Huawei – Nowhere to run pt. VI

It is still a reprieve in name only.

• A statement from the US Secretary of Commerce (see here) has been interpreted by the press (see here and here) that Huawei will be able to get access to all the US technology it needs for a temporary time, but I conclude the opposite and continue to think that this remains a reprieve in name only.
• Huawei remains on the entity list, but the department of commerce will be much more willing to issue some licences to trade than it was before.
• The important statement from the Secretary reads “To implement the President’s G-20 Summit directive two weeks ago, Commerce will issue licenses where there is no threat to U.S. national security”
• This statement helps Huawei because it has no business in the USA and therefore it does not arguably represent a direct threat to U.S. national security. (Hawks would disagree).
• However, this was followed by something less helpful which was: “Within those confines, we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms.”
• To me, this means that the Department of Commerce will issue licences for US technology products where there is no threat to US security and where the products are easily available from companies in other countries.
• This concurs with Larry Kudlow’s comments to Fox News on 30^th June (see here).
• This will cover things like memory, storage, 4G radio basebands all of which are available in plentiful supply elsewhere.
• Crucially, I think this will not cover Google Mobile Services, 5G basebands, Windows software, Field Programmable Gate Arrays (FPGAs) all of which are currently only available from US companies
• Unfortunately, Huawei needs the Google Ecosystem to sell smartphones outside of China, Windows to sell PCs and FPGAs to sell basestations meaning that the majority of its business will remain hobbled.
• Consequently, I do not think that this “reprieve” helps Huawei at all and even if it did, there is a good chance that fatal damage has already been done (see here)
• The potential main beneficiaries would be Samsung, Nokia and Ericsson but I still think Samsung remains the best way to play this theme.
• This is because it has the brand, scale and the presence to ramp up supply and distribution to ensure that there are plenty of Samsung products to meet demand as Huawei falls by the wayside.
• This has not been priced into Samsung’s shares in any way making Samsung a very interesting stock to consider.
• My portfolio remains long Samsung Electronics.