- The US has effectively blacklisted the second-largest smartphone maker, Huawei, from doing business with US companies.
- The ban is the latest volley in an ongoing trade dispute between the US and China.
- As the ban took effect last month, major tech companies all over the world cut ties with Huawei.
- The ripples from the ban are massive and affect millions of people all over the world, and are impacting US-based companies that have done business with Huawei.
- Visit Business Insider’s homepage for more stories.
The Chinese tech giant Huawei is having a very bad few months.
Following the news that the US government was effectively banning US companies from doing business with the second-largest smartphone maker, major tech companies all over the world have cut ties with Huawei.
Most notably, Google’s Android smartphone operating system is the backbone of Huawei’s massive smartphone business – but in the next three months, it will stop getting updates on Huawei’s devices. The same could be said for Huawei’s computer business, which relies on Windows 10 from Microsoft and hardware from a variety of US companies.
The situation is – to put it lightly – a gigantic, complicated mess. And that’s why we put together an explainer of the entire situation.
Here’s everything that’s happened in the last few months:
First and foremost: What is Huawei?
Huawei is one of the biggest tech companies in the world – the company’s 2018 revenue exceeded $US100 billion, and it employs nearly 200,000 people.
But maybe you’ve never heard the name? That’s because Huawei is a much bigger deal outside the US.
The Chinese tech giant is most well-known for its consumer products: smartphones, laptops, and networking devices. Huawei is the second-largest phone maker – just above Apple and below Samsung. Massive Huawei ads are a common sight in Europe and Asia, as Huawei smartphones are common consumer devices outside the US.
But in the US, Huawei phones aren’t sold in electronics stores such as Best Buy, and carriers such as Verizon also don’t sell the phones. The phones aren’t even supported by every telecoms company.
In short, it’s surprisingly difficult to buy and use Huawei devices in the US – even before the company was banned.
What’s going on?
On May 16, the US Commerce Department’s Bureau of Industry and Security announced that Huawei was added to the “entity list” – a complicated, bureaucratic way of saying that US companies are barred from doing business with Huawei unless they get explicit permission from the US government.
Soon after, tech companies all over the world began similarly cutting ties with Huawei in keeping with US government regulation.
Exactly why the US government added Huawei to the entity list is a matter of contention.
The official reasoning given by the Commerce Department was that Huawei “is engaged in activities that are contrary to US national security or foreign policy interest.”
But the move also appears to be part of the ongoing trade war between the US and China – something President Donald Trump indicated in an exchange with reporters.
“Huawei is something that’s very dangerous. You look at what they have done from a security standpoint, from a military standpoint, it’s very dangerous,” he said in May. What he said next was telling: “It’s possible that Huawei even would be included in some kind of a trade deal. If we made a deal, I could imagine Huawei being possibly included in some form of, or some part of a trade deal.”
Complicating things further, Meng Wanzhou, Huawei’s chief financial officer, was arrested in December and charged with violating US trade sanctions on Iran.
Meng Wanzhou, Huawei’s chief financial officer, was arrested in December in Canada and charged with violating trade sanctions on Iran. She’s under house arrest in Canada while waiting to find out if she’ll be extradited to the US.
She’s also the daughter of Huawei CEO and founder Ren Zhengfei.
Despite this, Zhengfei was upbeat when asked about his daughter’s potential jail time. “My daughter is a very optimistic person,” he told a Chinese TV station. “Every time I call her, she says she’s very busy. A very rich life.”
How does the ban affect Huawei?
Huawei’s smartphones run on Android – and the blacklisting means Huawei can’t use Google’s software after August 19.
Huawei’s computers run on Windows 10 – and the blacklisting means Huawei can’t use Windows 10 after August 19, either.
Starting to get the idea?
That’s before we start talking about all the other US companies that Huawei works with to create its products. American companies such as NVIDIA and Qualcomm make chips that go in Huawei devices, and companies such as Google and Microsoft make software that runs those devices.
By adding Huawei to the entity list, these companies are required to stop working with Huawei.
For example: If you’re a Huawei smartphone user in, say, London, you can expect your Android-powered phone to stop receiving security updates.
What about upcoming phones? Huawei uses a lot of US-made parts, and Android is owned by Google, a US company.
Theoretically, Huawei could source parts from different manufacturers, and it could use its own custom operating system.
Indeed: The company has been preparing its own smartphone operating system for some time.
This is a huge leap, though, and would be extremely expensive.
Huawei has built a business around the parts suppliers it uses and uses the Android operating system built by Google that comes with major consumer services like the Google Play app store. It would, at the very least, be a major adjustment for Huawei that would cost millions.
It would also mean Huawei smartphones would lose a lot of major Google services – stuff like Gmail, Google Calendar, YouTube, etc.
But isn’t Android a piece of open-source software? It is. But the open-source version of Android is far from the version that people use on current Android smartphones. And using that version of Android wouldn’t allow Huawei to include the aforementioned services.
Major upcoming Huawei products, like a new laptop and a foldable smartphone, are being delayed at least in part due to the ban.
Huawei was expected to announce a major new laptop in June, but scrapped plans – the company specifically cited its ban from working with US companies as the issue.
The laptop, a new Matebook, relies on chips from Intel and Microsoft’s Windows operating system.
“We cannot supply the PC,” Huawei’s consumer division CEO Richard Yu told CNBC. Whether the device will ever launch, “depends on how long the Entity List will be there.”
Later in June, Huawei pushed back the launch of its first foldable smartphone, the Huawei 5G Mate X. It’s still expected to arrive in September – whether it will use Google’s Android operating system, or Qualcomm chips, remains to be seen (both are US suppliers).
Huawei is working as fast as possible to complete its own mobile operating system, which is called “Hongmeng.”
One of the biggest consequences of the blacklisting for Huawei is losing access to Google’s Android operating system. The OS is the heart of many of Huawei’s products, and that’s especially the case with the company’s smartphones.
As such, Huawei is working quickly to create its own operating system, known as “Hongmeng.”
The company has reportedly shipped over 1 million test devices with the new OS, and has filed to trademark it in a variety of countries. Hongmeng has been referred to by Huawei as a “Plan B” should the company not get removed from the US Entity List.
One of the biggest issues: building out Huawei’s app store and not having access to Google Play.
Building an app store is very difficult. Huawei has its own, but it’s not very popular.
Apple’s App Store and the Google Play app store are the two heavies, and no other company has been able to come anywhere near their market dominance.
Amazon has tried, as has Samsung. Neither succeeded.
But that’s far from the only issue with losing Google Play – many of the apps that people want are made by American companies. Instagram, Facebook, and WhatsApp are all owned and operated by a US company, and none of those would be allowed to appear on Huawei’s app store.
What happens next?
That’s the big question. But Zhengfei is optimistic.
“The world’s economy is clearly on a path to globalization, and we all need to be united on that front,” the CEO said in an interview with Business Insider Japan.
“If a country closes itself off and tries to make its own version of a product for itself, not only will the scale of production eventually plateau; costs will also increase. There’s no way the product will be able to meet society’s needs,” he said.
He also warned about the potentially negative knock-on effects of the ban on working with Huawei. “When you go against the tide of globalization, it leads to economic issues,” he said. “The Chinese market is still growing, and Japan relies heavily on it – and I don’t think it would be wise for the American economy to give up on the Chinese market either.”
For the time being, US companies with existing business ties to Huawei have been granted a 90-day “temporary general licence” to keep working with the Chinese tech giant to support their partnerships.
Google has also assured Android users with Huawei phones that, “while we are complying with all US gov’t requirements, services like Google Play & security from Google Play Protect will keep functioning on your existing Huawei device.”
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