In May, the Trump administration initiated a trade ban against Chinese technology giant Huawei. As a result, the firm lost access to crucial U.S. component and software suppliers like Intel and Google. Subsequently, the firm’s CEO and founder Ren Zhengfei proclaimed that the company was entering a “live or die” phase which would determine its long-term viability.
Six months later, Huawei has defied its critics by not only living but thriving. Indeed, the company has brought in record revenues this year despite the disruption to its supply chain. Reuters reported that the firm is issuing $286 million in bonuses to the 190,000 employees who stayed loyal during the crisis.
Huawei’s human resources department is reportedly rewarding its sizeable workforce’s dedication with an extra month’s pay this year. Besides, the firm is also providing its research and development staffers who are in good standing with an additional bonus.
In an internal document, the company acknowledged the extraordinary challenges it faced in 2019. As the firm lost its leading semiconductor vendors, its R&D division has scrambled to fabricate or locate replacement chipsets.
The Sino conglomerate’s staffers have thus far proven successful in their sourcing efforts. In the third quarter, the corporation shipped 66.8 million units.
Furthermore, Huawei has been able to spin the Trump administration’s blacklisting into a successful marketing campaign. The company has worked with its retail partners to brand its products as the preferred gadgets of Chinese patriots. As a result, the firm increased its Q3 2019 sales by 29 percent year-on-year.
One factor that allowed Huawei to weather its blacklisting is that it’s benefited from loopholes in American trade policies. When the U.S. Department of Commerce placed Huawei on its Entity List, it forbade American companies from doing business with the Chinese firm. However, companies like Qualcomm and Micron have still been able to supply Huawei with non-essential components.
Consequently, many U.S.-based semiconductor makers have avoided entirely losing out on Huawei’s $11 billion in annual component spending. Conversely, the Sino corporation hasn’t had to shut down the production of one of its most lucrative segments.
That said, the Trump administration has recently offered mixed statements regarding the status of the U.S.-China trade war.
On one hand, the federal government has indicated that a new trade agreement with the Asian superpower is imminent. Moreover, the Commerce Department said that it would begin issuing licenses that allow American firms to resume trading with Huawei “very shortly.” Conversely, President Trump recently said that he would substantially increase tariffs on Chinese made goods if Beijing doesn’t agree to his terms.
If the trade agreement between the U.S. and China falls apart, Washington’s new import taxes will make it harder for Huawei to buy American semiconductors. Moreover, the Commerce Department might reverse its statements and continue refusing to issue trade licenses.
As resourceful as Huawei’s R&D teams are, even they will struggle to compensate with a surge in the cost of materials and an increasingly constrained supply chain.