US hits at Huawei innovation with blacklist of R&D centres

US hits at Huawei innovation with blacklist of R&D centres

Washington has blacklisted more than 20 per cent of Huawei Technologies’ global R&D and innovation centres in its latest crackdown on the Chinese tech giant, striking at the heart of the company’s ability to innovate.

At least 11 of Huawei’s key research facilities, including sites in the UK and Italy, were named on a new list of 46 affiliates with which US companies cannot trade unless they have Washington’s approval.

The new blacklist was published last week as the US Commerce Department extended a 90-day grace period for the world’s largest telecom equipment maker to continue buying certain products and services from US companies.

The decision to target research facilities intensifies the pressure on China’s flagship technology company as it copes with the first blacklist imposed by Washington in May. More than 100 Huawei affiliates are now barred from trading with US companies. Previously, only one research centre in Belgium had been blacklisted.

“It shows that the US government is expanding the scale of its clampdown on the company,” said Chiu Shih-fang, a veteran tech analyst at the Taiwan Institute of Economic Research. The blacklisting could slow Huawei’s research and development capability if these facilities lose access to US technologies, the analyst said.

Being on the blacklist “limits [Huawei’s] ability to acquire US technology”, said Dan Wang, technology analyst at Gavekal Dragonomics. “The deadline extension is not an indication that the US government intends to relax its controls.”

The 11 newly listed research sites include Huawei’s Milan institute and the Centre of Integrated Photonics in the UK. The Milan centre was Huawei’s first global research facility, according to its website, and employs one of the company’s most noted scientists, Renato Lombardi, to study microwave technology used in mobile and satellite communication. The UK facility specialises in developing photonics devices.

This article is from the Nikkei Asian Review, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

Subscribe | Group subscriptions

The other blacklisted research centres are in China, including a Beijing institute that Huawei claims is the world’s largest router testing facility, and the Chengdu Research Center, where it develops storage technology.

Huawei criticised the Commerce Department’s action as politically motivated. Washington’s attempt “to suppress Huawei’s business won’t help the United States achieve technological leadership”, the company said.

Nevertheless, the move represents a blow to the tech group, which had earmarked Italy and the UK for billions of dollars in new investment to expand its research facilities.

Huawei’s relentless focus on research and development has set it apart from many rivals, helping to drive the group’s rapid expansion of its telecom and smartphone businesses. R&D is also crucial in the company’s effort to be self sufficient, reducing its reliance on US technology.

Nearly 90,000 employees are involved in R&D, around 45 per cent of Huawei’s total workforce. Its R&D spending of Rmb101.5bn ($14.37bn) was equal to 14.1 per cent of its revenues last year. The company has invested more than Rmb480bn in R&D in the past 10 years, Huawei data show.

The group has 15 research centres and 28 centres of expertise worldwide, according to Explorers: Huawei Stories, a book published by the company in late 2017.

The US said the new blacklist had been necessary to ensure that the previous constraints it had imposed were effective. “The Department of Commerce added the [additional] affiliates to stop Huawei from trying to circumvent the sanctions,” said Timothy Heath, senior international defence researcher at RAND Corp. “This action will further restrict Huawei’s ability to access banned US technologies and services.”

The US also appears to be broadening the scope of its campaign against the company’s technology, for the first time urging “consumers to transition away from Huawei equipment” in a statement from Commerce Secretary Wilbur Ross.

Until now, Washington had flagged Huawei’s telecom equipment as a threat to national security but refrained from appearing to target its smartphones or other consumer electronics.

President Donald Trump called Huawei a national security threat and said the US might not do any business with the company, a U-turn from his statement during the Group of 20 summit in June that he would allow US companies to ship products to Huawei.

Ross Darrell Feingold, a lawyer and political risk consultant, said it was inevitable that the US government would discourage consumers from buying Huawei handsets. The US would not easily give up its restrictions on the massive tech company, one that symbolises China’s rapid technological development, he said.

“Even if the US and China reach a trade deal in the near or medium term, Huawei’s status in the view of the US government is now a long-term matter,” Mr Feingold said. “The Trump administration’s ‘whole of government’ approach toward China means there are numerous, multiple pressure points across trade, academia, military deployments . . . Huawei is one among the [many] pressure points the US applies on China.”

A version of this article was first published by the Nikkei Asian Review on August 21 2019. ©2019 Nikkei Inc. All rights reserved.

Related stories

Source link