Tech news roundup: GDPR turns 1, and who makes the best apps?
Karen Roby reports on this week’s biggest tech news, which includes Huawei’s Android license and GDPR’s one-year anniversary, as well as what Microsoft says about a potential version of the law in the US.
The US Commerce Department’s Bureau of Industry and Security recently placed Asian telecommunications and consumer electronics giant Huawei and all of its subsidiaries on an “Entities List,” which prohibits American companies from exporting specified items — namely technology products and software — to the Chinese firm.
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This punitive action against Huawei comes after more than a year of speculation about when the Trump Administration would step up its efforts to impose sanctions on high-profile Chinese companies deemed to be security threats to the US. And it’s a result of an investigation and indictments related to corporate espionage, wire fraud, and intellectual property theft.
While Chinese companies such as Huawei have not been conclusively proven to have spied on American citizens using their products, this escalation is thought to provide fuel for ongoing trade negotiations with China, which have been stalled between the two superpowers for some time.
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Last year, Chinese firm ZTE, which manufactures smartphones and other consumer electronics, was temporarily added to the list as a result of violating export sanctions to Iran and North Korea.
To produce its products, ZTE purchased components from US companies, such as microprocessors and baseband cellular radio chips from Qualcomm and software from Google. As a result of reselling their products containing US components to Iran and North Korea, it was fined $1.4 billion, forced to make sweeping changes to its executive roster, and is under an ongoing audit by a US compliance team. Still, this was better than the alternative: Permanent placement on the Entities List and potential financial ruin.
Huawei, however, is not ZTE. It’s a much larger company with much more significance to China’s economy, being the nation’s largest telecommunications manufacturer and one of its largest consumer electronics firms.
It’s comparable to South Korea’s Samsung in that it is an Original Equipment Manufacturer (OEM) that maintains its chip manufacturing capability and component supply chain, and it has acted in the past as a subcontractor for producing products for American companies such as Google. It is also one of the world’s leading manufacturers of 4G and 5G equipment for telecommunications carriers, second only to Qualcomm in the US.
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The implications for Huawei are severe
The ban means that Huawei will lose its ability to license Google’s commercial components for Android — the Play Services — relegating the company to use the open-source version of the operating system (minus the Play Store and all of the Google Apps). It also prohibits any Android application or software component produced by a US-based firm from being sold to Huawei for pre-load (such as Microsoft’s Office 365 or Amazon’s apps) or inclusion in its own Huawei App Gallery.
It also impacts its laptop business — Intel (and AMD) is now prohibited from selling x86 chips to the company, and while Microsoft has not made any announcements about it yet, it also means Huawei can no longer license Windows 10 from Redmond either. Microsoft has already removed Huawei’s laptops from its online store.
Huawei doesn’t have much recourse, at least as it relates to being able to do business outside its native Chinese market (it doesn’t currently use Google Play in China for political considerations).
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It makes its smartphone chips under the HiSilicon subsidiary as an architectural licensee of the British company ARM Limited, which makes them less vulnerable than ZTE in that regard, but without Google’s Play Services, the commercial viability of its smartphones becomes a significant concern.
In 2014, Amazon released a smartphone, the Fire Phone, using the open-source implementation of Android, along with its modifications and app store. It failed to make any inroads whatsoever — and this was without being on any Entity List at all. While AT&T carrier exclusivity and the price stalled acceptance of the product in the consumer space and eventually led to its failure, the biggest complaint about the device was limited application availability from third-party developers and lack of Google Play apps such as Gmail and Google Maps.
Huawei’s alternative options
Regardless of commercial viability, because of the availability of open-source implementations of Android, Huawei can produce its own Android-derived or Linux-derived OS, and it can undoubtedly provide ARM-based laptops (presumably running on its own Linux distribution and not Windows) — as long as it is still permitted by the British government to be a licensee.
That said, UK treaty obligations with the US appear to have put that ARM architectural licensing in jeopardy, and it may prohibit other technology and software companies in the UK, and the EU from participating in any Huawei-based software developer ecosystem should the company try to build its own outside of China.
While Huawei produces its 4G and 5G carrier equipment, it does purchase enough components from US manufacturers, such as Qualcomm, Xilinx, and Broadcom, that this is likely to severely impact the company’s ability to fulfill orders for those products for some time to come. And if Huawei has genuinely lost its ARM architectural license, it has vast implications for global 5G adoption because the company also uses ARM-based designs in its carrier equipment.
But if the situation continues to deteriorate between the US and China, it’s possible all these firms could be barred access to purchasing and licensing US technology because most of them maintain some ties with the Chinese government — this is just how business is done in that country. That leaves Korean, Japanese, and Taiwanese firms as potential alternatives to supply technology to the western market.
There is no easy extrication from China
A significant shift toward doing business with Taiwan, of course, comes with its own set of problems, because it is a political minefield in Sino-US relations. China considers it to be a rogue province, and under the One-China principle, has always maintained a policy that it would one day be reunified with the mainland.
Additionally, Taiwanese firms such as Hon Hai Precision Manufacturing — also known as Foxconn, a primary manufacturer for Apple, Google, and many other American technology firms — utilize plants in mainland China. And many Japanese companies have undergone considerable Chinese investment and use Chinese manufacturing capability. Japan’s SHARP, for example, was bought by Foxconn in 2016. Through the SHARP acquisition, Foxconn also bought Toshiba’s laptop division in 2018.
So, there is no easy extrication from China as a manufacturing partner. If it is genuinely in the national security interests of the US and the business interests of US corporations to find other countries to do business with to produce consumer electronics and other durable goods, it is going to be a long and challenging process. There are other countries besides Korea and Taiwan that are potential landing zones for companies like Apple to manufacture their products, such as India, Indonesia, Vietnam, Mexico, and Brazil — but it could easily take a decade to bring these countries up to the same level of sophistication and readiness to make a complete shift.
The immediate concern is how China itself will retaliate, which may include significant tariffs or potentially other kinds of trade penalties against major American companies that would ultimately be passed down to consumers in the US as well as other western consumers. The only saving grace is that doing this would likely cause as much economic harm to them and their own companies as it would do to us. So, for now, the world holds its breath and waits for the other shoe to drop.
Will US sanctions end with Huawei, or will other Chinese technology firms join the Entities List? Talk Back and Let Me Know.
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