technologies such as artificial intelligence and cloud computing. "There is no way we can be beaten to death," Ren said.

Huawei's global aspirations remain evident at the company's new Dongguan campus, which the company is building to resemble the great cities of Europe.

With construction nearly complete on a recent morning, a tram shuttled employees from a replica Heidelberg castle to a faux Palace of Versailles. Workers strolled across Budapest's Freedom Bridge and sipped tea in Parisian-style cafes. "One of our senior leaders once said, if you think Facebook's headquarters is beautiful, we have many more beautiful workspaces here," said one employee, who was taking a break at the Cafe de Flore.

A big focus for Huawei, according to Eurasia Group analysts, is in redesigning the base stations that are crucial components in telecom networks to eliminate US parts.

"The firm's base stations remain the most vulnerable item, and the company has reportedly pulled together thousands of developers at its research arms in Shenzhen, Xi'an, and Shanghai to redesign the base station without US components, including a key antenna," the Eurasia Group analysts, Paul Triolo and Kevin Allison, wrote in their June 13 report. "It remains unclear how long this will take and how Huawei will source key components."

A Huawei spokesman declined to comment on the report.

In late May, a top Huawei executive disclosed to CNBC that the company is pushing ahead with the planned launch of its own operating software for phones and laptops, which could arrive in China this fall and elsewhere by early 2020.

Richard Yu, head of Huawei's consumer division, said the company will only launch those products if it is definitely cut off from using Google's Android operating system and Microsoft software, according to the CNBC report.

After the Trump administration ordered companies to stop selling US technology to Huawei, Google and other suppliers said they would restrict sales to the company. However, some US tech firms are asking the Commerce Department for special licenses that would allow them to continue selling to Huawei.

Walking between buildings at Huawei's new European-style campus last week, Ocean Sun, a longtime Huawei employee involved in strategic planning, said that despite tension with the United States, "we should focus on our work."

"Maybe there is a lot of questions or concerns from the customer side, but you know from the Huawei company side we also have the dedicated team to give the answer, to dialogue with the customer and dialogue with different organizations," said Sun, who travels widely in Europe, Latin America and the Middle East for his job.

Ren also made conciliatory remarks about the United States during the Monday panel discussion. "I think technological decoupling between China and the US is in no one's interests," he said. "Both sides will suffer."

Still, there are signs that the company is firing up employees for a protracted campaign.

Next to the cashier's counter at a Huawei cafe, the company was selling a rack of books by a French executive who spent time in prison in the United States for his role in a bribery scandal. "The American Trap" criticises the legal influence of the United States overseas and has become a bestseller in China, in part thanks to Huawei's backing. The author, Frederic Pierucci, pleaded guilty to violating the US Foreign Corrupt Practices Act as part of a scheme to bribe Indonesian officials.

A sign near the books read: "Exposed: Shocking Truths on how the US Used Non-Economic Measures to Sabotage a Foreign Business Empire."

Ren has a personal stake in Huawei's fight with the United States. Late last year, Canadian authorities arrested his daughter and Huawei's CFO, Meng Wanzhou, at the request of the US Justice Department, on charges of bank and wire fraud tied to an alleged Huawei scheme to evade US sanctions on Iran.

Meng denied wrongdoing and is under house arrest at one of the family's multimillion-dollar homes in Vancouver, British Columbia, fighting extradition to the United States.

A Huawei employee sipping juice at a table near the books said he had read and enjoyed the Frenchman's story. "It's similar to Meng Wanzhou," he said, speaking on the condition of anonymity to talk freely.

The employee said he still believed Huawei and the United States could work out their differences. A colleague sitting with him, who also spoke on the condition that his name not be used, took a darker view, referring to the US-Huawei clash and the global technology market as a "zero-sum game."

"Maybe our development will be relatively slower this year," he said of tensions with the United States. "But I would say it wouldn't be a long-term development, because some things just cannot be stopped."

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