With jailed CFO, Huawei's future darkens

Huawei is the world's largest wireless network equipment provider. (Dell'Oro Group)

Huawei’s CFO—the daughter of the company’s founder—is scheduled to appear today in a Canadian court for a bail hearing. The extraordinary situation comes as Huawei faces growing challenges across the world in its efforts to retain its position as the world’s largest wireless network equipment provider.

Huawei’s chief financial officer was arrested in Canada due to requests from U.S. officials, who are looking to extradite Meng Wanzhou to the U.S. as part of an investigation into Huawei’s alleged use of the global banking system to evade U.S. sanctions against Iran. (That’s noteworthy, considering that’s the exact same allegation the U.S. levied against Huawei’s fellow Chinese vendor ZTE when the U.S. government essentially banned business between U.S. companies and ZTE.)

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It’s unclear what Huawei’s next steps will be. According to a lengthy report from Reuters, the company has said that it was not aware of any wrongdoing, and the Chinese government has demanded Meng be released.

According to Reuters, Meng is likely being held in a Spartan detention facility somewhere in Vancouver, potentially with other inmates. Canadian officials likely will argue Meng poses a flight risk and should be kept in a detention facility; if she decides to fight extradition to the U.S., the court battle could last years.

Beyond Meng’s situation, though, are massive repercussions for Huawei, the world’s wireless industry and the global geopolitical situation.

For Huawei, the situation comes amid a global backlash against the company and its equipment, which critics have argued could open backdoors for Chinese espionage. Already the governments of Australia, the UK and Germany have joined the U.S. in taking action against Huawei, and just this week Reuters reported Japan is poised to issue rules preventing government agencies from purchasing equipment from Huawei and ZTE.

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For the world’s wireless industry, the situation likely is giving wireless network operators across the globe second thoughts about using equipment from Huawei. Already, BT in the U.K. has signaled it plans to remove Huawei equipment from its core network.

That’s important considering Huawei is the world’s largest supplier of wireless network equipment. Indeed, Dell’Oro Group reported that Huawei’s revenue share continued to improve in 2018, up about four percentage points between 2015 and the first nine months of 2018. During this period, the firm said, Ericsson’s and Nokia’s market share declined one and three percentage points, respectively.

Huawei’s troubles could open an opportunity—worth $5 billion, according to one estimate—for the company’s rivals.

Finally, in terms of geopolitical issues, the arrest of Huawei’s CFO comes amid a brewing trade war between the U.S. and China, two of the world’s undisputed superpowers. Incredibly, as The New York Times pointed out, China’s President Xi Jinping and President Donald Trump were meeting in Argentina at roughly the same time Canadian officials took Huawei’s Meng into custody. That’s worth mentioning, considering Huawei is one of China’s top companies: The situation would be similar to Chinese officials arresting the daughter of Apple CEO Tim Cook.

The New York Times article also noted the situation could sour Trump’s efforts to negotiate a new trade agreement with China.