Huawei Has Defied Trumps Blacklist: So What Happens Now? – Forbes

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Back in May, when U.S. President Trump stripped Huawei of its U.S. supply chain, the companys short to medium term future looked bleak. The blacklist was aimed at 5G networking equipment, but it was Huaweis consumer goods business that seemed to be hit hardest. Huawei execs forecast billions in lost revenue as CEO Ren Zhengfei talked survival: It's good enough for us to just survive, he told Bloomberg in May, you can come back to interview us in two or three years and see if we still exist.

Fast forward six months, though, and its all change. Huawei defies the odds to lead the global telecoms market after 180 days on the U.S. trade blacklist, announced a South China Morning Post headline on November 8. Performance, it reported, that has defied early predictions that it would stumble under the U.S. trade ban. And this isnt a slant on the truthwith this story, there are no rose-tinted spectacles in sight.

Far from losing the hard-fought number two slot for global smartphone sales it won from Apple last year, Huawei has continued to grow, leaving Apple further behind and chasing down Samsung for the global crown. This year, the blacklisted company has shipped 200 million smartphones 64 days faster than it managed in 2018pre-blacklist. Huawei targeted 2020 as the year it would overtake Samsung. It remains on course to do exactly that. Samsung is no slouchaccording to Canalys it posted annualised growth of 11% in the third quarter this yearHuawei, though, hit 33%.

So all good on the consumer front, but what about sales of 5G networking equipment. Well, despite the blacklist, Huawei still leads the world. In the first quarter of 2019, despite a relentless U.S. campaign against the company, Huaweis market share was 28%. During the following quarter in which the blacklist was put in place, this increased to 29%. Second-placed Nokia remained a distance behind, at around 16%.

Worse for the U.S., Reuters reported that half of Huaweis 65+ 5G contracts are in Europethe primary international battleground between Washington politicians and Shenzhen execs. A recent EU report warned of the dangers associated with a dominant 5G player from an authoritarian regime. But the two key battlegrounds, Germany and the U.K., remain undecided and could still opt for Huawei. If that happens, it is likely that other markets around the world will follow suit. If key markets, especially the U.K., allow Huawei into their networks, it undermines the U.S. case considerably.

So what went wrong with the U.S. campaign? In a wordChina. Huaweis domestic market has pulled hard enough to make all the difference. Huaweis overall growth was strong, but its performance in China was exceptionala 66% increase catapulting the company to a 42% market share. The company is chasing down an extraordinary 50% market share of the worlds largest smartphone marketa market that has been a recent nightmare for both Apple and Samsung as they struggle to compete. Huawei eased past the $100 billion revenue mark last year for the first time, after a decade of uninterrupted growth. Against the odds, it looks set to do the same this year.

There are three allegations behind the U.S. campaign against Huawei. The first that the company will facilitate espionage or data theft at the behest of Chinas intelligence agencies if asked. The second that the company receives state subsidies at the expense of non-Chinese competitors. And the third that its technologies have been used to help suppress Chinas ethnic minorities, most notably the Uighurs in Xinjiang.

Underpinning Huaweis defense against U.S. claims has been a carefully orchestrated media campaign that was underway before the sanctions were in place. Back in February, at the flagship Mobile World Congress event in Barcelona, Huawei hit back at the U.S. in front of its industry peers. The companys chairman Guo Ping used a keynote speech to remind the world about the cybersecurity controversies emanating from the U.S. entered around the Edward Snowden revelations. As I wrote at the time, the approach has all the hallmarks of a carefully orchestrated line of defense that has been in the works for some timeand its a very good one.

In short, that campaign hasnt stopped since. We have seen a new transparency from Shenzhen, open access to the once reclusive CEO, an open-door policy at HQ, a growing team of Western media and PR professionals drafted in to shape the messages and manage the media. And those messages have focused on innovation, investment, legacy, history and performance. All underpinned by trust, loyalty and consistent denials of any security wrongdoing.

Behind all this has been a darker message, though. Essentially Huawei is offering the world a choice. Take the U.S. line, swallow its tech dominance through the likes of Google, Apple, Microsoft, Amazon, Facebook and Qualcomm. Or push back, dont take it all at face value, and support this leading non-U.S. player as it carves out a new way. The messaging around a replacement for Android itself or a replacement for Google Mobile Services aligns with this. The worlds consumers dont want to move from Google, but in truth no company has offered them a viable alternative in a decade.

Huawei has ridden out the storm. Between its 5G contracts and its smartphone market position it is well protected for another 12-18 months, with perhaps another 10% market share in China on offer to offset any slowing non-China sales. Beyond that, there are one of two paths open to the company. Either Google (and the others) will be returned under Commerce Department licenses, in which case the company will be even stronger, even more of a threat to its competition. Or the blacklist will hold, in which case the company will invest in Huawei Mobile Services and in an app ecosystem to wean millions to its new third way.

Unless there is a significant change in the U.S. stance, this analysis on Huawei will continue back and forth. And the more the company is seen to ride out its sanctions, the more likely the U.S. will trade away more restrictions for trade talk benefits while they still carry some weight. Meanwhile, behind the scenes, U.S. tech giants continue to lobby for a return to business as usual. What is certain, is that there was no expectation that Huawei would field the first six months of its blacklist as well as it has. For the U.S. to campaign this strongly against a commercial enterprise is unprecedentedthe result of that campaign, though, is arguably even more so.

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Huawei Has Defied Trumps Blacklist: So What Happens Now? - Forbes