Tag Archives: china

Billion dollar fine, new management and “security guarantees” gains ZTE U.S. access

by Steve Blum • , , , ,

ZTE is back in business. The Chinese mobile phone and network equipment manufacturer paid $1.4 billion in fines and replaced its board of directors in order to make peace with the U.S. government. The federal commerce department effectively shut ZTE in May when it cut off access to U.S.-made products, including high end chips and key bits of the Android mobile operating system.

The problems began when the U.S. government accused ZTE of doing business with Iran and North Korea, in violation of U.S. trade sanctions. ZTE’s response wasn’t robust enough to suit the U.S. government, so the company was cut off from U.S. technology and had to close its doors, albeit temporarily. That kicked off a round of what passes for superpower diplomacy these days, according to a story in Bloomberg

President Donald Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favor to Chinese President Xi Jinping. Later that month, his administration announced it would allow the company to stay in business after paying a new fine, changing its management and providing “high-level security guarantees”…

ZTE last month took a major step forward in meeting the White House’s conditions by firing its entire board and appointing a new chairman. Its new management faces the challenge of rebuilding trust with phone companies and corporate customers. But the company is said to be facing at least $3 billion in total losses from a months-long moratorium that choked off the chips and other components needed to make its networking gear and smartphones.

ZTE isn’t alone. Huawei, China’s biggest mobile phone maker (ZTE is number two), is also in the Trump administration’s crosshairs. The Federal Communications Commission is considering locking both companies out of federally subsidised projects, because of security concerns. That same kind of thinking led the Trump administration to block the sale of Californian chipmaker Qualcomm to a Singapore based company, Broadcom.

It’s appropriate for the U.S. government to worry about national security, and to take specific steps to meet specific threats. But conflating security with economic advantage is a losing game. The best guarantee of national security is shared economic interests, not trade barriers. To paraphrase Benjamin Franklin, perhaps egregiously, those who would give up a free market to purchase a little temporary security will get neither.

ZTE shutdown could lead to a mobile OS startup

by Steve Blum • , , , ,

A major Chinese smart phone and telecoms infrastructure manufacturer was stopped cold by U.S. trade sanctions, after it 1. did business with Iran contrary to U.S. rules and 2. didn’t adequately punish the executives responsible for the violation. ZTE announced last week that “the major operating activities of the company have ceased”. It’s number two smart phone maker in China, behind Huawei, but has a low profile among U.S. consumers.

The U.S. commerce department issued an order that bans U.S. companies from doing business with ZTE. Since technology developed in the U.S. – much of it here in California – is critical to high technology products, ZTE had no choice but to shut down. It might be temporary, though, according to an article by Roger Cheng on CNET

The company had to shut down its operations to comply with the order, but it continues to talk with US government officials about a potential stay or reconsideration of the denial order, according to a person familiar with the situation.

“Ceasing operations does not mean we’re going away,” the person said, noting that ZTE has a cash reserve and could eventually tap into financing to stay alive.

The company is also pegging its hopes on broader discussions between US and Chinese officials in their bilateral trade talks – ZTE is expected to be a topic of conversation brought up on the Chinese side, the person said.

One critical piece of technology that ZTE can’t have is Google’s Android operating system, or at least the bells and whistles that go along with it. Android’s core is open source, but linked elements, like the Google Play store and many of the apps in it, are proprietary and now off limits.

ZTE won’t just roll over die. The commerce department’s order might even serve to weaken the Apple/Google mobile operating system duopoly. Of the two ZTE smart phones I’ve owned, one was based on the Firefox mobile OS. It didn’t go anywhere in the market and was eventually shelved, but it shows that ZTE knows its options.

Chinese policy builds parallel demand for tech, broadband

by Steve Blum • , , , ,

4K televisions and home automation, two product categories that are particularly tied to broadband demand, grew significantly in 2015 and the trend is expected to continue into 2016, according to market research presented yesterday at CES in Las Vegas, by the show’s organiser, the newly rechristened Consumer Technology Association.

Home automation accounted for about 9 million units. The $1.2 billion in revenue that generated is an 18% bump over 2014.

On the other hand, CTA researcher Steve Koenig said it looks like 13 million 4K sets sold world wide – outside of China – in 2015. The 4K forecast for the world, again outside of China, is 19 million units in 2016, a growth rate just under 50%.

The real story, though, is what’s happening inside China. Koenig said that 29 million 4K televisions will be sold in China alone in 2016, bringing the global total to 48 million sold this year. In 2015, 27 million 4K sets were sold in China, an even bigger proportion of the global total. Part of the reason is undoubtedly due to economic growth simply making it possible for more Chinese households to buy televisions. Even if 4K sales represent a small fraction of the total, it’s still a lot in absolute terms.

“It’s a numbers game”, Koenig observed. But it’s also a matter of government policy.

“There’s a wish on the part of the central government in China to drive these technologies into the market”, he said.

It also hints at something about broadband availability in China. Even if the selling proposition were mostly about the status symbol, at least the promise of sufficient content has to exist for China to account for three out of five 4K televisions sold worldwide. It’s not just televisions that upwardly mobile Chinese are buying. They’re buying new homes, too. And when those homes are built, it’s also government policy to connect them with fiber.

Correlation doesn’t prove causation, but it does offer clues for policymakers to ponder.

If you like low pay and no privacy, the FBI has a deal for you

by Steve Blum • , , ,

On the other hand, it’s probably easier to pass than the math test at Google.

If it seems like the federal government is losing the war for cyberspace, it might be because it is. And that’s due to a lack of talent in key positions, particularly at the Federal Bureau of Investigation. According to a federal justice department study, as reported by Reuters, the FBI launched what it called the Next Generation Cyber Initiative in 2012, which involved hiring 134 computer scientists and creating cybersecurity task forces at all of its 56 field offices.

Three years later, though, only 52 computer experts had been hired and at least five of the field offices were trying to enforce law on the cyber frontier without a fast hand on the keyboard. According to the Reuters story, it’s a problem of money and culture

Lower salaries compared to the private sector made it difficult for the FBI to hire and retain cyber experts, the Office of the Inspector General said in the report.

It also said extensive background check procedures and drug tests excluded many otherwise qualified candidates.

For example, the FBI is unable to hire anyone who is found to have used marijuana in the previous three years or any other illegal drug in the past ten years, it said.

The FBI’s response was that they would try to do better and that it’s a problem “throughout the federal government”. True enough. The recent mega hack on the federal office of personnel management exposed employment records and security clearance information – which can be amazingly intimate in detail – of more than 20 million people or, as Reuters pointed out, about 7% of the U.S. population.

The only potential good news is that the Chinese government is thought to be behind the hack. Since it doesn’t seem to have a problem recruiting techno-wizards, the stolen data is probably in secure hands. For now.

Huawei centers its brand on mobile

by Steve Blum • , , , ,

Absolutely phablet.

“We are the number three smart phone manufacturer in the world”, declared Colin Giles, executive vice president of Huawei’s consumer business group. “We’re moving more into a connected world, and the center of the connected world is the smart phone”.

Huawei splashed out at CES this morning with a tightly produced press conference where two overarching messages came through clearly: mobile products drive the consumer electronics industry – neither Giles or CEO Richard Yu talked about anything else – and Huawei intends to build a global brand on top of its mobile products and technology.

“95% of the products we ship worldwide have the Huawei brand on them”, said Giles, underscoring their successful transformation from a maker of products for other companies to a mobile and consumer electronics brand with growing recognition worldwide – more than doubling from 25% awareness amongst global consumers in 2012 to 53% in 2013. In 2014, “it’s going to be all about brand, we need to commit to developing our brand”.

Besides phones and related consumer products, Huawei also makes mobile telecoms infrastructure, claiming to have built 10% of the world’s LTE networks, including nearly half deployed in major cities. It’s diversifying within the mobile ecosystem, rather than across consumer electronics product lines. That’s a smart strategy, given that smart phones and tablets account for close to half of global consumer electronics sales by value and other product categories are slipping. As mobile devices take on more and more of the functions of computers, televisions and other CE products, diversification will happen organically.

Huawei might be the third ranking smart phone maker, but it’s only just edging out Lenovo and LG for leader of the 5% share club. It has a long way to go to get into Samsung’s and Apple’s league. But strength in China and experience in other developing markets, where most of the growth in consumer electronics sales will be, gives Huawei a plausible chance of getting there.

Global tech market slips after peak geek in 2013

by Steve Blum • , , , , , ,

Rising volume can’t keep up with falling prices.

Global consumer technology sales hit $1.1 trillion last year, but will slip back a few billion dollars in 2014. That’s the top line forecast from the Consumer Electronics Association, which represents the industry in the U.S. and organises CES, which is getting underway now in Las Vegas.

Smart phones and tablets have driven the market for the past four years, and are expected to account for 43% of global technology sales in 2014, dwarfing televisions and personal computers. But even so, overall revenue is weakening.

“Sales growth for tablets and smart phones is slowing” said Steve Koenig, an industry analyst with CEA. “Volume and growth is becoming increasingly reliant on lower end devices. Lower end devices are what’s required to penetrate developing markets”.

Developing markets, like China, are pulling ahead of traditional powerhouses like North America (expected to slide 1% in 2014) and Europe (down 6%). And the action is around mobile devices, not television sets. Smart phones are at the top of Chinese consumers’ wish lists, with 59% saying they want to buy one. The least desired products are HDTVs, with only 32% expressing interest.

Prices will continue to slide, as Chinese manufacturers pump up sales in the domestic market. In 2010, the average unsubsidised price of a smart phone was $444 globally. Last year, it was $345, and it’s expected to fall under $300 in 2014. As prices fall and global unit sales climb, overall revenue from smart phones and tablets is still expected to grow, by 6% and 9% respectively, but that’s slower than 2013, which those figures were 27% and 30%. With other product categories weakening, the overall result will be a 1% drop in total consumer technology sales in the coming year, according to Koenig.

China has new national broadband plan, goals

by Steve Blum • , , , ,

I signed up for broadband and all I got was this little red book.

China wants to lead the broadband world in something other than malicious Internet attacks, 42% of which originate there, putting it comfortably ahead of the U.S., at second place with 10%. So China’s State Council – the equivalent of its cabinet – is setting a target of 50% national wireline broadband availability by 2015. By 2020, the goal is to connect the entire country – all 1.3 billion people or so – with a minimum of 20 Mbps in urban areas and 4 Mbps in rural areas, and top speeds of 100 Mbps.

It has a long way to go. Akamai estimates that the average Internet subscriber in China gets about 1.8 Mbps, which ranks it 91st in the world, and the official Chinese news agency, Xinhua, says that “less than 14 percent of the Chinese population has access to broadband services”.

The preferred method of boosting national broadband speeds and availability is building fiber optic networks, although wireless will also play a big part, particularly mobile technology in rural areas and WiFi in cities.

Earlier this year, the Chinese government set a fiber to the home goal of 40 million households by 2015. It aims to reach it by the simple strategy of mandating that fiber be installed to all new homes that are near enough to middle mile facilities. With a building boom that has no end in sight, that’s an easy way to add millions of new FTTH connections.

Although the relationship between government and industry is often murky, the Chinese state has considerable power to command. “The strategy is led by the Ministry of Industry and Information Technology, and operated by the telecom carriers”, Xinhua reported.

HP needs more style, less substance

by Steve Blum • , , , , ,

First new Chevy of the 80s.

Hewlett Packard is the latest high tech company to distance itself from reported labor practices used by some Chinese contract manufacturers. It’s telling its suppliers to limit the number of student-age workers, the type of work they do and the hours they work.

The email to HP’s suppliers follows similar measures by Apple and Samsung. Two weeks ago, Apple said that a labor contractor used by one of its Chinese suppliers was forging documents in order to hire underage workers.

It’s a common enough problem: shoddy labor practices in a low wage market are exposed, large multinationals that benefit take a hit to brand image and announce measures to ensure it doesn’t happen again.

The new rules won’t disrupt HP’s (or Samsung’s or Apple’s or anyone else’s) supply chain. They’re all more or less adopting common standards. Costs will go up, but the problems with illegal and/or unethical labor practices are a symptom, not a cause of the increase. Wage expectations in China are rising along with living standards. The problems we’re seeing with labor practices are ill considered and, ultimately, futile efforts to fight that trend. The result will be renewed focus on improving productivity, a growing move to even lower wage economies and product price increases.

But HP has even bigger problems. It’s still the world’s biggest personal computer maker, but it’s caught between a market shift towards tablets, smart phones and other trendy devices, and what seems to be an institutional inability to make attractive products.

Like Dell, HP makes bulky commodity computers. Its Chromebook entry has a form factor only an IT manager could love. The comparison that keeps coming to mind is 1980s Chevys versus Japanese imports of the time. Stodgy styling was fine for corporate fleets, but consumers wanted something with more imagination. Unlike General Motors, though, the quality of HP’s products is as good as anyone’s. Which is a good place to start.