Huawei – Nowhere to run pt. XII

The USA makes up for recent ground lost.

• The US Department of Justice has stepped up its campaign against Huawei in a move that I think aims to dissuade other countries from doing business with an alleged criminal enterprise.
• I think that this all relates to the long-running trade dispute and technology rivalry between the USA and China where Huawei has become a bargaining chip.
• The value of that chip to the US has declined in recent months as Huawei has been able to replace lost smartphone sales outside of China with domestic sales and countries in Europe appear to be going ahead with plans to roll out its 5G technology.
• This has been apparent in Huawei’s own commentary which has gone from conciliatory in September 2019 (see here) to defiant in November 2019 (see here) as it became clear that the domestic business was going far better than expected and Europe looked like it would continue with Huawei for 5G despite US pressure.
• The Justice Department has alleged that Huawei is a criminal enterprise citing allegations of intellectual property theft from 6 US companies, many of which have long been documented.
• This includes the infamous case where Cisco sued Huawei for IP theft after it found its firmware (bugs and all) in a number of Huawei products.
• This case was settled with Huawei ceasing to use the software in question, but Cisco did not win any damages and had to pay its own costs.
• Furthermore, most of the cases being cited by the DOJ have already been litigated and settled but what the DOJ is attempting to prove is that these events are all linked in a multi-year effort to build a global business from misappropriating the IP of others.
• These new charges have been filed under the Racketeer Influenced and Corrupt Organisations Act (RICO) and Huawei faces very severe consequences if it is found to be guilty.
• However, a RICO charge is very difficult to prove and has never before been used against a corporation let alone a non-US corporation.
• This is because the plaintiff has to prove firstly the crimes took place and secondly that they were all linked as part of a wider purpose to profit from those crimes.
• Hence, I suspect that these charges are very unlikely to go anywhere but it ratchets up the pressure on US allies who are still happy to do business with Huawei.
• If the USA can convince other nations to abandon their business with Huawei, it will once again put Huawei under colossal pressure meaning that its value as a bargaining chip will increase materially.
• This is particularly relevant now as while the first part of a trade deal has been agreed, there is still a lot of hard bargaining ahead.
• Hence, I think that when a trade deal is essentially complete, the pressure on Huawei will be relaxed removing the stigma for other countries in doing business with Huawei.
• Hence, I don’t see these charges going anywhere but it could make the UK and the rest of Europe look again at their decision to deploy Huawei radio basestations in their networks.
• The cancellation of Mobile World Congress has also materially damaged Huawei’s ability to market itself to the world and these new charges simply add to the pressure.
• There is a small possibility that Europe stops and rethinks its current direction on the 5G roll-out.