June 25, 2019
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US plans temporary exemptions to Huawei blacklist

By John D. McKinnon in Washington, Dan Strumpf in Hong Kong and Yoko Kubota in Beijing.

May 21 (efe-epa).- US officials said Monday they would grant a handful of temporary exceptions to an export blacklist against Huawei Technologies Co., giving some suppliers and customers of China's telecom giant a 90-day reprieve from tough trade penalties, according to a Dow Jones report supplied to EFE.

In an order scheduled to be published on Wednesday, the Commerce Department said it would grant a temporary license for US exports to Huawei and dozens of its affiliates. The US announced the blacklist order last week on grounds that Huawei was a national security threat.

The reprieve comes hours after Alphabet Inc.'s Google unit signaled plans to cut access to some of its most-popular features on new Huawei smartphones. The move late Monday put a hold on those plans, according to a person familiar with the matter.

The reprieve for Huawei eases tensions between the US and China as both countries seek to get trade talks back on track. Shutting off Huawei's access to US components without exceptions would be a devastating blow to the company.

The exceptions show the blacklist order has "always been for leverage in the trade talks," said Derek Scissors, an American Enterprise Institute scholar.

The reprieve also could help the US as it seeks to persuade allies around the world to ban Huawei gear from their networks, by limiting the immediate global disruptions from the US blacklist.

The effect of the new license is to create relatively narrow but significant exceptions to last week's tough export ban, allowing US suppliers to begin figuring out how to move forward under the export ban, without unduly disrupting their contracts, or existing networks.

"The Temporary General License grants operators time to make other arrangements and the Department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services," said Secretary of Commerce Wilbur Ross. "In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks."

The temporary reprieve isn't a huge positive for Huawei, but it does give US businesses some time to get their affairs in order, said Michael Allen, a managing director at Beacon Global Strategies LLC, which is advising clients on the issue. "It's a temporary stay of execution," he said.

Last week's blacklist order said that US firms generally could no longer export chips or other technology to Huawei, unless they obtained an individual license from Washington, and few were expected to be granted.

One beneficiary of the new temporary license appears to be rural wireless carriers in the US, many of which still use Huawei equipment. They had worried that the blacklist could hurt their operations by limiting their ability even to communicate with Huawei about their networks.

But the scope of the exceptions isn't limited to rural carriers and applies to other networks that depend on Huawei gear. The exceptions also cover support to existing Huawei handsets that were available to the public on or before May 16, the day the blacklist became effective.

In advance of the temporary order, Google and other companies that provide parts or services to Huawei planned potentially disruptive changes. Huawei phones run on Google's Android software, and the US company was set to cut off new Huawei handsets from software updates to popular branded apps like Gmail and Maps. Independent apps, such as video-streaming services, weren't expected to be affected.

The inability to use Google apps would be a big hit to Huawei, said Melissa Chau, an analyst at International Data Corp. "Google apps are incredibly important to a company like Huawei, which is deeply reliant on smartphone shipments outside of China, and representing half of its global shipment figure," she said. Ms. Chau said it was of "critical importance to have this resolved as soon as possible."

In response to the Commerce Department announcement, Semiconductor Industry Association President and Chief Executive Officer John Neuffer said his group hoped to work with the Trump administration to broaden the scope of exemptions to advance "US security goals in a manner that does not undermine the ability of the US semiconductor industry to compete globally and ensures the economic security of an industry that is the backbone of this country's technology leadership."

Moving forward, Huawei will be able to use only the public version of Android and won't have access to proprietary apps and services from Google, according to a person familiar with the matter. Though existing phones are expected to keep functioning largely as usual for now, users could lose some app functions, including some artificial-intelligence and photography features, the person said.

In a separate move, German chip maker Infineon Technologies AG said it was terminating the delivery to Huawei of some components originating in the US, in a sign that even non-US suppliers to Huawei are being swept up in the US trade restrictions. Infineon didn't specify which components were affected by the action but said the "great majority" of products it sells to Huawei aren't subject to trade restrictions.

Qualcomm Inc., based in San Diego, has suspended shipments to Huawei of its chips, and some employees have been told not to communicate with the Huawei side, according to a person familiar with the matter. Qualcomm chipsets are used in certain Huawei smartphone models. Huawei also designs a large number of its own chips for higher-end phones.

Lumentum Holdings Inc., which makes optical components for smartphones, said it was stopping shipments to Huawei. In fiscal 2018, the company generated about 11 percent of its revenue from sales to Huawei.

Lumentum altered its fiscal fourth-quarter guidance to reflect the halt, now expecting revenue of between $375 million and $390 million, down from a range of between $405 million and $425 million. It expects adjusted per-share profit of 65 cents to 77 cents, down from 85 cents to $1.

Xilinx Inc. said it also has begun complying with the Trump administration's order. The ban on shipments to Huawei could shave about $300 million off the chip maker's annual revenue for the calendar year, Christopher Rolland, an analyst at Susquehanna International Group, wrote in a research note. Xilinx is expected to record $3.43 billion of revenue this year, according to analysts surveyed by FactSet.

The US also granted a similar but broader reprieve to ZTE Corp. after it violated US trade sanctions against Iran. Huawei now faces its own US charges of sanctions violations. US officials also regard its network equipment as a security risk, fearing the Chinese government might use it for espionage or sabotage. Major US carriers stopped using Huawei gear several years ago.

Other exceptions to last week's tough export ban will cover disclosures of cybersecurity vulnerabilities; and engagement with Huawei for development of international standards on next-generation 5G.

dj/ks

Related content

Huawei says US ban will not affect company's 5G plans

Beijing, May 21 (efe-epa).- The founder and CEO of Chinese tech giant Huawei denied Tuesday that restrictions imposed by the United States on its products and supplies will affect the roll-out of 5G technology.

In an interview with Chinese state media, Ren Zhengfei said that the decision by some American tech companies to stop selling components and software to Huawei "doesn't mean much" and added that the company was already prepared to deal with the ban.

"We can make chips as good as those made by US companies, but it does not mean that we will not buy chips from them," Ren said.

Huawei's founder acknowledged that the clash with the US was inevitable owing to the company's interest in becoming one of the global leaders of the 5G technology and said that "others will definitely not be able to catch up with Huawei in 5G technologies for two or three years."

"But in our business (5G), Huawei is at the forefront, though when it comes to comparison between countries, we are still far behind the United States," he added.

The Huawei executive also said that his company will not exclude US chips and that Huawei was "very grateful" to the US companies including tech multinational IBM.

"Instead, we should grow together. But if there is a supply shortage, we have a backup. In the "peace period", half of our chips are from the US companies and half from Huawei. We cannot be isolated from the world," he said.

When asked by reporters how long the crisis surrounding the company would last, Ren said the question should be directed at US President Donald Trump.

"Blame should be directed at US politicians, not companies,” he said.

Ren's remarks come a day after the US Department of Commerce issued a temporary general license lifting the ban on Huawei and its subsidiaries to prepare for a transition.

The department said in a statement that the decision was taken to grant "operators time to make other arrangements and the Department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services."

Last week, the US included Huawei in a list of companies and individuals that would be denied access to US technologies.

As an outcome of this ban, Alphabet, Google's parent company, has revoked Huawei's Android license, which means the Chinese telecom giant will lose access to updates to the Android operating system except those available through an open source license and also no longer have access to Google's proprietary services such as Google Maps.

Huawei on Monday said it "will continue to provide security updates and after-sales services to all existing Huawei and Honor smartphone and tablet products, covering those that have been sold and that are still in stock globally.

"We will continue to build a safe and sustainable software ecosystem, in order to provide the best experience for all users globally," the company said in a statement.

US semiconductor companies such as Intel, Qualcomm, Xilinx Inc and Broadcom and Germany's Infineon Technologies as well as American chip manufacturing firms including Micron Technology and Western Digital will also stop supplying components to Huawei in compliance with Trump's order, which could delay the global roll-out of 5G networks.

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