The strong ARM of the law – Leica and DJI may be swept up in Trump’s blacklisting war, as Huawei suppliers melt away under pressure

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UK based, Japanese owned chip-designer ARM this week announced it is severing business ties with Huawei and others are following suite. Panasonic too, have announced a complete cut in the supply of unspecified components to the Chinese company. According to Nikkei Asian Review, even German chipmaker Infineon confirmed on Monday it needed to “halt American-origin shipments to Huawei to comply with U.S. law”. What hope for Huawei supplier Leica?

Huawei said in a statement to reporters that it valued the close relationships with partners, but recognised the intense pressure they are under as a result of ‘politically motivated decisions’.

No OS. No carrier support, and now no CPU. That’s the damning situation one of the best smartphone manufacturers in the world right now finds itself in thanks to The Apprentice host.

The US Department of Commerce “Entity List” was originally designed to stop US businesses trading with terrorist organisations and supporters, but it’s now being used in a global economic war by Donald Trump, TV presenter.

At the same time, carriers around the world including in the UK, South Korea, Taiwan and Japan are withdrawing support for Huawei’s smartphones. It appears new handsets including the just announced P30 Lite and 48 megapixel camera phones by sister brand Honor won’t be stocked on major networks like EE, Vodafone and Softbank.

The implications for British-Japanese chip-designer ARM are huge too – they have just lost a massive revenue stream and one of their biggest customers. The UK government is meanwhile too busy collapsing to understand what is even going on. If ARM, who aren’t even a US organisation, have to pick a side and comply with Trump’s Department of Commerce, then what are the chances this is going to spill out into the other markets such as cameras and drones?

High.

ARM Holdings

At a stroke, the US government can cripple any Chinese part-maker or technology company using an ARM processor – that’s almost all of them. ARM licenses its technology in 90% of the world’s energy efficient processors, which are in a whole host of electronics including our cameras.

Although not a US-company, ARM’s technology is based on RISC chip designs and an array of US-origin technology. Therefore legally, it has no choice but to comply with the US Entity List that prevents companies trading US technology with blacklisted Chinese organisations like Huawei.

Panasonic and Fujifilm

The Panasonic GH5 and Fuji X-T3 are both Made in China and contain ARM processors. Should the supply of ARM technology into Chinese factories cease, then so will the production of Panasonic and Fuji cameras.

Furthermore, should the Chinese government retaliate in an escalation of the trade-war with the US, it could block imports from Chinese factories to the US, or to US subsidiaries of Japanese companies.

It could even ask Chinese manufacturing facilities to refuse altogether the business of US companies and US allies like Japan, in a strong-armed negotiating tactic with the US.

Politically, although there’s nothing to stop the Japanese continuing to do business with Chinese industry, the US is forcing them to pick a side, as it is doing to UK companies like ARM. Should Japanese companies who rely on the huge US market for their products, like Canon and Nikon do, wish to stay on the right side of US law (hint – they do), they may have to stop doing business and manufacturing in China. This would be extremely harmful for the camera industry at an already challenging time and result in a potential doubling or quadrupling of prices for cameras like the X-T3.

Furthermore, the global economy might be destabilised.

Sony

Sony supply Huawei with cutting edge Quad Bayer, 40 megapixel sensors and will be under legal pressure to stop, because CMOS designs likely contain technology and patents of US-origin as well.

Various Japanese camera manufacturers manufacture their goods in Chinese factories, putting them at risk of any retaliation by the Chinese government in response to US provocations. All in all, the whole technology sector could begin to wobble on the stock market as soon as this week.

Leica

The famed German camera giant Leica currently has a major international business link with Huawei, whose flagship smartphones carry Leica branding and the Vario naming convention for zoom lenses. There’s probably also a technical collaboration on the optics.

Leica will now be under huge pressure from US law to end all of that and kiss goodbye to millions of Euros worth of legally binding contracts.

Future products may be at risk at both companies.

DJI

Chinese drone manufacturer DJI uses processors containing ARM’s RISC technology. They are also the owner of Hasselblad.

Drones have already put the US government on paranoid red(neck) alert over security and safety fears. Even if DJI aren’t next on the dreaded Entity List, one of their Chinese suppliers could be. If we speculate for instance that a drone’s modem chipset, wifi chip or communications hardware may come from a Chinese company like Huawei and contain ARM intellectual property, Huawei will either have to stop supplying DJI or break the law, which by extension means DJI drones will have illegally sourced US technology in them, and so won’t be able to be imported or sold into Western markets.

RED

Foxconn makes front-end LSI circuits for RED Digital Cinema Cameras. Although Foxconn is a Taiwanese owned company, it too uses US origin technology, ARM licenses and home-grown Chinese parts. Should any of these be impacted by the trade war, RED will be in trouble as well.

If RED camera were made only in the US with only US parts, they would be cost price uncompetitive on the market vs Sony, Canon and even Arri.

ZTE

Chinese smartphone giant ZTE (whose 4K shooting Axon 7 smartphone was promoted by Philip Bloom and well received on the market) was placed on a different US blacklist, the Denied Persons List, banning it from doing business with US companies for 7 years. ZTE was removed from the list after just 3 months but it had a massive impact on their smartphone division. Major releases were axed or delayed. Carriers withdrew support. Hardware couldn’t be sourced as planned. There was an enormous reputation hit, in the eyes of everyone – suppliers, business partners and consumers.

The successful Axon 7 eventually got a successor years later, the Axon 9, but by the time it arrived in Europe, hardly a single shop or carrier was willing to stock it.

If you think the Denied Persons List is bad, the Entity List is even worse. It makes the Denied Persons List look like a trial run.

It has no expiry so a company can be kept on the list indefinitely. Previous US governments used the Entity List for terrorist supporters and organisations, and it would have been unthinkable under previous administrations to put a private company like Huawei on it.

Huawei aren’t an Afghan or Iranian arms dealer. They are a major customer of a huge spectrum of US companies, as well as a big player in the Android smartphone market. Believe me, Google wants the Play Store on millions of these devices all around the world.

Does Trump realise this? Does he realise how hard American bluechip companies have fought to win business with Chinese consumers?

When you look at the actual Entity List at the US department of commerce, it’s clear the extent to which the US government is trying to limit Chinese technological progress. There are various electro-optical suppliers and manufacturers on there, camera component supply and design firms, and a whole host of university research departments. There’s aerospace, aeronautics and astronautic companies involved in Chinese military equipment and space missions. Physics research organisations, engineering academies, all manner of clever people and even the national supercomputing centre in Hunan Province.

With a man who doesn’t understand the technology business wielding this list like a baseball bat, in order to bully China in a trade war, things have the potential to get messy for everyone.

Even home-grown components won’t help Huawei or 5G technology

ARM RISC processor designs are in a LOT, and I mean a LOT… The “in-house” Huawei Kirin 980 processor made and designed by Huawei themselves has ARM technology in it. This CPU is authentically a Chinese rival to the US Qualcomm Snapdragon range, but due to the use of ARM designs and IP, it effectively contains US-origin technology.

Huawei is now unable to license the patents or technology from ARM, to manufacture their own CPUs like the Kirin chip.

And not only does the ARM CPU technology go into smartphones, but it goes into pretty much everything Huawei sells including – yes, you’ve guessed it – 5G network equipment like modems.

Finally, we get to what all of this is really about – 5G hardware sales. All of the 3G and 4G network equipment in the world will eventually be replaced by 5G, and the US wants the sales for itself. We are talking trillions of dollars. China has taken a well deserved lead both in technology and cost terms over US companies like Intel in 5G hardware. The Trump administration wants the money instead… and will stop at nothing to halt the Chinese.

So this is not about security and it’s not even about smartphones.

This is a major drama, economic warfare. It has far reaching implications beyond just Huawei’s smartphone and 5G business.

The Chinese government can easily say to Western companies, and even Japanese ones selling into the US – no more factory time for you.

I also expect there’s quite a few Chinese-origin technology, designs and patents in US products.

For a war to happen, both sides need something to lose. It appears in this situation, there is a massive amount at stake all over the world and it’s hard to expect a TV host with only one brain cell to understand the big picture.

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