Making Sense of the Huawei Drama

Jack Manning

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You may have heard Huawei, the world’s second biggest smartphone company after Samsung, has become embroiled in an ongoing political imbroglio between the world’s superpowers, America and China. As details emerge quickly and new developments rapidly displace old ones, we will attempt to take a step back and evaluate the tech firm’s current position, and what we can expect looking to the future.

Huawei had been relentlessly capturing market share throughout 2018, overtaking Apple in in the second quarter and selling 208 million handsets. This is particularly remarkable considering the firm has essentially been denied access to the United States market, given governmental weariness of Chinese tech firms. Although not officially banned, US phone networks heed governmental nudges and winks and agree not to work with Huawei. Most European countries, at this juncture anyway, have yet to follow suit.

But mere weariness mutated into outright enmity when Huawei’s Chief Financial Officer, Meng Wanzhou, was arrested in Vancouver on December 1st. The US claimed violations of its sanctions on Iran by Huawei subsidiaries, before moving to request Wanzhou’s extradition to the United States. This submerged Huawei in America and China’s political spat – kindled by Trump’s declaration of a trade war.

Canada chose to uphold a mutual agreement between itself and the US in its detention of the CFO, and so quickly saw retaliation from China. Shortly after the arrest the retrial of Robert Schellenberg was agreed upon, a Canadian convicted for drug smuggling. His first trial had taken Chinese jurors two and a half years to sentence Schellenberg to fifteen years imprisonment. On January 14th, however, the 36-year-old was sentenced to death after the jury deliberated for only about an hour. This is therefore widely acknowledged as a political tit for tat.
On January 28th the drama ratcheted up several notches when US prosecutors filed criminal charges against Huawei. The firm, accused of bank fraud, technology theft and obstruction of justice, denies all allegations. It also refutes American indictments that it is beholden to Chinese government interests, emphasising its sole ownership by Huawei employees. The CEO and founder, Ren Zhengfei, in mid-January insisted he would “definitely” reject any appeal for his customers’ data by Chinese authorities.

All that said, the political and legal entanglement in which the company has become ensnared has had a disastrous impact on its share price (see graph). Although not publicly traded, its share price remains indicative of its reputation with those invested in its competitors and other stakeholders. Its lowest point on January 29 came a day after being formally accused by the US Department of Justice of criminal activity.

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Bad to worse: Huawei share price, 1 month to January 29, 2019.
Source: http://www.marketwatch.com/investing/stock/002502?countrycode=cn

Some believe Huawei is merely caught in the political crossfire between the world’s superpowers as they struggle to trade economic blows. Whatever the case, if the firm survives the rapidly forthcoming legal onslaught it will prove stronger than ever. In the words of Huawei chairman Guo Ping: “Setbacks will only makes us more courageous, and incredibly unfair treatment will drive us to become the world’s number one.” What doesn’t kill them makes them smarter.

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