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Trade War

Huawei probe risks bigger shock to smartphone industry

A ban similar to ZTE's would choke off supplies to the world's third-ranked vendor

U.S. authorities are reportedly investigating whether Chinese smartphone leader Huawei violated American sanctions related to Iran. (Photo by Akira Kodaka)

BEIJING/WASHINGTON -- Sino-American trade frictions are mounting in the global smartphone industry as U.S. authorities turn up the heat on Chinese market leader Huawei Technologies.

The U.S. Department of Justice is looking into whether the world's No. 3 smartphone maker violated American sanctions targeting Iran, media outlets reported on Wednesday.

Similar allegations prompted the Commerce Department to impose a seven-year ban on American technology exports to smaller rival ZTE, which also depends heavily on foreign suppliers. The same fate would deal a heavy blow to Huawei.

Huawei said in a Thursday statement that it complies with "all applicable laws and regulations where it operates."

Chinese icon Huawei, an unlisted private business whose founder served in the People's Liberation Army, reported revenue of 603.6 billion yuan ($95.2 billion) for 2017. This was 5.5 times the tally for listed and substantially state-owned ZTE, though their businesses are similarly composed of smartphones and communications equipment.

Huawei has ramped up its smartphone business in recent years. It shipped 153 million units in 2017, taking a 10% slice of the global market, behind the 22% and 15% shares of leaders Samsung Electronics and Apple. ZTE came in ninth with 3%.

Huawei leads the Chinese market in sales and makes 35% of its sales abroad.

Huawei smartphones run on Android, the Google mobile operating system that constitutes the only real alternative to Apple's iOS. Losing access to Android would render Huawei essentially unable to make new phones.

Penalties on Huawei would impact American businesses as well. A ban like ZTE's would likely spur changes in production plans for Huawei's U.S. semiconductor suppliers, including Intel and Qualcomm, whose acquisition ambitions have been held up by Chinese antitrust regulators amid the spat over ZTE.

Apple CEO Tim Cook visited the White House on Wednesday and likely discussed the China trade situation with President Donald Trump. The iPhone maker's supply chain runs deep in China and would suffer if proposed additional U.S. punitive tariffs cover smartphones and other high-tech devices.

Chinese smartphone makers provide half or more of the world's estimated 1.5 billion annual unit sales. Losing the ability to supply parts to ZTE and Huawei, which have both been seen with bright growth prospects, "would mean losing close to a quarter of the smartphone market," said Minatake Kashio, director of Tokyo-based research firm Fomalhaut Techno Solutions.

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