Missing link: Huawei sanctions – The shot backfires
Huawei was one of the first Chinese companies to be hit by US sanctions. The company responded with an innovation and product offensive.
The Huawei campus at the company headquarters in Shenzhen.
(Image: Huawei)
Huawei has just announced its new top smartphone: the Mate XT costs 20,000 yuan, the equivalent of 2,500 euros. A few hours after Apple unveiled the new iPhone 16, Huawei showed off its new flagship – - a clear nod to its rival from Cupertino. The Mate XT sets new standards with its triple-folding screen, which transforms it from a smartphone into a tablet. Xiaomi and Honor – Huawei's former low-cost subsidiary – are also planning to launch foldable smartphones on the Chinese market, and both companies have registered corresponding patents.
The Mate XT is a huge success in China, with the manufacturer claiming around seven million orders via its own online store Vmall alone. The 5G cell phone is also technically impressive, even if the eight-core Kirin 9010 processor installed in the device with a structure width of 7 nanometers is no longer quite up to date.
In short, the Mate XT is a clear statement. How could Huawei go on the product offensive like this when it was one of the first victims of US sanctions policy? Has the attempt to cut Huawei off from Western markets and Western technology failed?
The USA locks Huawei out
Back in October 2012, the Special Intelligence Committee of the US House of Representatives urged "US network providers and system developers to seek other providers for their projects". This was based on the fear that Huawei could enable the Chinese state to conduct espionage through technological backdoors. Huawei itself has always rejected such accusations.
The US sanctions policy is based on two mechanisms: firstly, market access for Huawei's products is made impossible or hindered. Secondly, Huawei's access to advanced Western technology is to be blocked or at least made more difficult.
At the end of 2018, the government under US President Donald Trump tightened sanctions against the Shenzhen-based conglomerate. The Department of Commerce placed Huawei on a blacklist ("Entity List"). As a result, the company needed approval from the US government to purchase American technology. In May 2020, the Federal Communications Commission (FCC) classified Huawei as a threat to national security. Since 2020, American companies and those that use US technology or precursors have only been allowed to supply Huawei with exemptions. This applies in particular to chip manufacturers, including Chinese ones.
The government under President Joe Biden continued this policy: In November 2021, the Secure Equipment Act came into force, which is intended to prevent companies such as Huawei from obtaining new equipment licenses from US regulatory authorities. In addition, last year the US government generally banned the sale of the latest generation of microchips and the technology used to manufacture them. Washington justifies this with the threat to US security due to possible military use. Beijing, on the other hand, sees this as an attempt to slow down China's economic and technological development. In view of Huawei's heavy dependence on Western technology, the US government was probably expecting its demise.
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"Huawei is fighting for its survival"
The sanctions were not without effect: Huawei's phone sales almost halved in 2020; the company reported declining revenues in all regions except its home country of China. In view of this drop in sales, Huawei CEO Ren Zhengfei stated in an internal meeting: "Huawei is fighting for its survival." The fact that the company remained profitable overall is only due to the fact that it was able to make significant gains in the huge domestic market.
The sanctions adopted in May 2018 were not fully implemented until August 2022. Huawei used this 27-month window to find alternatives for the supply of components. According to media reports, Huawei was able to replace around 13,000 components from foreign production with those from China. By the end of 2019, Huawei was able to manufacture its 5G base stations without US parts.
At the beginning of 2023, Ren Zhengfei then declared that the fight against US "containment" was coming to an end. Huawei's engineers were now in a position to replace the majority of international components. The company consistently brought the production and supply chains home. De-risking is also going in the other direction.
In order to avoid the US sanctions, Huawei also sold its subsidiary brand Honor, which has been aimed at a young target group with low-cost products since 2013. Huawei emphasized that it no longer holds any shares and is not involved in management or decision-making. However, the company is also quite successful under the new ownership structure – The largest shareholder is the Shenzhen State-owned Assets Supervision and Administration Commission –
