By John D. McKinnon in Washington, Dan Strumpf in Hong Kong and Yoko Kubota in Beijing
U.S. officials said Monday they would grant a handful of
temporary exceptions to an export blacklist against Huawei
Technologies Co., giving some suppliers and customers of China's
telecom giant a 90-day reprieve from tough trade penalties.
In an order scheduled to be published on Wednesday, the Commerce
Department said it would grant a temporary license for U.S. exports
to Huawei and dozens of its affiliates. The U.S. announced the
blacklist order last week on grounds that Huawei was a national
security threat.
The reprieve comes hours after Alphabet Inc.'s Google unit
signaled plans to cut access to some of its most-popular features
on new Huawei smartphones. The move late Monday put a hold on those
plans, according to a person familiar with the matter.
The reprieve for Huawei eases tensions between the U.S. and
China as both countries seek to get trade talks back on track.
Shutting off Huawei's access to U.S. components without exceptions
would be a devastating blow to the company.
The exceptions show the blacklist order has "always been for
leverage in the trade talks," said Derek Scissors, an American
Enterprise Institute scholar.
The reprieve also could help the U.S. as it seeks to persuade
allies around the world to ban Huawei gear from their networks, by
limiting the immediate global disruptions from the U.S.
blacklist.
The effect of the new license is to create relatively narrow but
significant exceptions to last week's tough export ban, allowing
U.S. suppliers to begin figuring out how to move forward under the
export ban, without unduly disrupting their contracts, or existing
networks.
"The Temporary General License grants operators time to make
other arrangements and the Department space to determine the
appropriate long term measures for Americans and foreign
telecommunications providers that currently rely on Huawei
equipment for critical services," said Secretary of Commerce Wilbur
Ross. "In short, this license will allow operations to continue for
existing Huawei mobile phone users and rural broadband
networks."
The temporary reprieve isn't a huge positive for Huawei, but it
does give U.S. businesses some time to get their affairs in order,
said Michael Allen, a managing director at Beacon Global Strategies
LLC, which is advising clients on the issue. "It's a temporary stay
of execution," he said.
Last week's blacklist order said that U.S. firms generally could
no longer export chips or other technology to Huawei, unless they
obtained an individual license from Washington, and few were
expected to be granted.
One beneficiary of the new temporary license appears to be rural
wireless carriers in the U.S., many of which still use Huawei
equipment. They had worried that the blacklist could hurt their
operations by limiting their ability even to communicate with
Huawei about their networks.
But the scope of the exceptions isn't limited to rural carriers
and applies to other networks that depend on Huawei gear. The
exceptions also cover support to existing Huawei handsets that were
available to the public on or before May 16, the day the blacklist
became effective.
In advance of the temporary order, Google and other companies
that provide parts or services to Huawei planned potentially
disruptive changes. Huawei phones run on Google's Android software,
and the U.S. company was set to cut off new Huawei handsets from
software updates to popular branded apps like Gmail and Maps.
Independent apps, such as video-streaming services, weren't
expected to be affected.
The inability to use Google apps would be a big hit to Huawei,
said Melissa Chau, an analyst at International Data Corp. "Google
apps are incredibly important to a company like Huawei, which is
deeply reliant on smartphone shipments outside of China, and
representing half of its global shipment figure," she said. Ms.
Chau said it was of "critical importance to have this resolved as
soon as possible."
In response to the Commerce Department announcement,
Semiconductor Industry Association President and Chief Executive
Officer John Neuffer said his group hoped to work with the Trump
administration to broaden the scope of exemptions to advance "U.S.
security goals in a manner that does not undermine the ability of
the U.S. semiconductor industry to compete globally and ensures the
economic security of an industry that is the backbone of this
country's technology leadership."
Moving forward, Huawei will be able to use only the public
version of Android and won't have access to proprietary apps and
services from Google, according to a person familiar with the
matter. Though existing phones are expected to keep functioning
largely as usual for now, users could lose some app functions,
including some artificial-intelligence and photography features,
the person said.
In a separate move, German chip maker Infineon Technologies AG
said it was terminating the delivery to Huawei of some components
originating in the U.S., in a sign that even non-U.S. suppliers to
Huawei are being swept up in the U.S. trade restrictions. Infineon
didn't specify which components were affected by the action but
said the "great majority" of products it sells to Huawei aren't
subject to trade restrictions.
Qualcomm Inc., based in San Diego, has suspended shipments to
Huawei of its chips, and some employees have been told not to
communicate with the Huawei side, according to a person familiar
with the matter. Qualcomm chipsets are used in certain Huawei
smartphone models. Huawei also designs a large number of its own
chips for higher-end phones.
Lumentum Holdings Inc., which makes optical components for
smartphones, said it was stopping shipments to Huawei. In fiscal
2018, the company generated about 11% of its revenue from sales to
Huawei.
Lumentum altered its fiscal fourth-quarter guidance to reflect
the halt, now expecting revenue of between $375 million and $390
million, down from a range of between $405 million and $425
million. It expects adjusted per-share profit of 65 cents to 77
cents, down from 85 cents to $1.
Xilinx Inc. said it also has begun complying with the Trump
administration's order. The ban on shipments to Huawei could shave
about $300 million off the chip maker's annual revenue for the
calendar year, Christopher Rolland, an analyst at Susquehanna
International Group, wrote in a research note. Xilinx is expected
to record $3.43 billion of revenue this year, according to analysts
surveyed by FactSet.
The U.S. also granted a similar but broader reprieve to ZTE
Corp. after it violated U.S. trade sanctions against Iran. Huawei
now faces its own U.S. charges of sanctions violations. U.S.
officials also regard its network equipment as a security risk,
fearing the Chinese government might use it for espionage or
sabotage. Major U.S. carriers stopped using Huawei gear several
years ago.
Other exceptions to last week's tough export ban will cover
disclosures of cybersecurity vulnerabilities; and engagement with
Huawei for development of international standards on
next-generation 5G.
Kate O'Keeffe and Rob Copeland contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com, Dan Strumpf
at daniel.strumpf@wsj.com and Yoko Kubota at
yoko.kubota@wsj.com
(END) Dow Jones Newswires
May 20, 2019 20:43 ET (00:43 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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