The United Kingdom announced that it would ban any equipment created by Chinese firm Huawei as it unrolls its 5G network. This is a mammoth shift from back in January when it gave Huawei a “limited” foothold in the country’s 5G future – but a foothold nonetheless.
There have long been fears that Huawei equipment in Western nations would be used as an espionage tool. With the discovery of backdoors in place for over a decade back in February , it’s clear that using Huawei equipment poses a national security danger.
While the decision to ban Huawei equipment came out of the U.K., analysts expect the United States will continue to push for more Western nations to blacklist the Chinese tech company.
There’s an irony in that: The United States has few alternatives for equipment providers. Policymakers may be unwittingly creating trouble for themselves later on.
Huawei currently has 28% of the telecom equipment market share globally, making it the largest player in the space.
Robert Mayer, senior vice president of cybersecurity at US Telecom, told the Financial Times that,
The cost of replacing an entity on the scale of Huawei would be prohibitive.
There are a few European companies that have tried to paint themselves as trustworthy alternatives, such as Nokia and Ericsson .
In the U.S., there aren’t any companies realistically positioned to dominate the telecom equipment space. But with a little retooling, one Dow 30 company could fill the gap.
The potential winner? Cisco Systems (Nasdaq: CSCO).
In the past, Cisco has generally focused on wired technology like routers, finding that wireless products are more difficult for them and have a longer development horizon. That may be changing.
The increase of its recurring-revenue services businesses and a broader suite of services in recent years have allowed the Dow Jones component to hold up well, even beating earnings expectations in the first quarter.
While we expect Enterprise weakness from an uncertain macro, we believe that CSCO is positioned well for the long run and could emerge from the pandemic relatively stronger.
There have already been rumors that the government could encourage Cisco to make a splashy acquisition to bolster its 5G prospects.
If Cisco does fill the vacuum left by Huawei, it would be a particularly sweet victory.
The router manufacturer was one of the Chinese company’s many victims of intellectual property theft. In 2003, the firm admitted to copying some code used in Cisco routers . That was not the last time.
If the United States is serious about getting away from Huawei’s invasive technologies, a government investment program will likely be needed to get the job done quickly.
Should that kind of “Manhattan Project ” be undertaken, Cisco will likely find itself in a position to grab substantial market share from Huawei and turn the tables on a company that once stole its intellectual property.