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Huawei Inks 4G Deal With Volkswagen: A Marriage of Convenience?
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China-based telecommunications equipment manufacturer, Huawei Technologies recently inked a licensing deal with a supplier of Volkswagen AG (VWAGY - Free Report) to let its 4G technologies for use in the German automobile manufacturer’s vehicles for wireless connectivity. The transaction, for an undisclosed amount, is reportedly one of the largest of its kind in the automotive industry and marks a striking deal among all adversities between two struggling entities.
While Volkswagen is facing the heat from a global shortage of chips that are integral to car manufacturing, Huawei is striving to generate revenues from other avenues like patent licensing agreements amid stifling U.S. sanctions against its core smartphone and telecommunications equipment. Let us dig a little deeper into this “marriage of convenience” to gauge the underlying metrics.
Chip Shortage Hurting Car Production
Rapid strides in technology have led to the digitization of the auto industry. Semiconductor chips have evolved as an essential building block within car manufacturing, courtesy of features like assisted driving, in-car entertainment, smart dashboards, Bluetooth connectivity and more. In addition to increased wireless connectivity and infotainment options, chips are also essential for the electric vehicle industry and hold the keys for improvement in the battery efficiency of green vehicles. Stricter emission and fuel-economy targets, ramp up of charging infrastructure and supportive government policies have increased the demand for green vehicles and concurrently semiconductor chips.
However, a faster-than-anticipated recovery from the pandemic-induced crisis and inclement weather conditions have led to an acute demand-supply imbalance for semiconductor chips, forcing several automakers to reassess their production schedules and adjust their manufacturing operations in accordance with the inventory amid supply chain bottlenecks. Volkswagen is also not immune to this operational headwind and is perhaps aiming to improve its existing product line-up with improved wireless connectivity options by leveraging Huawei’s 4G technology.
4G Patent Licensing: A Saving Grace?
Although 5G technology is increasingly gaining in precedence across the world, the fact that Volkswagen has decided to implement 4G technology in its cars speaks volumes about the reality that 5G for automobiles are a distant horizon. Without mainstream 5G network, car manufacturers are finding it difficult to adapt to technologies like edge computing and vehicle-to-everything equipment that require faster 5G access. The improved wireless connectivity will likely enable the German car manufacturer to offer more digital mobility services to users on the go and is expected to be made available in about 30 million vehicles.
The transaction marks Huawei’s foray into intelligent vehicles and other new sectors with more than 100 patent license agreements in place, after its bread and butter businesses of network equipment and smartphone manufacturing were crippled by the U.S. embargo. The United States has long suspected Huawei to be an extension of China’s government due to the close ties of its founder with the military. Moreover, the fact that Huawei’s products are remarkably cheap owing to the huge subsidies by the government to undercut other 5G equipment manufacturers has perennially evoked a feeling of mistrust. This ultimately led the U.S. government to add it to the Entity List – a list of entities that are ineligible to receive any item without government approval.
The White House has also extensively used its diplomatic channels to urge its allies to shun Huawei from their 5G wireless networks, citing security threats and espionage by China’s government. This, in turn, led to dwindling revenues from the equipment manufacturing business as Nordic telecommunications equipment manufacturers like Ericsson (ERIC - Free Report) and Nokia Corporation (NOK - Free Report) emerged as viable replacements.
Despite the roadblocks, Huawei has been able to dig deep into its resources and devise a survival strategy that aims to bypass the constraints by focusing more on its individual capabilities. The company reportedly holds more than 100,000 active patents across more than 40,000 patent families. Huawei aims to capitalize on these gold mines to tide over the storm and probably make up for the lost revenues arising from various geo-political restrictions.
It appears that the China-based firm is not likely to cede its leading market position without giving a tough fight, posing concerns that rivals cannot probably ignore.
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Huawei Inks 4G Deal With Volkswagen: A Marriage of Convenience?
China-based telecommunications equipment manufacturer, Huawei Technologies recently inked a licensing deal with a supplier of Volkswagen AG (VWAGY - Free Report) to let its 4G technologies for use in the German automobile manufacturer’s vehicles for wireless connectivity. The transaction, for an undisclosed amount, is reportedly one of the largest of its kind in the automotive industry and marks a striking deal among all adversities between two struggling entities.
While Volkswagen is facing the heat from a global shortage of chips that are integral to car manufacturing, Huawei is striving to generate revenues from other avenues like patent licensing agreements amid stifling U.S. sanctions against its core smartphone and telecommunications equipment. Let us dig a little deeper into this “marriage of convenience” to gauge the underlying metrics.
Chip Shortage Hurting Car Production
Rapid strides in technology have led to the digitization of the auto industry. Semiconductor chips have evolved as an essential building block within car manufacturing, courtesy of features like assisted driving, in-car entertainment, smart dashboards, Bluetooth connectivity and more. In addition to increased wireless connectivity and infotainment options, chips are also essential for the electric vehicle industry and hold the keys for improvement in the battery efficiency of green vehicles. Stricter emission and fuel-economy targets, ramp up of charging infrastructure and supportive government policies have increased the demand for green vehicles and concurrently semiconductor chips.
However, a faster-than-anticipated recovery from the pandemic-induced crisis and inclement weather conditions have led to an acute demand-supply imbalance for semiconductor chips, forcing several automakers to reassess their production schedules and adjust their manufacturing operations in accordance with the inventory amid supply chain bottlenecks. Volkswagen is also not immune to this operational headwind and is perhaps aiming to improve its existing product line-up with improved wireless connectivity options by leveraging Huawei’s 4G technology.
4G Patent Licensing: A Saving Grace?
Although 5G technology is increasingly gaining in precedence across the world, the fact that Volkswagen has decided to implement 4G technology in its cars speaks volumes about the reality that 5G for automobiles are a distant horizon. Without mainstream 5G network, car manufacturers are finding it difficult to adapt to technologies like edge computing and vehicle-to-everything equipment that require faster 5G access. The improved wireless connectivity will likely enable the German car manufacturer to offer more digital mobility services to users on the go and is expected to be made available in about 30 million vehicles.
The transaction marks Huawei’s foray into intelligent vehicles and other new sectors with more than 100 patent license agreements in place, after its bread and butter businesses of network equipment and smartphone manufacturing were crippled by the U.S. embargo. The United States has long suspected Huawei to be an extension of China’s government due to the close ties of its founder with the military. Moreover, the fact that Huawei’s products are remarkably cheap owing to the huge subsidies by the government to undercut other 5G equipment manufacturers has perennially evoked a feeling of mistrust. This ultimately led the U.S. government to add it to the Entity List – a list of entities that are ineligible to receive any item without government approval.
The White House has also extensively used its diplomatic channels to urge its allies to shun Huawei from their 5G wireless networks, citing security threats and espionage by China’s government. This, in turn, led to dwindling revenues from the equipment manufacturing business as Nordic telecommunications equipment manufacturers like Ericsson (ERIC - Free Report) and Nokia Corporation (NOK - Free Report) emerged as viable replacements.
Despite the roadblocks, Huawei has been able to dig deep into its resources and devise a survival strategy that aims to bypass the constraints by focusing more on its individual capabilities. The company reportedly holds more than 100,000 active patents across more than 40,000 patent families. Huawei aims to capitalize on these gold mines to tide over the storm and probably make up for the lost revenues arising from various geo-political restrictions.
It appears that the China-based firm is not likely to cede its leading market position without giving a tough fight, posing concerns that rivals cannot probably ignore.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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