The Huawei trade war and its possible escalation holds major risks for the roll-out of 5G and the telco industry generally, says equity analyst Gareth Hollis (from Exane/BNPP). He warns that the risks of a high-impact trade war are very real.
“Huawei suppliers’ names to continue to be under pressure and the risk of 5G deployment to be delayed is increasing. The situation seems unsustainable and could very likely result in China retaliating,” he warns.
“In just the past two days: ARM (owned by Softbank) is said to stop working with Huawei. Panasonic has stopped working with Huawei and several Telecom operators have decided to suspend orders from Huawei Smartphones (including Vodafone, NTT Docomo and KDDI) until they get better visibility on the impact of the US restrictions.”
Hollis cautions that the worst is far from over, and the overall implications could extend well beyond the telco industry and says the picture is extremely murky.
“Huawei is of very high strategic importance for China as it is its most successful hardware company making Telecom Equipment (N1 worldwide with around 30 percent market share), Handset (N2 worldwide in units with about 15 percent market share) and servers (5 percent market share). Huawei was the third largest semiconductor buyer in 2018, behind Samsung and Apple, at c.$20 billion or c.4.4 percent market share.”
“Completely removing Huawei from all European mobile networks (2G-5G) would be a significant political move that would likely trigger retaliation from China, and is likely something Europe would like to avoid,” he adds. “It could also trigger the bifurcation of 5G standards with China moving forward with its own version of 5G which could be more advanced than the US/European standard, potentially putting the US and Europe at a technology disadvantage.”
Hollis states that while some markets could benefit from a Huawei ‘ban’ (such as Germany where Ericsson and Nokia could benefit) the whole industry sector is in a state of high anxiety. The bank’s note reminds industry watchers that the following decisions have already been made: