Google suspends some business with Huawei, restricts access to Android updates

Huawei could lose its grip on the No. 2 ranking in worldwide cellphone sales after Google announced it would comply with U.S. government restrictions meant to punish the Chinese tech powerhouse.

The Trump administration move, which effectively bars U.S. firms from selling components and software to Huawei, ups the ante in a trade war between Washington and Beijing that partly reflects a struggle for global economic and technological dominance.

Google said basic services would still function on the Android operating system used in Huawei's smartphones and existing smartphone owners would not lose access to its Google Play app store or security features.

In a bid to help existing Huawei customers, the U.S. Commerce Department on Monday created a temporary general licence, restoring Huawei's ability to maintain existing networks and provide software updates to existing Huawei handsets.

The licence, which was posted for public inspection, scales back the restrictions imposed by the U.S. government last week on Huawei's ability to buy U.S. goods. The temporary licence lasts until Aug. 19.

Huawei did not immediately respond to a request for comment.

Washington claims Huawei poses a national security threat, and its placement on the so-called Entity List by the Trump administration last week is widely seen as intended to persuade resistant U.S. allies in Europe to exclude Huawei equipment from their next-generation wireless networks, known as 5G.

This is major crisis for Huawei. How competitive is a smartphone without the most well-known and popular apps?- Roger Entner of Recon Analytics

"This is major crisis for Huawei. Instead of being the world's largest handset manufacturer this year, it will struggle to stay two, but probably fall behind," analyst Roger Entner said. "How competitive is a smartphone without the most well-known and popular apps?"

Huawei will likely use its own, stripped-down version of Android, whose basic code is provided free of charge by Google. But it's not yet clear what other Google software and services — such as maps, Gmail or search — it will be able to use.

Entner, founder of Recon Analytics, said Google itself won't have a large direct impact, "as consumers will shift to other Android devices. The biggest concern is not to be caught in the crossfire of two governments."

Gartner analyst Tuong Nguyen said 48 per cent of Huawei's phone shipments last year were outside of China and the company will need to scramble not to lose market share.

Samsung led global smartphone sales in the first quarter of this year with a 23.1-per-cent share. Huawei was second with 19 per cent, followed by Apple at 11.7 per cent, according to tech consulting firm IDC.

Huawei's smartphone sales in the U.S. are tiny — and the Chinese company's footprint in telecommunications networks is limited to smaller wireless and internet providers — so any impact on U.S. consumers of a Google services cutoff would be slight.

Hardware suppliers led by Qualcomm, Broadcom and Intel would also be forced to halt shipments to Huawei under the Commerce Department rule, which requires all U.S. technology sales to the company to obtain U.S. government approval unless exceptions are made.

In a report, the global risk assessment consultancy Eurasia Group said that if the Commerce Department sanction process helps persuade European carriers to shun Huawei equipment, a full ban on purchases of U.S. technology products and services could be avoided.

Google, a unit of Alphabet Inc., said in a statement late Sunday that it was complying with and "reviewing the implications" of the requirement for export licences for technology sales to Huawei, which took effect Thursday.

"For users of our services, Google Play and the security protections from Google Play Protect will continue to function on existing Huawei devices," it added.

'Considerable implications' for device sales

The U.S. government says Chinese suppliers including Huawei and its smaller rival, ZTE Corp., pose an espionage threat because they are beholden to China's ruling Communist Party. But American officials have presented no evidence of any Huawei equipment serving as intentional conduits for espionage by Beijing.

Huawei, headquartered in the southern city of Shenzhen near Hong Kong, reported earlier that its worldwide sales rose 19.5 per cent last year over 2017 to 721.2 billion yuan ($105.2 billion US). Profit rose 25.1 per cent to 59.3 billion yuan ($8.6 billion).

Huawei smartphone shipments rose 50 per cent in the first three months of 2019 to 59.1 million, compared with a year earlier, while the global industry's total fell 6.6 per cent, according to IDC. Shipments from Samsung and Apple both declined.

Huawei promises 'safe and sustainable software'

Huawei defended itself Monday as "one of Android's key global partners." The company said it helped to develop a system that "benefited both users and the industry."

"We will continue to build a safe and sustainable software ecosystem, in order to provide the best experience for all users globally," the company said.

A foreign ministry spokesperson, Lu Kang, said China will "monitor the development of the situation" but gave no indication how Beijing might respond.

The U.S. order took effect last Thursday and requires government approval for all purchases of American microchips, software and other components globally by Huawei and 68 affiliated businesses. Huawei says that amounted to $11 billion in goods last year.

That could certainly create some collateral damage for U.S. companies.

The California chipmaker Xilinx Inc. tumbled four per cent Monday.

David Wong, an analyst with Nomura, said Xilinx has benefited from demand in next-generation, 5G technologies and "action against a major maker of communications infrastructure equipment like Huawei likely poses risk for Xilinx."