Nokia, Ericsson, Others Gain as U.K. Bans Huawei From 5G Networks

The U.K.'s prohibition against buying Huawei's 5G equipment comes as the Chinese tech giant reports strong revenue growth on the back of growing domestic demand.
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As Huawei continues reporting healthy revenue growth with the help of strong Chinese demand, the number of overseas headwinds it’s facing continues to grow.

On Tuesday morning, the British government announced that local telecom carriers won’t be able to buy Huawei’s 5G infrastructure equipment beginning in January 2021, and that they need to remove all of Huawei’s equipment from their 5G networks by 2027. It estimates that the cost of removing Huawei from British telecom networks will be around £2 billion ($2.51 billion).

Mobile infrastructure providers Nokia and Ericsson are both rallying following the U.K.’s announcement. As of the time of this article, Nokia  (NOK) - Get Report is up 2.9% to $4.30, and Ericsson  (ERIC) - Get Report is up 2.3% to $9.52.

A few other telecom equipment providers are also ticking higher on a day when the Nasdaq is down slightly. Juniper Networks  (JNPR) - Get Report is up 1.1%, Ciena  (CIEN) - Get Report is up 0.7% and Infinera  (INFN) - Get Report is up 1.7%.

The U.K. decision arrives less than two weeks after the head of France’s cybersecurity agency said that the French government is discouraging local telcos from using Huawei’s 5G equipment, albeit without banning them from doing so. Previously, Reuters reported that the French government wanted to keep Huawei’s gear out of core mobile networks (as opposed to radio networks), since core network traffic carries higher surveillance risks.

In addition, following the breakout of violence along the Indo-Chinese border, India's government is reportedly thinking about banning both Huawei and Chinese peer ZTE’s equipment from its telecom networks. India has already banned TikTok and a number of other mobile apps developed by Chinese companies.

The U.S. government has of course already imposed a number of restrictions on Huawei and ZTE. In May, the Trump Administration extended major restrictions first placed in 2019 on the ability of U.S. companies to purchase equipment from Huawei and ZTE, as well as to sell products to them, for another year. And around the same time, the Commerce Department imposed new sanctions on Huawei that attempt to prevent its HiSilicon chip unit from either using American chip design software or having its chips produced with the help of U.S.-made semiconductor manufacturing equipment.

In addition, in June, the FCC declared Huawei and ZTE to be national security risks, a move that prevents U.S. telcos from using funds obtained via the FCC’s $8.3 billion Universal Service Fund to purchase Huawei/ZTE equipment.

In spite of such overseas headwinds, Huawei is for now still reporting solid top-line growth, thanks in large part to strong domestic demand for its smartphones and telecom equipment.

Huawei announced on Tuesday that its revenue rose 13.1% annually during the first half of 2020 to RMB454 billion ($64.9 billion), with its carrier, consumer and enterprise segments all seeing growth. With Huawei having previously announced that its Q1 revenue rose just 1.4% to RMB182.2 billion ($26 billion), its latest disclosure implies that its Q2 revenue rose 23% to RMB271.8 billion ($38.9 billion).

This growth has been made possible in part by the fact that Huawei has stockpiled U.S.-developed chips and components that are or could become subject to U.S. export restrictions. In June, Japan’s Nikkei reported that Huawei had built up reserves of “essential” U.S. chips, such as Intel  (INTC) - Get Report CPUs and Xilinx  (XLNX) - Get Report FPGAs, that could last for 18 to 24 months.