By Claude Barfield
With the meager results from President Joe Biden’s recent Middle East trip, it is not surprising that he would focus on small-ball triumphs, such as the tentative agreement by the Saudis to, in Biden’s words, “invest in new U.S.-led technology to develop and secure reliable 5G and 6G networks.” Specifically, the US Department of Commerce and the Saudi Ministry of Communications and Information Technology signed a memorandum of understanding to advance the rollout of 5G networks in Saudi Arabia. The Saudis will work with Western firms, specifically by investing in US firms that are planning to develop and deploy open radio access network (O-RAN) technology. The pace and actual scope of this agreement remain unclear.
The Saudis’ tentative experiment with an O-RAN demonstration project comes against a backdrop of the Chinese telecoms giant Huawei’s commanding position, not only in Saudi Arabia but also throughout the Middle East, dating back to 3G and 4G contracts some years ago. Through the Belt and Road and other independent initiatives, Beijing—and Huawei—has established strong economic and technological relations, particularly with the Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. All GCC members have signed massive contracts with Huawei over the past few years.
Huawei has capitalized on the special needs of the Gulf nations and other economic realities in the Middle East, spending large sums to develop cloud services and 5G applications in energy, health care, and transportation—particularly aviation. Neither the aforementioned Middle East nations nor other developing regions are likely to heed US warnings about the security and spying risks associated with Huawei (and ZTE) kits.
As noted previously, however, the US export ban on advanced chips and equipment to Huawei has had a real impact. The company remains the worldwide leader in network equipment sales (26 percent—about equal to that of its chief rivals Ericsson and Nokia combined). But when the large Chinese market is excluded, Ericsson and Nokia come out slightly ahead of Huawei with 20 percent each, with Huawei dipping to 18 percent.
To conclude, worldwide competition for 5G equipment contracts will be affected by a confluence of forces. First, Huawei’s stockpile of advanced chips from before the US export controls were implemented will soon run low, potentially hampering its ability to compete successfully with Ericsson and Nokia in the most sophisticated 5G kits. But a potential wild card is the announcement in recent days that Semiconductor Manufacturing International Corporation, China’s leading semiconductor company, has achieved a manufacturing breakthrough for seven-nanometer chips—two generations ahead of its current capability. It is not clear whether this breakthrough has sufficient yield to allow large-scale production of the more advanced chips, but no doubt Huawei (which is working on its own advanced chips internally) is watching closely.
In any case, for the immediate
future, Huawei’s strong Middle East position is not likely to be challenged.
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