Op-Ed: US sanctions against Huawei keep backfiring. Enough already.

• Huawei has turned America’s bitter sanctions lemons into global licensing lemonade

• U.S. attempts to limit the spread of Chinese tech globally have spurred an increase in use of Chinese tech globally

• The guiding principle of U.S. strategy appears to be hubris 

Einstein famously said that the definition of insanity is doing the same thing over and over and expecting a different result. You don’t have to be a genius to see that this is exactly what the U.S. is doing with its spectacularly ill-advised sanctions against Chinese tech companies.

Patents are the latest example of the U.S. shooting itself in the face.

Patent licensing is one of the most unusual and important features of the telecom industry, providing a trusted mechanism that allows vendors to share their most proprietary and valuable intellectual property with their competitors — and know that they will get paid for doing so.

Historically, Huawei, the world’s largest producer of telecom equipment, eschewed the idea of using its vast patent portfolio to make money, instead using its IP primarily to prevent others implementing its technology.

But that changed in 2022 when founder and CEO Ren Zhengfei reportedly instructed the Huawei’s patents division to step up its focus on licensing its patents — a shift driven by the need to diversify revenues in the face of U.S.-led sanctions, which threatened to stymie its growth. 

So, how did things go?

Huawei’s licensing business has taken off like a rocket (a cool, steadfast Saturn V rocket, not one of the exploding SpaceX ones). The company has generated $560 million in patent revenues monetizing its technology. It hasn’t announced revenues for 2023 or 2024, but making the conservative assumption that its patent business is growing at the same rate at the rest of the company, it will likely make nearly $700 million from licensing this year.

Most of that is pure profit. Huawei doesn’t share the P&L breakout for its licensing division, but the equivalent business over at Nokia is 70% profitable.   

Extrapolating from that, Huawei will recognize about half a billion dollars of profit from licensing fees this year — and a significant chunk of that is found money that it wouldn’t have seen at all if the U.S. hadn’t launched its politically driven campaign of sanctions and embargoes against it. Oh, the irony.

But wait, it gets better — or, if you’re a U.S. politician, worse. U.S. sanctions against Huawei are intended to prevent the increasingly ubiquitous use of Chinese tech around the world. Until 2022, Huawei had used its 140,000 active patents defensively, to prevent its competitors from being able to implement its technology.

By provoking Huawei into opening the door wide to licensing deals for its patents, the U.S. has actually helped drive the spread of Chinese technology into parts of the world that would never have used it otherwise. Up until 2023 Huawei had signed 200 licensing deals in total, allowing companies around the world to use its patented technology, which showed up in cellular networks, cloud computing, optical technology, as well as — count them — 450 million 5G phones and 15 million smart vehicles.

This trend will only accelerate with the arrival of 6G around the end of the decade. China already accounts for 40% of patent applications for the next global cellular standard — more than any other country.

All of which is great news for the world’s consumers and businesses, which are the ultimate beneficiaries of leading hi-tech comms solutions that would otherwise have been unavailable to them. But for the U.S. policy makers, it’s a disaster.

Can’t beat stupid when it comes the U.S. and Huawei

This is just the latest in a list of extraordinary pratfalls by the U.S. in its efforts to thwart Huawei and its smaller competitor, ZTE. 

Back in 2019 the U.S. banned Intel and Qualcomm from selling 5G chips to Chinese companies — a “that’ll teach ‘em” move that assumed China wouldn’t be able to work out how to make its own 5G chips. Which is of course precisely what it did in 2023. As a result, China can now not only circumvent the U.S. ban, but it can also compete with American vendors (Qualcomm, Intel, Marvel) by selling its own 5G silicon.

But why should China stop there? Having demonstrated that it can successfully crack the next-gen radio chip market, there’s no reason why China won’t next apply its manufacturing prowess to build other advanced types of silicon (optical? AI?) resulting in yet further damage to the Western tech sector.

Why are U.S. legislators getting this so wrong? Culture.

Its policy towards Huawei manifests several core American values: the bluster of Foghorn Leghorn, the intellect of Derek Zoolander and the hubris of Wile E. Coyote. (Can't imagine what that would look like? See our AI-generated art to the right.) 

It’s also flagrantly dishonest — built around two McCarthyistic “big lies.”

The first falsehood is that the sanctions are working. This is nonsense. Huawei’s profits doubled last year to $12 billion, and revenue grew 10% over 2022, to $97.4 billion. If this is how Huawei performs in the face of successful sanctions, I can only imagine how it would be doing if they’d failed.

Part of its growth comes from its growing dominance in the global south (Huawei already accounts for 70% of telecom infrastructure in Africa, for example). But the sanctions themselves have also lacked bite, with service providers in countries which have passed legislation banning Chinese equipment missing deadlines to remove it, including the two most vociferous proponents of sanctions: the U.S. and its yappy sanctions poodle, the U.K. 

Service providers are dragging their feet partly because of the work and expense involved, but also because they know that the other justification for banning Huawei and ZTE — that they represent a security risk — is complete bollocks. There are many ways that China can and does spy on the U.S. — just as the U.S. spies on China, including spending billions on constellations of spy satellites.

But speaking as an independent analyst and advocate of the telecom industry for over 30 years, I can tell you unequivocally that hiding spyware (the mythical “backdoor” referenced by U.S. politicians and intelligence agencies) in Huawei telecom equipment is not one of China’s espionage strategies and never will be.

Turnabout is fair play

Sitting far beyond the influence of the political circus, the patent licensing industry ignores this folly and continues to quietly go about its business — a peaceable kingdom of cooperation and profit for the benefit of all. 

Since refocusing its IP licensing business Huawei has inked deals with Samsung, Nokia, Ericsson, Amazon, EDMI (a subsidiary of Osaki) and Sharp, among others. Far from reducing the influence of Chinese tech, sanctions have helped foster a new golden age of collaboration among the world’s leading technology companies. Oops.

U.S. strategy currently amounts to throwing the pin away while hanging onto the hand grenade. If it really wants to combat Chinese tech, America needs to stop allowing politicians to make decisions that should be taken by grown-ups. A combination of enthusiastic cooperation and fierce competition is what is required. That level of nuance is clearly beyond the grasp of America’s legislators.

Ed. Note: For more on Huawei’s patent strategy, watch for our interview with Alan Fan, head of Huawei’s IP licensing business, which will be published next week.

This article was updated on May 30, 2024, at 9:59 am EDT with updated statistics from Huawei.