Potentially putting the squeeze on already constrained supply chains

Nine months after Huawei sold off smartphone subsidiary Honor due to "tremendous" supply chain pressure, Republican lawmakers in the US are seeking to put the squeeze back on the low-end handset biz.

A 14-member GOP Congresscritter group that calls itself the "China Task Force" wrote to Commerce Secretary Gina Raimondo [PDF] last week stating: "The same concerns about technology exports to Honor when it was part of Huawei should apply under its current state-backed ownership structure."

The letter, which described the divestment as "the visible hand of the Party-state interven[ing] to shield Honor from US export controls," claimed that Honor Device was sold off to a consortium whose largest shareholder is the Shenzhen government, adding: "Analysts have noted that selling Honor gave it access to the semiconductor chips and software it relied on and would have presumably been blocked had the divestiture not gone through."

Huawei said at the time of the selloff that the business had been bought by a consortium formed by the Shenzhen Smart City Technology Development Group Co and "more than 30 of Honor's partners, agents and dealers" – which include government-affiliated entities.

It's not super timing for the smartphone brand. First of all, it's launching its Magic3 Series tomorrow, which Honor has confirmed will use Qualcomm's new Snapdragon 888+ 5G chipset.

Huawei's latest gear notably uses the 4G-only Snapdragon 888 chip due to its ongoing presence on the US's Entity List, where it has languished since 2019, when then-president Donald Trump signed an executive order blocking any tech infrastructure transaction by a US firm involving a "foreign adversary". Just a week after the sanctions were announced, US search and Android overlord Google said it would pull Play Store and other services from future shipments of Huawei mobile phones.

The attempt to place Honor on the ban list comes nearly three months after the handset firm seemingly confirmed that it had indeed gained access to Google Mobile Services licences. A since-deleted tweet from the org's German arm appeared to confirm the firm's upcoming Honor 50 smartphone series would carry the proprietary Google Android apps. The 50 series handset has since appeared at a launch in China but has not yet been released internationally. Some have speculated it will appear at the 12 August event, but Honor has not corroborated this.

Geoff Blaber, CEO at tech analyst haus CCS Insight, told The Register: "When Huawei divested Honor there was always a high probability that the US would simply look to extend the entity listing to the new company.

"Should the entity listing be extended to Honor it will make commercial activity in the West extremely difficult. Whilst it may be able to source 4G chipsets, access to Android will be restricted which will severely limit competitiveness."

He added: "Given that the trade stance on China has bipartisan support, these developments are of little surprise."

The Biden government has not sought to undo the previous administration's assessment of Huawei as a security "risk", confirming Huawei's worst fears over what it sees as a "bi-partisan dislike of China."

The Commerce Department's Raimondo, a Biden pick, told senators in February this year she saw no reason to lift "curbs" on Huawei. Both it and fellow Chinese firm ZTE are deemed by the US to be "national security threats". A bipartisan bill last year handed up to $1.9bn in compensation for telcos forced to rip and replace Huawei and ZTE gear from US networks.

Canalys analyst Ben Stanton has warned that component supply bottlenecks will at any rate hit the growth potential of smartphone shipments this year. He said in June that "backorders" were building, adding: "The industry is fighting for semiconductors, and every brand will feel the pinch."

That goes even more so for Huawei, which reported a massive 38 per cent fall in its quarterly revenues on Friday. It reported H1 2021 revenue of ¥320.4bn ($49.56bn), down from H1 2020 revenues of ¥454bn ($70bn), but perhaps more strikingly, second-quarter revenue for three months ended June of ¥168.2bn ($26bn), down from ¥271.8bn in the same quarter a year ago. It's a far cry from Q2 2020, when Huawei shipped more smartphones worldwide than any other vendor, even Samsung, which shipped 53.7 million to Huawei's 55.8 million devices. 

Nicole Peng, Canalys analyst, said the company's component shortage means that Huawei's smartphone sales are likely to remain at a low level for the foreseeable future.

Chinese smartphone vendor Xiaomi has notably grown its global shipments by a whopping 83 per cent, from 28.8 million in Q2 2020 52.8 million. By contrast, Apple has managed a measly 1 per cent growth, from 45.1 million to 45.7 million shipped globally, so there's everything to play for.

We have asked Honor and Huawei for comment. ®

https://www.theregister.com/2021/08/11/honor_entity_list_letter/