Which way for Huawei?

Which way for Huawei?

It’s certainly been heating up in the last week for smartphone giant Huawei, as it becomes one of the main targets in a fiery trade war between the US and China. Pressures have been mounting on one of the world’s largest telecommunications equipment and consumer electronics manufacturers, with the politically-charged issues resulting in a ban preventing US companies from trading with certain Chinese counterparts without government approval. For Huawei, who made it onto the unfortunate hitlist, this presents several problems as the company relies heavily on US products and services, particularly mobile device processors and Google’s Android platform. Suddenly this becomes an IP issue as it shows Huawei’s dependence on various third-party technology to both manufacture and operate its popular devices. So, what does this really mean? Are owners of Huawei phones doomed? Should we stop buying any of its products? Well, as with most political issues, it’s not that straightforward.

The clearest IP issue Huawei faces regards its software. Perhaps surprisingly, there may be no noticeable impact to current Huawei device users: that’s because the Android operating system is still largely open source, and therefore anyone can use it, ban or no ban. However, over time the impact may become more prevalent, as Google has committed to discontinue any Google services for new Huawei devices, such as Google Play and other Google apps. In addition, there’s likely to be delays for Huawei when releasing Android updates, as Huawei will no longer receive early access to the software, which currently allows them to modify the software for its own user interface. However, while existing devices may be safe for now, future devices are likely to encounter issues. This is a challenge Huawei is all too aware of, and in response has pledged to continue providing security updates, and in addition is considering developing its own operating system to minimise its reliance on Google’s IP. Going forward, if the devices no longer run Android, the operating system familiar to the majority of the western world, this may have considerable impact on Huawei sales outside China.

Huawei’s IP concerns, however, do not end with software: sourcing quality processors which form the heart of a phone’s hardware is also going to be tricky for the Shenzhen-based corporation. Even though around half of its chips are made in-house and the rest sourced from US chipmakers, it’s been reported that these components are based on technology licensed from ARM, the Cambridge-based semiconductor developer. A number of major manufacturers, such as Samsung, Qualcomm and Apple, utilise ARM’s architecture and designs within their own processors, and it seems that Huawei is also one of the licensees of that technology. Given ARM is a UK company, I would imagine Huawei wasn’t concerned about its use of this core IP for its processors, however recent reports and leaks suggest that ARM has issued internal memos advising that the company should also cease to trade with Huawei. This may be due to some of ARM’s designs containing core IP that originates from the US, or it may be because of the fact that ARM is a global company relying on various relationships and ties with US partners, suppliers and agencies who, no doubt, are all feeling the political pressure.

Huawei’s brief statements have been largely defiant so far, claiming unfair treatment and dismissing any heavy involvement with the Chinese government following allegations that its infrastructure would open a backdoor for Chinese surveillance. The company, spending almost £53bn on components annually, is unlikely to back down without a fight, but it’s safe to say consumer confidence will be hit by the ongoing conflict and potential restrictions placed on millions of devices. Despite Huawei expressing that it expected the ban for some time, and had already began preparing contingency plans, the implications this has on its licensed-in IP are extensive. Going forward, the company may need to focus greater efforts on increasing investment in developing its own proprietary IP, to try to limit the impact on its entire business.

Author: Saj Ali, Senior IP Valuation Manager

Email: saj@metispartners.com

Tel: +44 (0)141 353 3011

 

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