Western Digital Freezes Out Huawei, Which Braces for Massive Sales Drop
The damage to Huawei keeps on spreading. Last week, Western Digital CEO Steve Milligan announced his company had stopped doing business with the embattled Chinese manufacturer. It’s the latest blow to Huawei’s business after the US announced sanctions against the company last month.
While Huawei accounts for less than 10 percent of Western Digital’s revenue, Milligan told Nikkei that the firm represents a “meaningful customer.” WD is apparently considering applying for permission to continue doing business with Huawei from the US government. In April, Huawei and WD had signed a declaration of intention to strengthen their partnership across hard drives and non-volatile storage technologies, but that partnership is now effectively on hold due to the US findings.
In late May, I wrote a story exploring what CPU architectures Huawei might be able to use for future designs if it was cut off from chips by manufacturers like ARM. According to a discussion of this issue published by former US assistant secretary of export administration Kevin Wolf, this is a complex question. US export law forbids the export of any technology with more than a trivial amount (de minimis) of US-based technology built into it.
Some of you may recall that Steve Ballmer once famously called the GPLv2 a virus, arguing that it would “infect” any piece of closed-source software that it touched, requiring that said closed-source piece of software now be classified as open-source. US export law appears to genuinely function in such a fashion. Wolf writes:
For example, if a wholly non-U.S. carrier, app developer, or electronics manufacturer transfers to Huawei a commodity, software, or technology of any sort that is U.S.-origin or that is non-U.S.-origin and it contains more than a de minimis amount of U.S.-origin controlled content, then the commodity, software, or technology is still subject to U.S. controls and the Entity List prohibitions.
Open source software can’t be used to dodge US export controls if the copyrights on said software are owned by US companies. This would also seem to be a problem for open-source hardware as well, which might mean our own supposition that Huawei might theoretically pivot to a RISC-V or MIPS solution is fundamentally unworkable. A clean-room implementation of a US open-source solution might not even be possible. US export law is written to apply to both US persons and non-persons. The law allows for non-US companies that help other companies break the law to be held liable themselves, including being banned from receiving US products in their own right.
The difficulty of navigating this issue explains why Huawei is expecting a mammoth sales drop. According to Bloomberg, Huawei expects to sell 40-60 million fewer phones due to this choking-off of demand. The firm sold 206 million phones in 2018 and the ban didn’t take effect until May, which says something about just how large a hit Huawei is likely to take.
Huawei’s founder Ren Zhengfei has stated that the ban could wipe $30B in sales revenue off the firm over the coming two years if the issue is not resolved. Thus far, the company has stated it will continue to conduct R&D and refrain from layoffs or major asset sales.
The pullback from Western Digital speaks to the difficulty Huawei may have finding suppliers for many of its components. If the phone manufacturer is obligated to avoid all firms whose technology have more than a de minimis amount of US technology, it may prove exceedingly difficult to locate safe suppliers at all. TSMC has stated it believes it can continue to fab chips for the manufacturer, but even assuming this is true, there are more components in a smartphone than processors.
The US export ban applies to every aspect of the phone, from chassis to software to firmware and hardware. Building a completely unencumbered device may prove exceedingly challenging. Any attempt to evade the ban by building a clean-room implementation of both an OS and a hardware stack for a mobile SoC would take years. It’s the sort of long-term project that’s feasible over time and with sufficient spending and investment by the Chinese government, but wholly impractical as far as solving any of Huawei’s near-term problems.
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