Chinese telecommunications giant Huawei had a strong domestic base and alliance with state-owned carriers to fall back on when the US targeted its global 5G infrastructure ambitions as a security threat and blocked its access to advanced chips.
Beijing’s support took the form of rich orders from the “big three” state-owned telecoms carriers – China Mobile, China Telecom and China Unicom – as well as their subsidiaries.
But that state backing just took a surprise hit when China Mobile – the world’s largest carrier with more than 945 million subscribers as of June – opted to give a new 5G equipment contract to one of Huawei’s main competitors: America’s Qualcomm.
Earlier this month, China Mobile announced the tender results of its plans for 2021 and 2022, which included procurements of key 5G related equipment.
Significantly, Huawei was not awarded any of the related equipment contracts while Qualcomm and its joint venture partners reportedly won half the orders for 320,000 5G modem sets, which are key to linking various devices with 5G base stations.
China Mobile’s procurement of modem-to-antenna multimode devices from Qualcomm aims to accelerate the carrier’s 5G rollout and industrial application across the nation, according to local media reports. Tencent News and the Shanghai-based National Business Daily reported that Huawei was frozen out due to its “inferior equipment performance.”
The publications reported that Qualcomm’s cutting-edge X55 5G Modem-RF System powered by TSMC-made 7-nanometer chips would support multi-band, ultrafast 5G connections.
China Mobile risked losing its competitiveness in connection speeds and therefore future customers, especially industrial users from the manufacturing sector, if it chose Huawei’s alternative products, which reportedly lack the same Western and Taiwanese-made chips, the same reports said.
Taiwan’s TSMC, the world’s leading high-end chip maker, is required to comply with US-imposed punitive export controls on Huawei.
Other reports suggested that Huawei bowed out of the bidding on the China Mobile contract due to future output and delivery concerns amid the US chip ban.
To be sure, China Mobile is not cutting ties with Huawei. Huawei recently won 60% of China Mobile’s 5G base station supply contracts, the South China Morning Post and others reported. Huawei and ZTE together won roughly 90% of the base station contracts despite US sanctions, the reports said.
But those punitive US bans are hitting hard Huawei’s bottom line. Last week, Huawei reported its first-half revenues were down 29.4% year on year, from 454 billion yuan to 320 billion yuan, a dire result company executives said was expected.
Huawei said that its carrier business was down 14% to 137 billion yuan while its consumer unit declined from 221 billion yuan to 136 billion yuan. Its so-called enterprise unit was up 18% to 36 billion yuan. In November, Huawei sold off its Honor brand mobile phone due to US restrictions.
Significantly, China’s future 5G-related spending may no longer represent a windfall for Huawei.
When China’s 5G investment spree started in 2018, Huawei benefitted from Beijing’s self-reliant drive to procure more domestically made equipment. The company moved to pitch its hardware and solutions at Chinese carriers with deep discounts, as it sought to extend its lead in 5G rollout and commercialization over Western rivals like Ericsson and Nokia.
Huawei founder Ren Zhengfei told a staff assembly earlier this year that the company would continue to excel in the lucrative carrier business in its home market and that revenues from selling 5G base stations and related equipment, support and maintenance contracts would be a “bulwark” against its badly slumping smartphone sales.
But China Mobile’s future 5G-related procurements from Qualcomm rather than Huawei raises certain new questions about the company’s strategy, particularly as countries from India to Malaysia have taken America’s security warnings to heart and opted for other equipment suppliers.
Eric Mer, a Peking University associate professor of politics, notes that 5G base stations and related assets like modems are long-term investments. He suggests that if Huawei lost some 5G equipment orders from China Mobile, the nation’s leading carrier, it will also likely lose subsequent contracts and income over the next three to five years.
Mer said while Beijing may be dialing up its tech-autarky policy efforts to support indigenous production and innovation, China Mobile needs to source the best products regardless of their national origin to remain competitive and lure more customers onto 5G.
Other Chinese carriers, he suggests, will also opt for foreign brands like Qualcomm if Huawei’s offerings are perceived as behind the technological times.
“Modern tech does not stay one way for long and Huawei’s hard-won first-mover advantage in 5G could risk being chipped away and even canceled out by a protracted tech war between China and the US,” said the scholar.
The 5G spending race among China’s “big three” carriers is already slowing as new user increases start to plateau and many complain over social media that the advertised speed jump has been less than impressive.
About 70% of the world’s 5G base stations and towers now in commercial use are installed in China as the country leads the world in the number of 5G-capable devices. More than 900,000 related base stations and transceiver units in both major cities and far-flung parts of China are currently in use.
Minister of Industry and Information Technology Xiao Yaqing, however, warned during this year’s parliamentary session of “superfluous 5G capacity and network under-utilization.” The minister said China had yet to work out a systemic strategy to unleash 5G’s game-changing economic potential.
Huawei has not updated its total worldwide 5G orders for more than a year, while Ericsson, Nokia and Qualcomm are moving to fill the void in the West – and in Qualcomm’s case are even making formidable inroads into China’s home market.
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