Huawei faces the dilemma of links with Russia that risk further US sanctions

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Huawei faces the dilemma of links with Russia that risk further US sanctions

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The last time Western sanctions hit Russia after the annexation of Crimea, President Vladimir Putin turned to Huawei to rebuild and upgrade the territory’s communications infrastructure. Now the controversial Chinese tech company is positioned to help Putin’s regime on a much larger scale, despite the threat of Washington targeting it with more sanctions.

In Crimea, Russia “has ripped out Western telecommunications equipment in the heavily militarized territory and replaced it with Huawei and ZTE,” said Hosuk Lee-Makiyama, a telecommunications expert at the European Center for International Political Economy. If Nokia and Ericsson were to get out of Russia completely, Moscow would “more than ever need Chinese companies, particularly Huawei,” he said.

Despite an initial drop in telephone shipments, Huawei was one of the first winners of the war in Ukraine. Phone sales in Russia rose 300% in the first two weeks of March, while other Chinese brands Oppo and Vivo recorded triple-digit sales increases, according to analysts from MTS, the largest Russian mobile operator.

Its four Russian research centers are recruiting dozens of engineers, including machine learning scientists in Novosibirsk, speech recognition researchers in St. Petersburg, and big data analysts in Nizhny Novgorod. Huawei has also added new sales and business development openings in Moscow since the beginning of the invasion of Ukraine, according to its website.

But experts say Chinese tech companies like Huawei and rival Xiaomi risk violating sanctions if they continue to ship phones and telecom equipment to Russia. They need approval from Washington because electronics often contain high-end semiconductors or are made with US tools, making them subject to new sanctions against Moscow.

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Huawei could be hit by further sanctions from Washington, such as Trump’s order to ban ZTE from accessing any US-related technology, which would deal another blow to the Chinese company’s operations.

“My bet would be that it’s impossible [Huawei and other Chinese phonemakers] to legally export to Russia, “said Kevin Wolf, a former trade department official and sanctions expert.

“It is theoretically possible [Huawei] was able to figure out how to build a cell or base station without tools, software, etc. But it’s hard to believe they would be able to find all of the [semiconductors] that were not made with US tools “.

Huawei has been working to wean itself off the US semiconductor supply chain since US sanctions introduced by the Trump administration cut off its access to chips. Guo Ping, the company’s rotating president, told reporters on Monday that it was based on a chip stash. He added that Huawei was working to redesign products to bypass the US supply chain by achieving equivalent performance from less advanced chips.

The sanctions were the most damaging to Huawei’s heavy smartphone business, causing its consumer product revenue to drop by 50% last year, the company said Monday. Huawei’s total revenue last year fell 29% year-on-year to RMB 636.8 billion ($ 100 billion), supported by near-stable sales in its telecom and enterprise business lines.

Huawei’s heir apparent Meng Wanzhou, who recently returned to China after nearly three years of detention in Canada for alleged Iran sanctions violations, said Huawei’s teams “have come under a lot of pressure in recent years. “.

“This has brought us closer together and made our strategy clearer,” he said.

Russia needs Huawei. The withdrawal of Apple and Samsung has put half of the smartphone market at stake, while the suspension of operations in Russia by Ericsson and Nokia has left a void in the provision of telecommunications equipment for the mobile and broadband network infrastructures they will need. be maintained and possibly updated.

Russia was Huawei’s first foray into overseas markets more than two decades ago, and sanctions deepened the relationship, with Huawei finding a voluntary buyer of network infrastructure that is increasingly shunned in Western capitals and a large pool of engineering talents. As with Crimea, when Russia needed a dependent company to provide the hardware backbone of a new sanction-proof national payment system, called Mir, it turned to Huawei.

Huawei had already won a significant portion of the contracts to roll out 4G and 5G networks in Russia, analysts said. Huawei and Chinese peer ZTE control about 40-60% of the wireless networking equipment market in Russia, according to market research firm Dell’Oro, with Nokia and Ericsson making up most of the rest.

Opportunities for Huawei may also lie in sharing its sanction-proof projects with Russia, including the Harmony operating system developed for its phones after losing access to Google Mobile Services.

Vladimir Puzanov, chief executive of Russian phone maker BQ, told Russian media last week that the company was considering installing HarmonyOS on new devices. Huawei said it has no plans at the moment to “launch or promote HarmonyOS outside of China”.

Video: China, Russia and the war in Ukraine

“Huawei holds a huge share of the Russian market. . . and right now the current penalties are already like a 200lb weight overhead, so what’s scary about another 20lbs? said Yang Guang, a Beijing-based analyst at technology consulting firm Strategy Analytics. “However, as a commercial organization, they will probably wait and see for now.”

Washington is watching Huawei closely. Matthew Borman, an export official at the US Department of Commerce, on Tuesday threatened Chinese companies to circumvent Russian sanctions with a “complete ban. [of] not just trade but any transaction ”or even“ a rejection order. . . like the one we imposed on ZTE “.

Borman said Washington has granted a significant number of export licenses to foreign suppliers to continue selling to Huawei, but that could be revoked.

Huawei’s Guo said the company is “carefully evaluating” the new sanctions. Huawei declined to answer further questions about its plans in Russia.

Nian Liu contributed reports from Anhui

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