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Qualcomm and Huawei: Now Things Are Just Getting Weird

By Rob Enderle TechNewsWorld ECT News Network
May 27, 2019 5:00 AM PT
the us government ban of huawei and a recent court ruling against qualcomm could give the 5g market to china

OK, so last week Qualcomm lost its seemingly no-lose case against the FTC, largely because it looks like the judge was only physically in the room during the trial. The ruling makes it look like she and I observed very different trials.

In addition, the U.S. apparently declared war against Huawei, which actually could benefit Huawei. The result of both efforts effectively could be to give the 5G market to China.

It's kind of like watching everyone decide to run naked with some really big scissors, and as you try to get that image out of your heads, I'll walk you through what happened.

I'll close with my product of the week: an update to a product that has made my summer sleep far more comfortable over the years. It's a water-cooled sleep enhancement system like what high-performance race drivers and astronauts use to keep cool during work.

The Huawei Story

I've been following powerful companies for most of my career, and the efforts to regulate them not only have had mixed results but often have had massive unintended consequences. The closest comparison I can make to what is going on between Huawei and the U.S. is what happened between Microsoft and the world in the 1990s and early 2000s.

In a series of cases starting largely with the U.S. DoJ, Microsoft incurred massive sanctions for uncompetitive behavior. The sanctions threw the company into crisis, and to pull out of that crisis, executive management massively changed the company's business model.

Microsoft moved from a policy of locking in customers to one of interoperation and open source. With Azure, it shifted its focus from on premises hardware, both servers and PCs, to the cloud. Microsoft repaired its internal siloes and a host of inefficiencies that had plagued the company for decades.

The result was a very different but arguably invulnerable company, perhaps second only to Amazon in the cloud and seeming to have more long-term upside. The firm is so dissimilar to what it was that it is almost unrecognizable.

While the competitors that brought the action against Microsoft thought it would cripple the company, it actually made it stronger, and Microsoft outlived Netscape and Sun Microsystems, which were the most aggressive architects of Microsoft's problems.

Huawei is more of a hardware/networking company than a software firm like Microsoft, but the U.S. has been putting it under even greater pressure. Huawei also is much more deeply connected to the Chinese government than any U.S. company is connected to the U.S. government.

Right now, Huawei largely is dependent on three U.S. companies: Google for Android, Microsoft for Windows, and Qualcomm for smartphone technology. It also is dependent on one Asian company, Softbank (ARM). All of those firms have indicated they will comply with the U.S. order to stop doing business with Huawei, which would be catastrophic for the firm.

This means the second largest smartphone vendor in the world, with Chinese government backing, will be forced to pivot away from U.S. and European technology and become even more proprietary than Apple.

China is unlikely to let Huawei fail, so the result very well could be a Chinese government-backed Apple clone with massive Chinese incentives to favor its products in country. Given that China is both the largest and potentially fastest-growing world market for smartphones, the result would an inability for U.S. tech vendors to compete in the Chinese market.

Due to the scale, it would be an emerging global vendor that -- thanks to government resources -- could underprice every other vendor in the segment with equal or better hardware. Granted, it still would have to capture developers, but it could end run that problem by doing what Amazon did, and start with the open source version of Android to get an initial baseline product.

We aren't even yet talking about the likely Chinese response against U.S. smartphone vendors (and really Apple is the only one at scale and the most likely target). So, the likely result of this attack on Huawei is a lockout of U.S. tech vendors in China, a focus by the Chinese government on Apple as a problem to be solved, and a Huawei that will be far more powerful, as well as understandably pissed at the U.S.

This also could -- and likely will -- result in locking in Huawei as the lead, if not only, vendor at scale for the 5G rollout in China and other countries not closely aligned with the U.S. (That "aligned" list seems to be shrinking a lot at the moment, thanks to the president.)

I think this is incredibly wrongheaded. I also think it is a bad precedent to attack individual companies as part of a trade war strategy, largely because China is far better at protecting Chinese firms than the U.S. is at protecting U.S. firms. This is a long way of saying that payback really could be a bitch.

Qualcomm's Story

I attended the end of the FTC trial in California, and even before it was disclosed in another case that the evidence Apple had fed the FTC was false, I didn't think it had a case. My assessment largely was due to two things. The architect of the theory that founded the FTC case, from an economist who appeared to live in an alternative universe, effectively had been discredited.

There no harm presented in evidence, and even the possibility of future harm was disproved. The expert's primary defense -- I kid you not -- appeared to revolve around him being a legend in his own mind who was surrounded by other economists, all of whom were mentally challenged idiots. The arrogance that rolled off the guy -- particularly given that his theory effectively got thrown out -- was amazing. Still, in her decision, Judge Koh seemed to take the theory as settled law, even though she wisely never mentioned Shapero.

The other thing was that the rest of the FTC's argument seemed to revolve around internal memos in which people discussed, but didn't actually do, things that would have been problematic for Qualcomm if they had done them. It isn't at all uncommon for executives to consider actions that have questionable legal foundation before the firm's legal department comes in and sits on them, or more prudent executives take control.

It isn't illegal to consider illegal things, particularly if you don't know they are illegal. For instance, I could plan a bank heist, but unless I do it I'm pretty much OK. Now, I wouldn't recommend doing that, but right now, considering making a bad choice isn't in and of itself illegal.

However, given the outcome of this trial, I'd certainly suggest those discussions not be documented in the future and that executives regularly get compliance training so they can avoid such discussions in the future.

Before the Apple disclosure, we had no actual evidence of wrongdoing (just some unfortunate discussions), no harm, and the chance of future harm had been discredited. There effectively was no FTC case.

Then, subsequent to that trial, we found that the evidence Apple had presented to the FTC to start the case against Qualcomm had been manufactured. That means the foundation for the case was false. There was no evidence supporting the FTC position, and the contention that the consumer (whom the FTC is missioned to help) was or would be harmed.

Even the DoJ was concerned that the judge was going to rule badly, and one of its reasons was Qualcomm's position as the leading vendor ensuring the U.S. 5G leadership.

So, coupled with the U.S. action against Huawei, this FTC ruling, because it could cripple Qualcomm's revenue stream, could ensure that 5G leadership ends up with China. Further, this wouldn't be the first time. The government sat on Standard Oil, and we lost control of the oil market. It sat on RCA, and consumer electronics ended up in Asia. It sat on the car companies, and rather than Ford and GM dominance, we have Toyota and VW.

If that happens, the new nickname for the U.S. president easily could become "Trump the Chump." (I'm kind of surprised that hasn't happened already.)

Wrapping Up

All this showcases two problems.

First, the U.S. government continues to think tactically, while China is thinking strategically. The trade war in and of itself is unwinnable because it looks like the president lacks the backing of his own government as he systematically commits job suicide. Targeting a firm that is a National Treasure, like Huawei, is in and of itself problematic, because of the likely actions in retaliation against Apple and other U.S. tech vendors. China's indication that it is moving to a war footing is massively problematic for sales to that country.

The second problem is that judges just don't appear to be able to do the job anymore, and this is across a number of areas. I recently visited a judge review site, and the average score out of 10, with 10 being best, was a little over 1. Apparently, the judicial system is chasing the U.S. Congress for which can have the lowest satisfaction score. If a critical mass of folks conclude that you can't trust the judicial system, much like we seem to have a critical mass of folks who don't trust law enforcement, I don't see that ending well for us individually or for the country. Folks taking the law into their own hands at scale are called "revolutionaries."

Ironically, I think both problems could be fixed with deep learning artificial intelligence systems and computer simulations. One could model out the likely outcomes of moves like the one against Huawei, and the other could help judges focus on the evidence and relevant precedents, identify and use accurate testimony, and make interpretations consistent with the law.

If used properly, AIs could help fix both problems, but I have my doubts whether they will be applied at all, let alone properly.

Rob Enderle's Product of the Week

Like a lot of men, I like it cool when I sleep at night, and my wife typically likes to be warmer. While there are solutions like heating pads and electric blankets for heat, solutions for being cool typically revolve around your air conditioning system. This results in thermostat fights that I could win only by making the thermostat so complicated my wife wouldn't want to mess with it.

Therefore, when I became aware of the ChiliPAD years ago, I bought it -- and I've been using it for years. The ChiliPAD uses recirculating water, like what is used in race cars to cool drivers and in space suits to cool astronauts. It both heats and cools, and it removes the electrical fields from close to the body. These fields have long been thought to have adverse health impacts, particularly for expecting mothers.

Well the ChiliPAD folks sent me their latest offering, the Ooler. It has a far more powerful heater/cooler, it works with a smartphone app (still in beta, though), and it will do scheduling so your bed is right when you get into it, and you can use warm awake to get your butt out of bed silently in the morning, without waking your spouse.


Ooler Sleep System
Ooler Sleep System

Now you do have to put it in a well-ventilated area, because it throws out a lot of heat when it is cooling your bed. It comes in any color as long as that color is white (I'd personally prefer black), but you can put it in a cabinet as long as you power vent it (which is what I did).

Oh, one other thing I learned the hard way: If you want this to last a long time, use distilled water. The mineral build up with tap water eventually will cause you problems. It isn't a cheap date, starting at US$699 for a single (The ChiliPAD is $499) up to $1,499 for a Cal King (which is what I have).

I don't function well if I don't sleep well, and because the Ooler helps me sleep well -- much like the older ChiliPAD did but better -- it is my product of the week. Seriously, sleeping has a massive impact on my quality of life, so this thing is likely to make it through to my product of the year. We'll see…

The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.


Rob Enderle has been an ECT News Network columnist since 2003. His areas of interest include AI, autonomous driving, drones, personal technology, emerging technology, regulation, litigation, M&E, and technology in politics. He has an MBA in human resources, marketing and computer science. He is also a certified management accountant. Enderle currently is president and principal analyst of the Enderle Group, a consultancy that serves the technology industry. He formerly served as a senior research fellow at Giga Information Group and Forrester. Email Rob.


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