The telecom giant is bracing for another tough year as it remains on the US Entity List, along with other Chinese companies specialising in supercomputing and artificial intelligence. Last May, US President Donald Trump issued a national emergency declaration barring all US firms from conducting business with countries and companies that pose a national security threat.
Huawei lost access to Google’s Android operating system and to the global supply chain of chipmakers like Qualcomm, Xilinx and Broadcom. Still, some US companies like Micron and Intel reportedly side-stepped Trump’s executive order, claiming that some goods produced overseas are not considered US made. Likewise, the American Semiconductor Industry Association came forward claiming some components could still be supplied to Huawei consistent with the applicable rules of the entity list.
Despite the ban, Huawei’s revenue recorded an 18 per cent increase in 2019, but forecasts for 2020 predict slower growth.
Publicly, Huawei disputes the restricted access to US technologies, suppliers and licensing agreements, but this may be seen as window dressing. The US Entity List can starve Huawei of US chips, but Huawei has been looking to Taiwan — a major powerhouse in the semiconductor global value chain — for a solution.
Taiwanese companies such as the Taiwan Semiconductor Manufacturing Company (TSMC) have been circumspect in following the US ban. TSMC claims that it can continue supplying chips to Huawei since its production processes do not exceed the 25 per cent limit in using US-licensed software and technology.
China’s strategy to lure Taiwanese talent also began before the dawn of the trade war. Under the National Medium- and Long-term Talent Development Plan (2010–20), China detailed talent targets to advance its independent innovation. Since 2014, Huawei subsidiaries Xunwei Tech and HiSilicon have been recruiting highly skilled engineers from Taiwanese mobile chip companies such as MStar and Faraday Technology Corporation. Huawei also headhunted key talent from HTC’s research and development (R&D) team. Huawei’s persistence paid off in 2015 when the company reportedly saw a 30 per cent increase in smartphone shipments, challenging market leaders such as Samsung and Apple.
China is also poaching Taiwanese semiconductor engineers to bolster its weak chip industry. In 2014, 300 senior Taiwanese engineers reportedly relocated to Beijing to develop China’s chip industry under a US$22 billion project. The Taiwan Institute of Economic Research estimated that 3000 Taiwanese semiconductor engineers have relocated to China since then, representing approximately 10 per cent of the island’s engineering R&D workforce.
China is expected to overtake Taiwan as the largest semiconductor manufacturing equipment market in 2020, while Changxin Storage and Yangtze River Storage will begin to manufacture memory chips. Amid the trade war, Beijing is determined to attract more talent. The Chinese Communist Party is rolling out its ‘31 measures’ to entice even top-management engineers to build its so-called ‘red supply chain’.
As a formidable player in semiconductor design and manufacturing, Taiwan considers China’s talent poaching strategy a threat to one of its key economic drivers. To counter China’s poaching tactics, Taipei beefed up its Trade Secrets Act to penalise the leaking of intellectual property rights and corporate secrets. Taiwanese companies also vouched to raise employee pay levels.
Developments in cross-Strait relations have strengthened Taiwan’s resolve. Last December, Taiwan’s National Communications Commission suspended sales of three Huawei smartphone units after Huawei listed Taiwan as part of China in the time zone and contacts menu. The re-election of Taiwanese President Tsai Ing-wen in January presents a renewed possibility that Taiwan could curb China’s access to leading semiconductor suppliers like TSMC. Washington is allegedly offering TSMC the opportunity to start manufacturing its chips in the United States to prevent Chinese interference. Taiwan could initiate more strict trade controls against Huawei in exchange for Washington’s increased support to counter Beijing’s threat of diplomatic isolation.
On the economic front, Taiwan is capitalising on the US–China trade-turned-tech war with government incentives to attract Taiwanese companies homebound. As of last November, Taiwan’s Ministry of Economic Affairs had secured US$23 billion worth of investment pledges from 156 Taiwanese companies returning from the mainland. Having secured another term in office, President Tsai will likely leverage such momentum to boost Taiwan’s economic development through manufacturing upgrades and job creation.
Technology transfers and acquisitions are no longer sufficient for China to realise its technological ambitions, as its major competitors are also investing and improving. International talent collaboration and R&D remains the most feasible path for Made in China 2025 to come into fruition. Huawei is allegedly mobilising its people to search for new supply chains and R&D partnerships to circumvent US sanctions. If the Taiwanese government successfully courts greater US support, China might be forced to start exploring elsewhere.
Huawei’s resolution of survival is geared towards downplaying its ambition to dominate the 5G race. But underneath this resolution lies an insatiable appetite for technological independence primarily through talent poaching. Switching to survival mode is well-timed as the United States and China reach a ceasefire with the signing of the ‘phase one’ trade deal. Evading the spotlight is the ideal move for Huawei as it prepares for a comeback when it can truly claim to be self-reliant.
Mark Manantan is a Young Leaders Fellow at the Pacific Forum and founder of Bryman media.
The views expressed in this article are the author’s own.