The Trump administration on Wednesday placed the Chinese tech giant on a list of foreign firms barred from receiving components from US exporters without a license, alongside an executive order that lays the groundwork for banning the company from selling in the United States.
Huawei is the world's largest telecoms equipment maker and sources key parts from dozens of US companies — including Qualcomm (QCOM), Micron (MICR) and Intel (INTC). American firms accounted for more than a third of Huawei's major suppliers at the end of last year, according to Tom Holland of Gavekal research.
"This could set back Huawei's supply chain in the US and potentially delay 5G in China," Edison Lee and Timothy Chau, analysts with brokerage firm Jefferies, said in a note Thursday, calling the scenario a "nightmare" for China's adoption of the new technology.
Beyond China, Huawei has signed dozens of commercial 5G contracts around the world, including 25 in Europe and 10 in the Middle East. It could be harder to fulfill those contracts if Huawei can't buy parts from US suppliers.
A similar export ban by the White House last year briefly crippled another Chinese tech rival, ZTE. That ban, which was tied to ZTE breaking sanctions on Iran, was lifted after the company agreed to pay a $1 billion fine, overhaul its senior management and bring an American monitoring team on board.
Analysts say Huawei is better positioned to work around a ban on US components.
"The executive order will impact Huawei's business, but to a lesser extent relative to ZTE, as Huawei could substitute some components sourced from the US with in-house alternatives," analysts at research firm Fitch Solutions said in a note.
Huawei was already steeling itself for disruption to its supply chain, saying in March that it had diversified suppliers and stockpiled key parts to ensure the continuity of its business.
The Chinese company is a major smartphone supplier, competing with Samsung (SSNLF) and Apple (AAPL). It is also the leader in 5G technology, the next generation of ultra-fast wireless networks.
Huawei has been under mounting pressure from a US-led campaign urging allies to restrict the use of its gear in the build out of their 5G networks. Washington is concerned that Beijing could use Huawei equipment to spy on other nations.
The company denies that any of its products pose a national security risk, says it has never received a request from Beijing to spy on other nations, and would refuse to comply if it did.
It is a national champion in China, one of the few truly global homegrown tech firms.
But it has effectively been shut out of the US market since 2012, when a US Congressional report said Huawei equipment could pose a threat to national security. The company has sold telecommunications equipment to a few small and rural wireless carriers, but doesn't report how much money it makes in the United States.
The Americas — which includes the United States, Canada and Latin America — accounted for less than 7% of the company's revenue last year.
Huawei, and some analysts, say the United States actually needs Huawei to get 5G networks up and running.
"Huawei is one of the leading players in 5G, and the US market needs Huawei," said Charlie Dai, an analyst with research firm Forrester. "The ban will slow down 5G adoption and eventually will be harmful to [telecom] carriers and consumers around the world."
"Restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment," Huawei said in a statement Thursday.
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