U.S. Government Attempts to Strangle Huawei; China-U.S. Trade War likely to Accelerate into HYPER-DRIVE mode

On Friday, the U.S. government said it would impose export restrictions designed to cut off Chinese tech giant Huawei Technologies Co. from overseas suppliers, threatening to ignite a new round of U.S.-China trade tensions.  The U.S. Commerce Department said its new sanctions would “narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.”

These new restrictions stop foreign semiconductor manufacturers whose operations use U.S. hardware, software and technology from shipping products to Huawei without first getting a license from U.S. officials, essentially giving the U.S. Commerce Department a veto over the kinds of technology that Huawei can use.

The restriction further tightens the U.S. export-control system’s existing rules related to Huawei. Washington alleges that Huawei gear could be used by Beijing to spy globally, which Huawei has repeatedly denied.

A logo of Huawei retail shop is seen through a handrail inside a commercial office building in Beijing.

Photo credit: Andy Wong, Associated Press

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U.S. Commerce Secretary Wilbur Ross said Friday that Washington wants to prevent Huawei from evading sanctions imposed earlier on its use of American technology to design and produce semiconductors abroad.  “There has been a very highly technical loophole through which Huawei has been able, in effect, to use U.S. technology with foreign fab producers,” Ross said in an interview on Fox Business Network. He said the changes announced Friday were tailored moves “to try to correct that loophole and make sure that the American fab foundries are competing on an equal footing with the foreign ones.”

Also on Friday, a senior administration official said there were “legal, human rights, and strategic rationales” for the actions against Huawei. Those included Huawei’s alleged theft of intellectual property and aid in developing surveillance technology and new weapon systems, the official said.

Under the new rules, the department can block the sale of semiconductors manufactured by Taiwan Semiconductor Manufacturing (TSMC) for Huawei’s HiSilicon subsidiary, which designs chips for the company, as well as chips and other software produced by manufacturing facilities in Taiwan, China and South Korea, which use American chip-making technology. The Commerce Department already had the ability to license software shipments from U.S.-based facilities.

Companies can apply for a license to continue supplying tech products to Huawei, but the administration said the presumption would be to deny those requests.

John Neuffer, the president of the Semiconductor Industry Association, which represents chip makers, said his group was concerned that the rule would “create uncertainty and disruption for the global semiconductor supply chain.” He added, however, that it appeared less damaging than broader approaches the administration had previously considered.

Huawei had no immediate comment.

China’s foreign ministry, in a statement, urged the U.S. to immediately halt “its unreasonable suppression against Huawei.”

“The U.S.’s practices not only harm the legitimate rights and interests of Chinese enterprises, but also do not accord with the interests of U.S. enterprises, and cause damage to the global industrial chain, supply chain and value chain,” it said.

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On Sunday, China’s commerce ministry said it will take “all necessary measures” in response to new U.S. restrictions on Chinese tech giant Huawei’s ability to use American technology, calling the measures an abuse of state power and a violation of market principles.

An unidentified spokesperson quoted Sunday in a statement on the China ministry’s website said the regulations also threatened the security of the “global industrial and supply chain.”

“The U.S. has utilized national power and used the so-called national security concern as an excuse, and abused export controls to continue to suppress some particular companies in other countries,” China’s commerce ministry said in today’s statement.

“China urges the U.S. to immediately cease its wrong actions,” the ministry added, calling the restrictions a “serious threat to global supply chains.”

China’s retaliation could take the form of restrictions on U.S. tech firms (Qualcomm, Apple. Intel, Nvidia, AMD, Broadcom, Cisco, even Boeing) selling their products in China.

Victor Gao, vice-president of the Centre for China and Globalisation, a Beijing-based think tank, said there were many ways in which China could retaliate for the new restrictions on Huawei, including selling its huge holdings of U.S. treasury bonds or halting any future purchases, and tightening its controls on Apple products.

“For example, if Beijing declared that all Apple products made in China had to be inspected, which would delay their shipment, in three months, Apple would be dead,” he said.

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China’s state-run newspaper reported on Sunday that the Chinese government was ready to retaliate against the U.S..  The source, who is described as close to China’s government, told the state-run Global Times that China was planning countermeasures, such as “imposing restrictions” against U.S. companies like Apple, Cisco, and Qualcomm. The source also suggested the possibility of China halting Boeing airplane purchases.

“China will take forceful countermeasures to protect its own legitimate rights” if the Trump administration goes ahead with the plan to block essential suppliers of semiconductors from selling those components to Huawei.

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Backgrounder:

U.S. government officials have repeatedly accused Huawei of stealing American trade secrets and aiding China’s espionage efforts, ramping up tensions with the rival superpower while both sides were involved in a long-simmering trade war.

As a result, Huawei has increasingly relied on domestically manufactured technology, but the latest rules will also ban foreign firms that use US technology from make semiconductors to Huawei without US permission.  The new restrictions will cut off Huawei’s access to one of its major suppliers of semiconductors- Taiwanese chipmaker TSMC (world’s largest silicon foundry).

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May 18th UPDATE:

Huawei on Monday assailed the latest U.S. move to cut it off from semiconductor suppliers as a “pernicious” attack that will put the Chinese technology giant in “survival” mode and sow chaos in the global technology sector.

“The decision was arbitrary and pernicious and threatens to undermine the entire (technology) industry worldwide. This new rule will impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries,” Huawei said in a statement.

The ban also went against the US government’s claim that it is motivated by network security, the company said.

“The US is leveraging its own technological strengths to crush companies outside its own borders. This will only serve to undermine the trust international companies place in US technology and supply chains. Ultimately, this will harm US interests,” said Huawei.

https://www.globaltimes.cn/content/1188683.shtml

 

 

References:

https://www.wsj.com/articles/u-s-moves-to-cut-off-chip-supplies-to-huawei-11589545335

https://abcnews.go.com/US/wireStory/china-warns-us-measures-huawei-rules-70728162

http://www.globaltimes.cn/content/1188491.shtml

https://mashable.com/article/china-us-retaliation-huawei/

https://www.scmp.com/economy/china-economy/article/3084710/china-hits-back-americas-unreasonable-suppression-huawei

U.S. government in talks with Intel, TSMC to develop chip ‘self-sufficiency’

The coronavirus pandemic has underscored longstanding concern by U.S. officials and executives about protecting global supply chains from disruption. Administration officials say they are particularly concerned about reliance on Taiwan, the self-governing island China claims as its own, and the home of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip manufacturer and one of only three companies capable of making the fastest, most-cutting-edge chips (the two other foundries are Samsung and Intel).

Officials from the U.S. government are in talks with Intel and Taiwan Semiconductor Manufacturing to build chip factories in the U.S., the Wall Street Journal reported, citing sources familiar with the matter. The U.S. government believes the pandemic showed how reliant the U.S. is on Asian factories and it now wants to promote more tech self-sufficiency.

“The administration is committed to ensuring continued U.S. technological leadership,” a senior official said in a statement. “The U.S. government continues to coordinate with state, local and private-sector partners as well as our allies and partners abroad, to collaborate on research and development, manufacturing, supply-chain management, and workforce development opportunities.”

HiSilicon, owned by Huawei, is a fabless semiconductor company which doesn’t have its own manufacturing plant. It relies on foundry companies like Taiwan Semiconductor Manufacturing Co. to make its chips. The Trump administration is preparing rules that could restrict TSMC’s sales to HiSilicon. Huawei may be storing up chip inventories in anticipation of such tighter restrictions. Huawei may shift some of its orders to Chinese foundry Semiconductor Manufacturing International Corp. (SMIC), but technology there still lags behind industry leaders like TSMC and Samsung.

Ultimately SMIC’s capabilities could be hampered if the Trump administration decides to dial up the pressure in its campaign against China. The Commerce Department said last week that it would expand the list of U.S.-made products and technology shipped to China that need to be reviewed by national security experts before shipping. SMIC depends on foreign semiconductor manufacturing equipment, including some from the U.S.

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Intel VP of policy and tech affairs Greg Slater said Intel’s plan would be to operate a plant that could provide advanced chips securely for both the government and other customers. “We think it’s a good opportunity,” he added. “The timing is better and the demand for this is greater than it has been in the past, even from the commercial side.”

Intel Chief executive Bob Swan sent a letter to Defense Department officials on 28 April, saying the company was ready to build a commercial foundry in partnership with the Pentagon. Strengthening U.S. domestic production and ensuring technological leadership is “more important than ever, given the uncertainty created by the current geopolitical environment,” Swan wrote in the letter. “We currently think it is in the best interest of the U.S. and of Intel to explore how Intel could operate a commercial U.S. foundry to supply a broad range of microelectronics,” the letter said. The letter was then sent to Senate Armed Services Committee staffers, calling the proposal an “interesting and intriguing option” for a U.S. company to lead an “on-shore, commercial, state of the art” chip foundry.

TSMC has been in talks with people at the Commerce and Defense departments as well as with Apple, one of its largest customers, about building a chip factory in the U.S., other sources said. In a statement, TSMC said it is open to building an overseas plant and was evaluating all suitable locations, including the US. “But there is no concrete plan yet,” the company said.

Some U.S. officials are also interested in having Samsung, which already operates a chip factory in Austin, Texas, expand its contract-manufacturing operations in the U.S. to produce more advanced chips, more sources said.

A trainee at a facility of the U.S. chip maker GlobalFoundries in Germany last year. The U.S. is looking to strengthen its own production of semiconductors.              PHOTO: SEBASTIAN KAHNERT/DPA/ZUMA PRESS

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Taiwan, China and South Korea “represent a triad of dependency for the entire US digital economy,” said a 2019 Pentagon report on national-security considerations regarding the supply chain for microelectronics. The US has dozens many semiconductor factories, but only Intel’s are capable of making the chips with transistors of 10 nanometers or smaller. The company however mostly produces for its own products. Among companies that make chips on contract for other companies, only TSMC and Samsung make those high-performing chips. Many US chip companies such as Qualcomm, Nvidia, Broadcom, Xilinkx and Advanced Micro Devices rely on TSMC for the manufacture of their most advanced products. Intel also makes chips with TSMC, according to TSMC’s 2019 annual report.

The Semiconductor Industry Association is conducting its own study on domestic chip production. The report is expected to recommend the US government set up a billion-dollar fund to push domestic chip investment, another source said. Another proposal by SEMI, an industry group representing semiconductor manufacturing equipment makers, involves giving tax credits to chip makers when they purchase and install equipment at factories in the US.

The Commerce Department is also considering a rule aimed at cutting off Huawei’s ability to manufacture chips at TSMC (see Addendum below). President Donald Trump has approved the move, but Commerce Department officials are still working through preliminary drafts, sources said.

May 16, 2020 Addendum:  U.S. Moves to Cut Off Chip Supplies to Huawei 

New restriction stops foreign semiconductor manufacturers whose operations use U.S. software and technology from shipping products to Huawei without first getting a license from U.S. officials

References:

https://www.wsj.com/articles/trump-and-chip-makers-including-intel-seek-semiconductor-self-sufficiency-11589103002

https://www.wsj.com/articles/china-chases-self-reliance-in-chips-but-the-u-s-still-holds-a-trump-card-11588932443

Trump and FCC crack down on China telecoms; supply chain security at risk

Excerpt of a Wired article by Justin Sherman (edited by Alan J Weissberger):

The Trump administration is clearly and publicly upping its scrutiny of Chinese-incorporated telecoms. After Washington’s crusade against Huawei, and a forthcoming Senate report that allegedly blasts U,S. regulators for failing to properly oversee Chinese telecoms and their handling of data, these recent actions aren’t exactly surprising. But even if they’re genuinely focused on real national security risks, that doesn’t change the fact that President Trump’s administration doesn’t have a broader strategy.

What the FCC sent to the four companies are called Orders to Show Cause. These orders instruct a recipient firm to demonstrate that its continued operation in the United States doesn’t pose national security risks. Specifically, the ones issued here demand evidence from the four telecoms of why the FCC shouldn’t “initiate proceedings to revoke their authorizations” to operate in the U.S., under Section 214 of the Communications Act.

“The Show Cause Orders reflect our deep concern … about these companies’ vulnerability to the exploitation, influence, and control of the Chinese Communist Party, given that they are subsidiaries of Chinese state-owned entities,” said FCC chair Ajit Pai. “We simply cannot take a risk and hope for the best when it comes to the security of our networks,” he added.

The orders to China Telecom (Americas) CorporationChina Unicom (Americas) Operations LimitedPacific Networks Corporation, and ComNet (USA) LLC gave the companies until May 24 to respond. Included in this answer must be a “detailed description” of the firm’s “corporate governance,” network diagrams describing how its systems are used, lists and copies of interconnection agreements with other carriers, and descriptions of the extent to which the firm “is or is not otherwise subject to the exploitation, influence, and control of the Chinese government”—neither a small request nor a mere formality.

Editor’s Note:  China Mobile, the largest wireless telecom carrier in China is missing from the above list!

China Telecom and China Unicom are both state-owned enterprises, which raises legitimate questions about the Chinese government’s potential access to data. Could it easily request the companies hand over information to intelligence services? Could it compel the firms to insert backdoors on its behalf? What does this presence in the US mean from a resilience standpoint, when U.S. networks could be potentially controlled or manipulated or flat-out shut off in a conflict-like situation?
A China Telecom store in Wuhan, China. (AFP/Getty Images)
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Pacific Networks (of which ComNet is a subsidiary) is owned by the state-owned CITIC Telecom International; the government connection here is almost as direct. Linking its board room to the CCP’s Zhongnanhai headquarters is certainly a bit clearer here than with Huawei, which isn’t outright state-owned but has nonetheless been subject to many questions, especially from the White House, about its Chinese government ties. Again, Beijing’s potential access to data from Pacific Networks Corporation is a legitimate risk.

The clock is ticking for these companies to respond to the U.S. government. China Telecom asked the FCC for a 30-day extension on the original May 24 deadline. Its lawyers got a reply this past week considering extra time, conditioned on specifying by May 11 which parts of the order they want clarified. Meanwhile, the executive branch is forging ahead—per the recently issued executive order—with formalizing a committee to scrutinize foreign telecoms’ presence in the US. Recommendations to the FCC could include modifying a company’s FCC license with “mitigation” measures or even outright revoking it.

Many issues plague the recent executive order. There is broad language about which kind of FCC licenses can be reviewed; the EO’s title would suggest only those of foreign telecoms, but it appears it could be much bigger. The EO also leaves many questions of implementation up to a memorandum of understanding, which is due several weeks from now.

After the order’s publication, multiple people I spoke with had additionally drawn attention to the future head of this newly called-for, yet-to-be-created committee: the attorney general. In different times, perhaps that’d be a reasonable way to balance represented interests, from the intelligence community to the Departments of Defense and Homeland Security. But these are not normal times—and William Barr is hardly known for his impartiality or respect for the rule of law.

Zooming out even further, the U.S. government lacks clear and objective criteria to define and articulate what makes one foreign telecommunications supplier more trustworthy than another. After all, post-Snowden, it’s a bit hard for the U.S. to beat the “other countries backdoor their systems” argument, sans evidence, without raising eyebrows. The Trump administration also continues throwing digital sovereignty policies in other countries—from onerous source code inspection requirements to limited data localization provisions—into the same “protectionist” bucket. Given this reality, how will these telecom reviews be diplomatically handled?

Even the recent FCC orders don’t get especially detailed. Beyond citing that the companies are state-owned or are controlled by those that are state-owned, the documents don’t elaborate much on why these firms cannot be trusted. So, is it more about ownership, corporate governance, and legal authorities in the country of incorporation than it is about technical security issues?

Or for the administration’s China hawks, is it the mere connection to Beijing? Because as the Trump administration and the president in particular continue China-bashing, spreading xenophobic rhetoric (e.g., around coronavirus’ origins), and preferring in general a zero-sum engagement with counterparts in Beijing, it seems more likely that factor overshadows all else.

There are real national security risks that must be weighed around foreign telecommunications companies. Questions of foreign state ownership should be explored, especially as the world becomes more digitally interconnected and the technological supply chain is a growing vector for hacking and exploitation. But foregoing a broader strategy on supply chain security is not an effective, long-term option for parsing these modern digital risks. Despite the recent China focus, these questions of supply chain policy go far beyond Chinese technology firms, and the U.S. government needs a comprehensive and repeatable process for answering them.


ZTE reports Q1 revenue & profit declines; boosts R&D; telemedicine diagnosis with hospitals to fight COVID-19

ZTE reported operating revenues for the first quarter were CNY 21.48 billion – down from 22.02 billion or -3.23% from the previous year.  Net profit declined to CNY 780 million from 863 million or -9.58% year-over-year.  ZTE’s net profit after extraordinary items rose 20.5% to CNY 160 million.

The company said the quarter was marked by the coronavirus pandemic and measures taken to alleviate the distress cause by it, as well as by the deployment of new infrastructures such as 5G and the Industrial Internet.  ZTE’s R&D costs in the quarter increased to CNY 3.24 billion, comprising over 15.1% of revenues and up 1.2% from the year earlier.

Zte Corporation Stock Pictures, Royalty-free Photos & Images ...

ZTE CORPORATION –a joint stock limited company incorporated in the People’s Republic of China with limited liability. As at 31 March 2020 There were 483,643 shareholders in total (comprising 483,330 holders
of A shares and 313 holders of H shares). 

Here are the shareholders holding 5% or above or top 10 shareholders:

  1. Zhongxingxin Telecom Company Limited
  2. HKSCC Nominees Limited
  3. Bank of China Limited
  4. Hong Kong Securities Clearing Company Ltd
  5. NSSF Portfolio #101
  6. Central Huijin Asset Management Co. Ltd
  7. Shenzhen Huitong Rongxin Investment Co. Ltd
  8. Nanjing Xinchuangxing Consulting and Management Partnership Ltd
  9. New China Life Insurance Company Ltd
  10. Shenzhen Investment Holding Capital Company Ltd
  11. Guangdong Hengjian Asset Management Company Ltd.

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ZTE continued to strengthen its R&D investment to build up its core competitiveness. For the three months ended 31 March 2020, the research and development costs amounted to RMB3.241 billion, 15.1% of operating revenue, increased by 1.2% compared to the same period last year.

During the first quarter of 2020, ZTE has placed great priority on its employee health and global customer services by promptly building and upgrading a remote office and customer service platform for all its employees. Moreover, the company has coordinated with partners to fight against COVID-19 and facilitate the resumption of production with digital means in an orderly manner. The company has been proactively promoting the new infrastructure-related services, and has managed to maintain the steady growth of its businesses during the review period.

Meanwhile, ZTE has been actively practicing social responsibilities. The company has collaborated with operators to guarantee the communication services of the front line against COVID-19. It has constructed 4G/5G networks and telemedicine diagnosis systems for hundreds of hospitals in China.

Teaming up with industry partners, ZTE has been committed to empowering various industries to fight against COVID-19 by leveraging its leading technological strength like 5G and AI. Specifically, ZTE has released 5G remote diagnosis and mobile diagnosis services, as well as the smart video cloud solution for epidemic prevention and control.

Moreover, the company has launched the family “cloud classroom” services to support online education. Featuring high efficiency and collaborativeness, ZTE’s secure remote office solution has enabled users of different industries to have remote office services during the outbreak of COVID-19, thereby facilitating the safe and rapid resumption of work and enhancing economic resilience.
With the acceleration of new infrastructures, such as 5G and the Industrial Internet, ZTE has been actively involved in the deployments of operators’ 5G infrastructure, and constantly scaled up its 5G production capacity. Meanwhile, the company has solidified cooperation with top industry players to promote the digital transformation of power, transportation, finance, government affairs and other key industries.

By the end of the first quarter of 2020, ZTE has consecutively secured significant shares for the 5G RAN, 5G SA core network, 5G transport centralized procurement of China Mobile, China Telecom and China Unicom. The company has constructed 5G demonstration networks in multiple cities in China, achieving Giga+ 5G continuous coverage experience. Moreover, the company has completed 5G commercial deployments in Europe, Asia-Pacific, the Middle East and other major 5G markets.

In addition, ZTE has sustained high growth in market shares in optical networks, as well as in the segments of Metro WDM and Backbone WDM. The company and its partners have jointly explored 86 application scenarios and carried out over 60 demonstration projects on a global scale, building a series of 5G intelligent manufacturing demonstration projects along with top industry players.

With respect to terminal devices, ZTE has unveiled its first 5G video smartphone ZTE Axon 11 5G. The company has continuously strengthened its 5G terminal devices cooperation with more than 30 operators worldwide. It has embarked on the 5G terminal market in Japan by partnering with operators.

Looking ahead , ZTE will pay close attention to the global epidemic situation, and make reasonable coordination accordingly with its global customers and partners to cope with the global epidemic. The company will strongly concentrate on its major businesses while leveraging the opportunities of new infrastructure construction, expecting to create more value for its telco customers.

References:

https://res-www.zte.com.cn/mediares/zte/Investor/20200424/E3.pdf

https://www.zte.com.cn/global/about/news/20200424e1.html

ZTE reports Q1 revenue & profit declines; boosts R&D; telemedicine diagnosis with hospitals to fight COVID-19

ZTE reported operating revenues for the first quarter were CNY 21.48 billion – down from 22.02 billion or -3.23% from the previous year.  Net profit declined to CNY 780 million from 863 million or -9.58% year-over-year.  ZTE’s net profit after extraordinary items rose 20.5% to CNY 160 million.

The company said the quarter was marked by the coronavirus pandemic and measures taken to alleviate the distress cause by it, as well as by the deployment of new infrastructures such as 5G and the Industrial Internet.  ZTE’s R&D costs in the quarter increased to CNY 3.24 billion, comprising over 15.1% of revenues and up 1.2% from the year earlier.

Zte Corporation Stock Pictures, Royalty-free Photos & Images ...

ZTE CORPORATION –a joint stock limited company incorporated in the People’s Republic of China with limited liability. As at 31 March 2020 There were 483,643 shareholders in total (comprising 483,330 holders
of A shares and 313 holders of H shares). 

Here are the shareholders holding 5% or above or top 10 shareholders:

  1. Zhongxingxin Telecom Company Limited
  2. HKSCC Nominees Limited
  3. Bank of China Limited
  4. Hong Kong Securities Clearing Company Ltd
  5. NSSF Portfolio #101
  6. Central Huijin Asset Management Co. Ltd
  7. Shenzhen Huitong Rongxin Investment Co. Ltd
  8. Nanjing Xinchuangxing Consulting and Management Partnership Ltd
  9. New China Life Insurance Company Ltd
  10. Shenzhen Investment Holding Capital Company Ltd
  11. Guangdong Hengjian Asset Management Company Ltd.

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ZTE continued to strengthen its R&D investment to build up its core competitiveness. For the three months ended 31 March 2020, the research and development costs amounted to RMB3.241 billion, 15.1% of operating revenue, increased by 1.2% compared to the same period last year.

During the first quarter of 2020, ZTE has placed great priority on its employee health and global customer services by promptly building and upgrading a remote office and customer service platform for all its employees. Moreover, the company has coordinated with partners to fight against COVID-19 and facilitate the resumption of production with digital means in an orderly manner. The company has been proactively promoting the new infrastructure-related services, and has managed to maintain the steady growth of its businesses during the review period.

Meanwhile, ZTE has been actively practicing social responsibilities. The company has collaborated with operators to guarantee the communication services of the front line against COVID-19. It has constructed 4G/5G networks and telemedicine diagnosis systems for hundreds of hospitals in China.

Teaming up with industry partners, ZTE has been committed to empowering various industries to fight against COVID-19 by leveraging its leading technological strength like 5G and AI. Specifically, ZTE has released 5G remote diagnosis and mobile diagnosis services, as well as the smart video cloud solution for epidemic prevention and control.

Moreover, the company has launched the family “cloud classroom” services to support online education. Featuring high efficiency and collaborativeness, ZTE’s secure remote office solution has enabled users of different industries to have remote office services during the outbreak of COVID-19, thereby facilitating the safe and rapid resumption of work and enhancing economic resilience.
With the acceleration of new infrastructures, such as 5G and the Industrial Internet, ZTE has been actively involved in the deployments of operators’ 5G infrastructure, and constantly scaled up its 5G production capacity. Meanwhile, the company has solidified cooperation with top industry players to promote the digital transformation of power, transportation, finance, government affairs and other key industries.

By the end of the first quarter of 2020, ZTE has consecutively secured significant shares for the 5G RAN, 5G SA core network, 5G transport centralized procurement of China Mobile, China Telecom and China Unicom. The company has constructed 5G demonstration networks in multiple cities in China, achieving Giga+ 5G continuous coverage experience. Moreover, the company has completed 5G commercial deployments in Europe, Asia-Pacific, the Middle East and other major 5G markets.

In addition, ZTE has sustained high growth in market shares in optical networks, as well as in the segments of Metro WDM and Backbone WDM. The company and its partners have jointly explored 86 application scenarios and carried out over 60 demonstration projects on a global scale, building a series of 5G intelligent manufacturing demonstration projects along with top industry players.

With respect to terminal devices, ZTE has unveiled its first 5G video smartphone ZTE Axon 11 5G. The company has continuously strengthened its 5G terminal devices cooperation with more than 30 operators worldwide. It has embarked on the 5G terminal market in Japan by partnering with operators.

Looking ahead , ZTE will pay close attention to the global epidemic situation, and make reasonable coordination accordingly with its global customers and partners to cope with the global epidemic. The company will strongly concentrate on its major businesses while leveraging the opportunities of new infrastructure construction, expecting to create more value for its telco customers.

References:

https://res-www.zte.com.cn/mediares/zte/Investor/20200424/E3.pdf

https://www.zte.com.cn/global/about/news/20200424e1.html

Huawei’s “resilient” Q1-2020 results and coronavirus commentary

Undaunted by the U.S. campaign to ban its network equipment and smart phones, Huawei reported results for the first quarter 2020 that were in line with expectations, despite the effects of the coronavirus pandemic. The company said its business is continuing to grow, albeit at a slower pace.

Revenue in the first quarter rose by about 1% to 182.2 billion yuan ($25.72 billion), vemart phones, China tech giant rsus a 39% growth posted a year ago. Its net profit margin over the period narrowed to 7.3% from about 8% a year ago.  Huawei being a privately owned company did not disclose its net profits.

“The growth rate has slowed, but this is also a resilient performance in the face of both the entity list and the coronavirus we are facing at this moment,” Vice President Victor Zhang said in a statement on Tuesday.

This represents a significant slowdown from the 19 percent sales growth for 2019. The company earlier stated that 2020 would be a very difficult year, its first full year with U.S. sanctions. Along with the effects of the coronavirus outbreak, 2020 “will be the most difficult year” for Huawei, rotating chairman Eric Xu said.

Huawei to supply equipment for 5G network in UK

As for the impact from the coronavirus pandemic, Zhang said it was difficult to gauge what that would be in the short or long term, as he presented the results from London rather than Huawei’s Shenzen base to mark 20 years of business in Europe.

The company provided enlightening comments on the coronavirus in its earlier referenced statement:

Networks are a lifeline for people from all walks of life during this public health crisis, so ensuring normal network operations is of paramount importance. Huawei is doing everything in its capabilities to help carriers ensure stable and secure network operations. Together, we are working to meet the network demand created by social distancing as people switch to telecommuting, distance education, and e-commerce for daily necessities.

Since the outbreak, Huawei and its partners have rapidly launched many 5G- and AI-powered medical applications. We are using our expertise in communications technologies to help fight the pandemic and save more lives. The AI-assisted coronavirus diagnosis solution cuts CT scan review times from 12 minutes down to 2, helping doctors improve their diagnostic efficiency. 5G-enabled remote video consultation helps mitigate shortages of frontline experts and increases the efficiency of diagnosis and treatment of critical patients. AI-powered thermal imaging devices can take temperatures, increasing the efficiency of infection prevention and control in public places. In addition, Huawei has been doing its best to get masks, test kits, and other protective supplies to the countries and organizations that need them.

A seed that survives the storm will sprout and then blossom. Even though it is impossible to know when the tides of this pandemic will turn, we at Huawei believe that this challenge will be overcome by standing together.

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In March, Huawei reported financial results for 2019, recording  a $12 billion revenue shortfall that it attributed to the entity listing, which effectively blacklisted Huawei and numerous affiliates by restricting sales of certain products from U.S. suppliers to the vendor.

Huawei’s consumer segment was particularly hit by the U.S restrictions in the second half of last year. As one of the world’s largest smartphone makers, Huawei was unable to access Google’s proprietary Android operating system and was forced to launch new devices without access to the popular Google Play store.

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References:

https://www.huawei.com/en/press-events/news/2020/4/huawei-announces-q1-2020-business-results

https://www.reuters.com/article/us-huawei-tech-results/huawei-first-quarter-revenue-growth-slows-sharply-amid-us-ban-virus-headwinds-idUSKBN2230WV

 

China Mobile says COVID-19 effected Q1 2020 Results: Loss of 4M 4G subs, 31.7M 5G subs

China Mobile’s  first quarter 2020 earnings report was somewhat disappointing, save for 5G.  Revenues, earnings and profits all decreased for the first quarter as the world’s largest mobile operator felt the impact of the coronavirus outbreak in China.

The state owned telco lost 4 million customers which is < 1/2% of their customer base in the first quarter.  There were 946 million total China Mobile subscribers at the end of March 2020.

Revenues fell 2%, to 181.3 billion Chinese yuan (US$25.6 billion), compared with the year-earlier period, while revenue from telecommunications services was RMB168.9 billion, up by 1.8% over the same period last year.  Profit attributable to equity shareholders was RMB23.5 billion ($3.3 billion), down by 0.8% over the same period last year.

The company (referred to as “the Group”) addressed the impact of COVID-19 in their Q1 2020 earnings report:

COVID-19 posed an impact on the overall society and economy in the first quarter of 2020. The Group’s business development was no exception. In light of COVID-19, the Group has introduced “three safeguards” which endeavoured to provide reliable communications, maintain service continuity and step up comprehensive prevention and control measures. Leveraging the demand for informatization services brought about by measures to prevent and control COVID-19 and the resumption of work and production, the Group has also accelerated business transformation and upgrade.

The Group’s total number of mobile customers was around 946 million as at 31 March 2020. Among them, the numbers of 4G customers and 5G package customers were 752 million and 31.72 million, respectively. During the first quarter of the year, data traffic business maintained growth momentum with handset data traffic recording a year-on-year increase of 43.4% and handset data DOU (average handset data traffic per user per month) reaching 8.3GB. Total voice usage declined by 16.3% year on-year to 661.4 billion minutes, which was attributable to OTT substitution and COVID-19.

Buoyed by the rapid growth of corporate SMS, total SMS usage rose by 45.4% year-on-year. Mobile ARPU dropped by 6.7% year-on-year to RMB46.9 for the first quarter of the year and the decline rate has moderated compared to that of the previous year. As at 31 March 2020, the total number of wireline broadband customers was 191 million, with a net increase of 4.10 million for the first quarter of the year. Wireline broadband ARPU amounted to RMB31.3.

Amidst COVID-19, the Group’s telecommunications services revenue grew by 1.8% year on-year to RMB168.9 billion for the first quarter of 2020. Currently, measures to prevent and control COVID-19 are still underway and some impact may carry over.

The Group will continue to foster business transformation and upgrade and make an all-out effort to promote the coordinated development of the CHBN four major markets. It will also continue to optimize its revenue structure and strive to maintain growth in telecommunications services revenue for the full-year of 2020. The Group’s revenue from the sales of products and others went down by 34.9% year-on year to RMB12.4 billion for the first quarter of the year. The decline was mainly caused by contracted sales of handsets and IoT devices, amongst other products, due to COVID-19.

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The figures seem to vindicate arguments that China Mobile will prove fairly resilient to COVID-19 as a critical lifeline to the wider world for people under lockdown/ shelter in place orders. While customer numbers fell in mobile, there was no decline at China Mobile’s fixed-line business, which picked up another 4 million broadband customers to finish March with 191 million in total. On the mobile side, usage of traditional voice services fell from 278 minutes per user each month in the final quarter of 2019 to just 234 minutes in the first quarter of 2020. Mobile data usage, though, rose from 7.1 to 8.3 gigabytes per month over the same period.

Largely due to China government incentives, China Mobile now claims nearly 32 million 5G customers, up from just 2.6 million in December 2019. Sustain that rate of growth and the operator would be on course for almost 120 million 5G customers by the end of this year. That may be difficult once China Mobile has attracted all the early 5G adopters.  It will be interesting to see how soon the major improvements brought by 3GPP Release 16 (scheduled to be frozen in early July 2020) will be implemented by the Group’s network equipment vendors- principally Huawei and ZTE.

Signage for China Mobile Ltd. is displayed outside a store in Shanghai.

Key Insights From Bloomberg:

  • The carrier, which has more than 940 million subscribers, may benefit in the months ahead as economic activity begins to return toward normal. The expansion of 5G coverage planned this year may also help lure subscribers to higher priced heavy-data plans.
  • While the company is spending to expand 5G networks, it has also been maintaining dividend levels and had cash and bank deposits of about 317 billion yuan as of the end of last year.
  • Attracting 5G subscribers is a key for growth as those users tend to spend more per month. The company had about 31.7 million 5G subscribers as of the end of March.
  • While total subscribers fell in the first quarter, the carrier benefited from a slight rise in average revenue per user from the previous quarter as the introduction of 5G networks made it easier for users to play richer video games and use applications that consume more data.

Iian Morris, International Editor at Lightreading wrote in a blog post:

A challenge for the Group is to meet the investments required for 5G infrastructure.  China Mobile has earmarked RMB100 billion ($14.1 billion) for capital expenditure on 5G in 2020, an increase of 317% on what it spent in 2019, according to market-research firm Omdia (owned by market research goliath Informa). Its plan is to add at least 250,000 5G base stations by the end of this year.

Meeting this commitment will be difficult as earnings and cash flow are squeezed by COVID-19. Just-published figures show that earnings before interest, tax, depreciation and amortization fell nearly 6% in the first quarter, to RMB68.5 billion ($9.7 billion), compared with the year-earlier period. Under government pressure to hit deployment targets, China Mobile may look to reduce costs in other parts of the business to offset the increase in spending on 5G. “The group will continue to develop new sources of revenue and identify ways to curtail expenses, while taking measures to reduce costs and enhance efficiency,” it says in its statement.

Hacking into headcount will be difficult if China Mobile is to avoid disruption to 5G buildout and sales and marketing activities. Nevertheless, the operator may be able to realize some cost savings through pruning of a workforce that numbered as many as 456,239 employees at the end of last year. While major US operators have slashed tens of thousands of roles in recent years, China Mobile seems to have been a lot more cautious on the jobs side: Its staff numbers have fallen less than 1% since the end of 2016.

The latest update on 5G will be a further concern for US officials already worried about falling behind China in the development and rollout of the new network technology. With at least 30 million 5G customers, China already has enough users of the service to spur the development of new commercial applications that might not be feasible in the old 4G world. That is exactly what the US does not want to hear.

References:

https://www.chinamobileltd.com/en/file/view.php?id=228270

https://www.lightreading.com/asia/china-mobile-misplaces-4m-customers-but-finds-another-30m-for-5g/d/d-id/759007?

https://www.bloomberg.com/news/articles/2020-04-20/china-mobile-lost-almost-4-million-subscribers-in-first-quarter

China’s big 3 telcos offer 5G Rich Communication Services (RCS)

China’s big three telecom carriers unveiled a new 5G-enabled messaging service on Wednesday, which analysts said is likely to open a new era for social networking.

China Mobile, China Unicom and China Telecom published a white paper for the 5G messaging service, known as Rich Communication Services, or RCS,.  The paper specifies technical details to invite smartphone makers to support the new service.

The 5G RCS messaging service is designed to replace current short messages with a system that is richer, provides phonebook polling, and can transmit in-call multimedia.

5G may facilitate a shift away from basic SMS messaging, ushering in an era of RCS, where mobile messaging can become much more interactive and flexible, more akin to what we now know as iMessaging through platforms like Facebook and WhatsApp. RCS will not only facilitate the sharing of GIFs and high-quality videos, but will also more directly interface with the internet; for example, offering a list of available flights when the user sends a message regarding a holiday.

Editor’s Note:

RCS has been talked about and in development for many years, with very little commercial market acceptance to date.  RCS’ biggest problem has been that it requires consensus across a large and complex industry.  Contrast that with an OTT messaging startup with a dozen staff can create a viral global app overnight.  It remains to be see if the collaboration between China’s big three telecom operators will make 5G RCS successful in China.

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With the new 5G RCS message service, consumers won’t have to download a variety of mobile apps. They can directly buy train tickets and book flights by sending messages.

Ma Jihua, an independent telecom analyst, said the new 5G-powered messaging service, if properly promoted, will usher in a new era of social networking, and erode the social networking business of Tencent Holdings Ltd.

A pedestrian walks past a 5G promotion board in Nanjing, capital of Jiangsu province. [Photo by Su Yang/For China Daily]

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China Telecom Vice President Wang Guoquan said the new 5G messaging services would enhance 5G innovation and help turn 5G from “the biggest variable affecting the telecom industry” into the biggest vehicle for growth.

He said China Telecom would work with industry partners “to build a new ecosystem and promote the rapid development of rich media information.”

Besides the three operators, 11 device vendors including Huawei, Xiaomi, Vivo, Oppo and Samsung endorsed the new messaging service and promised early support on their handsets.  Huawei stated that it would have an RCS-capable phone this June, while Xiaomi has confirmed that all of its new 5G phones will also run the new messaging service.

“Together with ecosystem partners, we will start a new chapter in 5G messaging and further promote RCS applications in China,” said a statement from the three operators releasing the paper.

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GSMA says the key development has been the creation of the universal profile (UP), an industry-agreed set of features intended to simplify RCS product development and deployment.

The Chinese players can also take heart from the positive numbers out of the first two years of the RCS-based +Message service in Japan, supported by all three operators.

User numbers rose 35% to 17.5 million in 2019 and are forecast to hit 40 million in 2021, according to a GSMA-commissioned study.

The number of business messages sent over the platform is expected to reach more than 150 million in 2021 and 1.2 billion in 2023.

What’s more, users appear responsive to the marketing messages. The open rate is 85% in Japan and 75% globally, compared to 3% for direct mail.

Says the GSMA: “+Message also allows Japanese consumers to communicate directly with a range of brands and services, for example allowing them to engage with virtual assistants to book flights, buy goods and make restaurant reservations.”

Worldwide, the GSMA says 88 operators have launched RCS, attracting 403 million users.

Messaging research firm MobileSquared has predicted that RCS will be the world’s biggest business messaging platform by 2021, with 2 billion users. The firm notes that while WhatsApp (owned by Facebook) has 1.5 billion users, it may be difficult to monetize it as a marketing channel because users are required to opt in.

References:

http://global.chinadaily.com.cn/a/202004/08/WS5e8d67aea310aeaeeed50c6a.html

https://www.lightreading.com/asia/china-operators-to-offer-rcs-based-5g-messaging/d/d-id/758762?

https://www.totaltele.com/505475/Chinese-operators-back-RCS-in-new-white-paper

China’s CBN to use 700MHz for 5G network but needs a telco partner

China’s Ministry of Industry and Information Technology (MIIT) announced that it has repurposed the country’s frequency use plan for 700MHz spectrum in order to accelerate the development of 5G technology and to promote the effective use of spectrum resources.

Under the new plan, MIIT will abandon the current usage – 702MHz-to-798MHz for TV and radio and broadcasting – in favor of 703MHz-743MHz/758MHz-798MHz for FDD mobile communication systems. In its notification, the MIIT ruled that mobile systems operating in this band must not interfere with broadcasting or other services operating in the same or adjacent frequency bands. Further, to avoid interference, frequency migration, site relocation and equipment mediation of existing legal radio stations must be carried out.  The costs of that will charged to the user(s) of the 700MHz mobile spectrum.

The spectrum in question is currently held by radio and TV broadcaster China Broadcasting Network (CBN), which is also known as China Radio and Television.  It plans to use the airwaves in conjunction with its 4.9GHz spectrum to provide a suite of interactive TV services in the short term, and mobile communication (4G and 5G?) plus IoT services in the future.

Data map: People handle 5G mobile phone and network related services. Photo by Yin Liqin

CBN was a surprise new entrant to mobile when the MIIT issued 5G licenses in June 2019. The company, owned by the National Radio and Television Administration (NRTA), was set up just five years ago.  It had  total revenues last year of RMB78 billion (US$10.9 billion) — around a third of China Unicom’s and a fifth of China Telecom’s.

CBN began its first wireless network trial last October– a standalone 5G pilot network in central Shanghai, announced last week by the Shanghai city government.

According to broadcast industry website DVBCN, CBN is planning to build pilot networks in 15 or so major cities, such as Beijing, Tianjin and Nanjing.

May 21, 2020 Update:

China Broadcasting Network Corporation (CBN) and China Mobile said they would jointly build and share a 5G network and also collaborate in content and platform sharing.

For China Mobile and CBN, joint network investment and construction at a 1:1 ratio is just one part of their arrangement, which will continue until 2031.

They will jointly own and share the capacity, but China Mobile has committed to wholesaling capacity on its 2.6GHz 5G network to its smaller partner.  In areas where the 700MHz band is not yet commercially available, it will open up its 2G and 4G networks.

China Mobile’s statement said while the two partners would retain their own brands, they would explore further joint efforts in areas such as products, operations and content and even in “channels and customer services.”

For China Mobile, which already has 260MHz of 5G spectrum in the 2.6GHz and 4.9GHz bands, the partnership adds to its spectrum inventory and in particular access to precious low-band frequencies.

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0520/2020052000370.pdf

https://www.lightreading.com/asia/china-mobile-cbn-strike-long-awaited-network-sharing-deal/d/d-id/759833?

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As in Shanghai, these will be standalone 5G networks in the 4.9GHz band. The company expects to deploy 200 basestations in each city at an estimated total cost of RMB2-3 billion ($279-419 million).

Table 1. China 5G spectrum allocation

Operator Assigned spectrum Total Shared spectrum
China Mobile 2515-2675MHz 160MHz
China Mobile 4800-4900MHz 100MHz
China Telecom 3400-3500MHz 100MHz 3300-3400MHz (indoor)
China Unicom 3500-3600MHz 100MHz 3300-3400 MHz (indoor)
China Broadcast Network 703-798MHz 80MHz 3300-3400 MHz (indoor)
China Broadcast Network 4.9GHz (trial) TBD
Source: MIIT

Local China news outlet C114 writes that the new network operator (CBN) still needs to clear the spectrum and migrate existing radio and TV services to other frequencies, the cost of which was estimated to run to more than CNY10 billion (USD1.41 billion).

CBN, with income of around $11 billion from cable TV services, lacks the financial scale to build a national network and compete against three big telco incumbents.

CBN has business partners such as Alibaba and financial group Citic, but a partnership with a telco (like China Mobile) is needed to build out the network.   The new network rollout cost is estimated to be at least 60 billion yuan (US$8.5 billion).

CBN may be able to reduce that expense through cooperation with cellular providers, though, with a senior China Mobile official quoted as saying that the two providers had communicated ‘to discuss the possibility of co-construction.’

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References:

MIIT clears the way for 5G on 700MHz band

https://www.lightreading.com/5g/china-releases-700mhz-for-5g/d/d-id/758667?

 

China Telcos Lose Subscribers; 5G “Co-build and Co-share” agreement to accelerate

Decrease in China’s Mobile Subscribers:

China’s wireless carriers are reporting substantial drops in subscribers as the coronavirus crisis reduces business activity.

China Mobile Ltd., the world’s largest wireless carrier, reported its first net decline since starting to report monthly data in 2000.  China Mobile subscriptions fell by more than 8 million over January and February, data on the company’s website show.

China Telecom Corp. said it lost 5.6 million users in February, while China Unicom Hong Kong Ltd. subscribers fell by 1.2 million in January.

The across the board China subscriber slump indicates that the coronavirus pandemic crisis, which first emerged in China late last year, is crimping growth, even at businesses that provide essential services and earn monthly revenue.  ARPU will likely also decline, according to analysts.

Chris Lane, an analyst at Sanford C. Bernstein & Co said  that part of the decrease in wireless subscribers could be due to migrant workers — who often have one subscription for where they work and another for their home region — canceling their work-region account after the virus prevented them from returning to work after the Lunar New Year holidays which began in late January.

While the drop in users is unusual, the total is small relative to total wireless subscriptions, which have risen to a combined 1.6 billion for the three carriers.  Things may improve starting this month as work in factories and other businesses in China resumes, Lane said.

Net income fell 9.5% last year at China Mobile, partly on government mandates to cut prices and improve service, but also due to a spike in financing costs – up from RMB144 million ($20.2 million) to RMB3.25 billion ($460 million).

The company, which reported earnings last week, told analysts revenue would remain stable this year, a sign management was not worried about the fall in subscribers.

China Unicom overcame flat revenue growth to post an 11.1% increase in net earnings for 2019. The state-owned telco slashed opex by 22% and marketing cost by 5% to record a 11.3 billion yuan ($1.6 billion) full-year profit.

“In 2019, the domestic telecommunications industry development experienced a short-term pain with weak revenue growth and pressure on industry value,” Chairman and CEO Wang Xiaochu said.

China Unicom 5G network

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Co-build and Co-share Agreement:

In September 2019, China Unicom entered into a cooperation agreement with China Telecom to jointly build one 5G access network across the country. China Unicom would be doubling it’s own 5G network coverage, bandwidth, capacity and transmission speed, providing users with better experience.

China Unicom said it will actively step up the “co-build and co-share” with China Telecom in areas such as 4G indoor distributed antenna systems, server rooms, optical fiber and pipelines to further enhance network advantages and corporate value.Image result for pic of china telecom

References:

https://www.bnnbloomberg.ca/china-s-mobile-carriers-lose-15-million-users-as-virus-bites-1.1410626

https://www.telecomlead.com/5g/china-unicom-reveals-5g-network-capex-plans-94530