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Huawei Warns Trump's Ban Might Wipe Out $30 Billion of Sales Growth

Bloomberg News
Huawei Warns Trump's Ban Might Wipe Out $30 Billion of Sales Growth

(Bloomberg) -- Huawei Technologies Co. founder Ren Zhengfei expects U.S. sanctions to curtail its revenue by about $30 billion over the coming two years, wiping out the networking giant’s growth by withholding critical American technology.

Sales at China’s largest technology company will likely remain stagnant at about $100 billion in 2019 and 2020, the billionaire said during a panel discussion, quantifying for the first time the hit from a plethora of Trump administration restrictions. Huawei however will aim to maintain its research and development budget and refrain from layoffs or major asset sales. The sale of a majority slice in Huawei Marine -- announced in June -- was a business decision that was unrelated to America’s campaign against the company, the 74-year-old chief executive officer added.

Ren said Monday he was surprised at the extent to which Washington has attacked his corporation. Huawei is said to be preparing for a fall of as much as 60% in overseas smartphone shipments, as Google cuts it off from Android updates and apps from Gmail to Maps. The founder has conceded that Trump administration curbs will cut into a two-year lead it’s painstakingly built over rivals like Ericsson AB and Nokia Oyj.

“We didn’t expect the U.S. would so resolutely attack Huawei. We didn’t expect the U.S. would hit our supply chain in such a wide way -- not only blocking the component supplies, but also our participation in international organizations,” Ren told the panel in a broadcast from Huawei’s home city of Shenzhen. “That will make our revenue for this and next year around $100 billion.”

Ren has struck a defiant tone in the face of U.S. sanctions that threaten his company’s very survival. At the heart of Trump’s campaign is suspicion that Huawei aids Beijing in espionage while spearheading China’s ambitions to become a technology superpower. It’s been accused for years of stealing intellectual property in lawsuits filed by American companies from Cisco Systems Inc. and Motorola to T-Mobile US Inc. Critics say such theft helped Huawei vault into the upper echelons of technology -- but Ren has laughed off that premise.

The U.S. on May 17 blacklisted Huawei and cut it off from the U.S. software and components it needs to make its products. The ban hamstrings the world’s largest provider of networking gear and No. 2 smartphone vendor just as it was preparing to vault to the forefront of global technology. It’s rocking chipmakers from America to Europe as the global supply chain comes under threat. The ban could also disrupt the rollout of 5G wireless globally, undermining a standard that’s touted as the foundation of everything from autonomous cars to robot surgery.

But Huawei has also said it will ramp up its own chip supply and find alternatives to keep its edge in smartphones and 5G. His company today generates more sales than internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. combined. In 2018, Huawei overtook Apple in smartphone sales, a triumph that burnished Ren’s tech credentials.

“We didn’t expect the damage to be this serious. We did make some preparations, like the damaged plane I talked about. We only protected the engine and fuel tanks, but failed to protect other parts,” he told author-investor George Gilder and MIT Media Lab founder Nicholas Negroponte, who both agreed the U.S. was making a mistake in singling Huawei out.

Ren, who survived Mao Zedong’s great famine to found Huawei in 1987 with 21,000 yuan, has said Huawei will do whatever it takes to survive. He has gone from recluse to media maven in the span of months as he fights to save the $100 billion company he founded. He emerged from virtual seclusion after the arrest of eldest daughter and Chief Financial Officer Meng Wanzhou as part of a broader probe of Huawei.

Ren has since become a central figure in a U.S.-Chinese conflict that’s potentially the most important episode to shape world affairs since the collapse of the Soviet Union. As Ren said in January, when the world’s biggest economies battle for dominion, nothing in their way will survive. His company is a “sesame seed” between twin great powers, he has said.

The CEO has had much to deal with of late. His company finds itself under fire, besieged by a U.S. effort to get key allies to ban its networking equipment. The U.S. assault helped crystallize fears about Huawei’s growing clout in areas from wireless infrastructure and semiconductors to consumer gadgets.

Then came the blacklist. Huawei appears to have anticipated this possibility since at least mid-2018, when similar sanctions threatened ZTE Corp. Huawei’s said to have stockpiled enough chips and other vital components to keep its business running at least three months. Ren on Monday said Huawei doesn’t implant backdoors in its products and that it remained willing to sign a “no-backdoor agreement” with the world if necessary.

“We will be reborn by 2021,” Ren said.

(Updates with more of Ren’s comments from the second paragraph.)

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan, Colum Murphy

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