Google will work with Huawei for the next 90 days after US eases restrictions

Google has been granted a 90-day extension to continue to work with Huawei, in an easing of stringent U.S. restrictions on the Chinese telecom equipment and phone maker. 

The U.S. Commerce Department blocked Huawei Technologies from buying U.S. goods last week, a major escalation in the trade war between the world’s two top economies, saying the firm was involved in activities contrary to national security.

The two countries increased import tariffs on each other’s goods over the past two weeks after U.S. President Donald Trump said China had reneged on earlier commitments made during months of negotiations.

On Monday, the Commerce Department granted Huawei a license to buy U.S. goods until August 19 to maintain existing telecoms networks and provide software updates to Huawei smartphones, a move intended to give telecom operators that rely on Huawei time to make other arrangements.

On Monday, the Commerce Department granted Huawei a license to buy U.S. goods until August 19, allowing Google to continue sending updates to Huawei phones until then

Huawei is still prohibited from buying American-made hardware and software to make new products without further, hard-to-obtain licenses.

Huawei founder Ren Zhengfei on Tuesday told Chinese state media that the reprieve bore little meaning for the company as it had been making preparations for such a scenario.

‘The U.S. government’s actions at the moment underestimate our capabilities,’ Ren said in an interview with CCTV, according to a transcript published by the Chinese state broadcaster.

The U.S. controls ‘will have no impact within this company’ and none on development of next-generation telecom technology, Ren said. He said some low-end business might be affected. 

Chip experts have called out Huawei on its claims that it could ensure a steady supply chain without U.S. help, saying the technology it buys from American companies would be ‘hard to replace’.

Nearly 16 percent of Huawei’s spending on components in 2018 went to U.S. firms including Qualcomm, Intel and Micron Technology, analysts said.

Huawei founder Ren Zhengfei (seen in file photo) said on Tuesday that the U.S. controls 'will have no impact within this company'

Huawei founder Ren Zhengfei (seen in file photo) said on Tuesday that the U.S. controls ‘will have no impact within this company’

Monday’s temporary license is likely to allow companies such as Google to continue providing service and support, including software updates or patches, to Huawei smartphones that were available to the public on or before May 16.

‘Keeping phones up to date and secure is in everyone’s best interests and this temporary license allows us to continue to provide software updates and security patches to existing models for the next 90 days,’ a Google spokesperson told CNBC in an email on Tuesday.

The license also allows Huawei to engage in the development of standards for fifth-generation (5G) telecom networks.

American officials say Huawei and other Chinese telecom equipment vendors are a risk because they are beholden to the ruling Communist Party and act as arms of Chinese intelligence services. Huawei denies accusations it facilitates Chinese spying. 

The Trump administration’s order last week steps up pressure on Huawei, which Washington says is a security risk, and threatens to hamper sales of network gear and other products. Huawei is the No. 2 global smartphone brand but relies on Google’s Android operating system and U.S. components suppliers.

China’s government repeated its promise to defend Chinese companies abroad but gave no details of what Beijing might do.

Huawei has developed its own chips for some smartphones and other products but relies on American suppliers for its most advanced components.

Huawei and Google are discussing possible ’emergency relief measures’ for its smartphone business, which might lose access to some of the American company’s services, Ren said. He gave no details.

Google, a unit of Alphabet Inc., said Monday its basic services still will work on Huawei smartphones, which use its Android operating system.

Google gave no details of what services might be curtailed. But the company would be barred from transferring hardware or software directly to Huawei. That would affect maps or other services that require the American company’s support.

Huawei trails only Samsung of South Korea in global smartphone sales. Industry analysts say it might struggle to compete if it cannot line up replacements for Google services that run afoul of the U.S. curbs.

‘I should say this impact will be very big, but Google is an extremely good company,’ Ren said. ‘We are discussing emergency relief measures.’

A foreign ministry spokesman accused Washington of misusing ‘state power’ to hurt foreign companies and interfere in commercial markets.

‘The Chinese government has determination and ability to safeguard its legitimate and lawful rights and interests,’ said the spokesman, Lu Kang.

Apple Inc., Huawei’s main American rival in smartphones, makes a prominent potential target for Beijing. The company’s iPhones are assembled in China and the country is its No. 2 market after the United States.

Attacking Apple might be politically awkward for Chinese leaders who have accused Washington of mistreating Huawei. Business groups say Chinese officials are trying to reassure American companies they are welcome despite Beijing’s tariff war with President Donald Trump. But regulators have an array of tools including tax and safety inspections that can hamper a company with no official acknowledgement it is targeted.

Huawei’s U.S. sales collapsed in 2012 after a congressional panel told phone carriers to avoid the company and its smaller Chinese competitor, ZTE Corp., as security threats.

Despite that, Huawei’s sales elsewhere have grown rapidly. The company reported earlier its global sales rose 19.5% last year over 2017 to 721.2 billion. Profit rose 25.1% to 59.3 billion yuan.

Huawei smartphone shipments rose 50 percent over a year earlier in the first three months of 2019 to 59.1 million, while the global industry’s total fell 6.6%, according to IDC. Shipments by Samsung and No. 3 Apple declined.

Last week’s order, however, threatens to disrupt Huawei’s global business by limiting access to components for products sold everywhere, not just in the U.S. market.

It will take effect after a 90-day grace period that will allow some transactions to allow telecom operators that depend on Huawei equipment for ‘critical services’ time to make other arrangements, the U.S. Department of Commerce said Monday in a notice on its website.

Washington has tried to persuade U.S. allies to shun Huawei as a supplier of fifth-generation technology. Australia, Taiwan and some other governments have imposed curbs on use of Huawei technology, but Germany, France and other countries still do business with the company.