Last month, the U.S. government escalated its trade war with China by barring American companies from doing business with Shenzhen-based electronics giant Huawei. As a result, the firm lost access to the software and components provided by companies like Google and Intel. Now, the South China Morning Post reports that Foxconn has suspended production on the corporation’s handsets.
Huawei’s Production Freeze
On June 1, the Taiwanese manufacturer shut down several of the production lines it uses to make Huawei smartphones. Foxconn did so because the device maker has seen a significant drop in its mobile electronics orders. The Chinese conglomerate’s agreement with the fabricator accounts for changes within its production schedule.
The South China Morning Post was unable to determine if the production freeze is temporary.
Earlier this year, Foxconn launched a recruitment drive to facilitate a recent spike in Huawei’s mobility business. Indeed, the telecommunications company overtook Apple for the first time in Q1 2019 to become the world’s second-largest smartphone maker. However, the corporation’s robust performance was due in large part to its surging international business. Following the Trump Administration’s blacklisting of Huawei, its foreign sales took a sizable hit.
Notably, wireless carriers in the United Kingdom and Japan delayed the launch of new Huawei handsets due to security concerns. Washington stated its blacklist of the Chinese conglomerate was due to its status as a threat to national security. For the past year, the American intelligence sector has maintained Huawei’s connections to the Chinese government makes its products vulnerable to subversion.
Huawei told the South China Morning Post its global production levels were normal, but its executives have publicly suggested otherwise. On May 31, Zhao Ming, the head of Huawei’s Honor subsidiary, told the press recent events had changed the company’s 2020 Outlook.
In March, the firm’s mobile chief, Richard Yu Chengdong, said the company intended to unseat Samsung as the world’s predominant mobile device maker next year. Zhao said it’s now “too early” to tell if the company can deliver on its earlier forecasts. The Chinese tech giant’s newfound circumspection suggests it is adjusting to the full effects of the U.S. blacklist.
As an example, the American ban also threatens the company’s national ambitions as well as its global plans. Two months ago, Chengdong said his firm was on course to have a 50 percent market share in China’s smartphone market. But without access to Android, the firm will have to load its new handsets with an unsupported open-source version of the Google operating system.
Furthermore, with Intel, Qualcomm, Broadcom, and Xilinx cutting ties with the corporation, it will be hard-pressed to source new components when its current inventory is exhausted. Huawei now has to deal with introducing its Chinese customer base to a new operating system and a potential hardware shortage.
Potential Next Steps
In response to America’s broadsides, Huawei has adopted a two-pronged strategy. On the one hand, the firm has taken legal action to push back against the government’s blacklist. The company’s arguing that Washington has declared it a threat to national security without due process. While the firm might be able to make some headway with its claims, the court won’t hear its case until September.
On the other hand, Huawei looks like its planning to abandon its U.S. operations. Before it became a target of the federal government, the company intended to help build America’s 5G network infrastructure. But the Trump Administration has issued executive orders barring it from participating in the project.
Late last month, the corporation seemingly responded by repatriating Americans who worked in its Shenzhen headquarters. The firm also ordered its Chinese workers to cancel meetings they had with their U.S. contacts.
Because of its recent record-breaking financial performance, Huawei has the resources to withstand a temporary production freeze. But by all indications, it’s time as a global enterprise is swiftly coming to an end.