US hits at Huawei innovation with blacklist of R&D centers – Nikkei Asian Review

TAIPEI — Washington has blacklisted more than 20% of Huawei Technologies’ global R&D and innovation centers in its latest crackdown on the Chinese tech giant, striking at the heart of the company’s ability to innovate.

At least 11 of Huawei’s key research facilities, including sites in the U.K. and Italy, were named on a new list of 46 affiliates with which U.S. companies cannot trade unless they have Washington’s approval.

The new blacklist was published Monday as the U.S. Commerce Department extended a 90-day grace period for the world’s largest telecom equipment maker to continue buying certain products and services from American companies.

The decision to target research facilities intensifies the pressure on China’s flagship technology company as it copes with the first blacklist imposed by Washington in May. More than 100 Huawei affiliates now are barred from trading with U.S. companies. Previously only one research center in Belgium had been blacklisted.

“It shows that the U.S. government is expanding the scale of its clampdown on the company,” said Chiu Shih-fang, a veteran tech analyst at the Taiwan Institute of Economic Research. The blacklisting could slow Huawei’s research and development capability if these facilities lose access to U.S. technologies, the analyst said.

Being on the blacklist “limits [Huawei’s] ability to acquire U.S. technology,” said Dan Wang, technology analyst at Gavekal Dragonomics. “The deadline extension is not an indication that the U.S. government intends to relax its controls.”

The 11 newly listed research sites include Huawei’s Milan institute and the Centre of Integrated Photonics in the U.K. The Milan center was Huawei’s first global research facility, according to its website, and employs one of the company’s most noted scientists, Renato Lombardi, to study microwave technology used in mobile and satellite communication. The U.K. facility specializes in developing photonics devices.

The other blacklisted research centers are in China, including a Beijing institute that Huawei claims is the world’s largest router testing facility, and the Chengdu Research Center, where it develops storage technology.

Huawei on Tuesday criticized the Commerce Department’s action as politically motivated. Washington’s attempt “to suppress Huawei’s business won’t help the United States achieve technological leadership,” the company said.

Nevertheless, the move represents a blow to the tech group, which had earmarked Italy and Britain for billions of dollars in new investment to expand its research facilities.

Huawei’s relentless focus on research and development has set it apart from many rivals, helping to drive the group’s rapid expansion of its telecom and smartphone businesses. R&D is also crucial in the company’s effort to be self-sufficient, reducing its reliance on U.S. technology.

Nearly 90,000 employees are involved in research and development, around 45% of Huawei’s total workforce. Its R&D spending of 101.5 billion yuan ($14.37 billion) equaled 14.1% of total revenue last year. The company has invested more than 480 billion yuan in R&D in the past 10 years, Huawei data shows.

The group has 15 research centers and 28 centers of expertise worldwide, according to “Explorers: Huawei Stories,” a book published by the company in late 2017.

The U.S. said the new blacklist had been necessary to ensure that previous constraints it had imposed were effective. “The Department of Commerce added the [additional] affiliates to stop Huawei from trying to circumvent the sanctions,” said Timothy Heath, senior international defense researcher at RAND Corp. “This action will further restrict Huawei’s ability to access banned U.S. technologies and services.”

The U.S. also appears to be broadening the scope of its campaign against the Chinese company’s technology, for the first time urging “consumers to transition away from Huawei equipment” in the statement from Commerce Secretary Wilbur Ross on Monday.

Until now, Washington had flagged Huawei’s telecom equipment as a threat to national security but refrained from appearing to target its smartphones or other consumer electronics.

President Donald Trump on Sunday called Huawei a national security threat and said the U.S. might not do any business with the company, a U-turn from his statement during the Group of 20 summit in June that he would allow American companies to ship products to Huawei.

Ross Darrell Feingold, a lawyer and political risk consultant, said it was inevitable that the American government would discourage consumers from buying Huawei handsets. The U.S. would not easily give up its restrictions on the massive Chinese tech company, one that symbolizes the Asian country’s rapid technological development, he said.

“Even if the U.S. and China reach a trade deal in the near or medium term, Huawei’s status in the view of the U.S. government is now a long-term matter,” Feingold said. “The Trump administration’s ‘whole of government’ approach toward China means there are numerous, multiple pressure points across trade, academia, military deployments … Huawei is one among the [many] pressure points the U.S. applies on China.”