São Paulo announces Huawei factory; company says 'hold your horses'

Chinese technology giant Huawei will build a factory in Brazil's São Paulo state to manufacture smartphones and supply both the domestic and South American markets, according to an announcement by the state government.

The investment is thought to have been agreed in a meeting this week between São Paulo state officials, led by governor João Dória, and Huawei representatives in Shanghai, China.

According to Dória's administration, the company committed to make US$800mn in investments over the next three years (2020-22).

However, Huawei toned down that message in a statement sent to BNamericas, saying that this was “not a commitment, but a forecast of intention if the business goes well,” in reference to the smartphone business.

"Huawei has been in the country for 21 years, always present in Brazil's digital transformation, from 2G to 4.5G. And now, in the age of 5G, it will be no different. The company is excited about the opportunities in the Brazilian scenario and, depending on the development of Huawei's smartphone operations in the local market, it is considering setting up a factory in São Paulo in the near future. Further details will be released in due course," said the note.

THE COMEBACK

After years of absence and failed attempts to make inroads into Brazil, Huawei announced in March that it was returning to the Brazilian retail smartphone market, with the launch of its new P30 smartphones in the country.

Sales of its flagship models started in May in partnership with retailers and with selected carriers.

The handsets are being imported, but Huawei said at the time that it was assessing the possibility of domestic manufacturing operations depending on demand, or in other words, if "business goes well."

If the factory does go ahead, it will be Huawei's third in Brazil and the first dedicated to smartphones.

The company's main manufacturing facility in the country is the city of Sorocaba in São Paulo state, where it employs 2,000 people and generates an estimated 15,000 jobs indirectly. The plant produces mostly telecom and radiofrequency equipment for telcos.

In addition to telecom equipment, Huawei also produces fiber optic solutions in the Manaus duty free industrial zone in Amazonas state.

Dória’s administration said that the site of the new plant in São Paulo will be decided by the company in the coming months, taking into account logistics, workforce availability and technical conditions.

According to the São Paulo government, Huawei has also defined investments in the state's technological research institute (IPT) for the 2020-2022 period, although the size of those investments have not yet been revealed. Huawei itself has not commented on that.

After the state authorities' business mission to China, the government said that various Chinese companies visited agreed to invest around US$24.8bn in the state in the coming years

GEOPOLITICS AS BACKGROUND

The mooted Huawei smartphone factory would come at a time of heightened trade tensions between the US and China on the global stage, in which mobile technology is a key factor.

In this context, the US has campaigned against the use of Huawei equipment, telling allies that the company's 5G technology is not safe and contains backdoors that could allow monitoring by Chinese authorities, despite the fact that Huawei has consistently denied these claims.

Internally, the US administration blacklisted the company on security concerns, but President Trump has already admitted that restrictions could be eased if US-China trade talks advance – an indication that Huawei is more of a bargaining chip in the strategic maneuvers rather than a real security issue.

US concerns have been shared with Brazilian President Jair Bolsonaro, self declared to be one of Trump's allies.

But to date, the Brazilian government has not taken an official stance on possible restrictions on the company's equipment.

Come what may, the issue is likely to be handled carefully, as Bolsonaro would certainly not want to strain relations with Trump by opposing him on this topic – or indeed on any other.

A source at the science, technology, innovation and communications ministry (MCTIC) told BNamericas not long ago that the topic was not even being addressed internally.

But 5G was something covered state governor Dória in his talks with Huawei. Dória is said to be preparing the ground to make a play to become Brazil's next president and could potentially face off with Bolsonaro in 2022.

“The 5G program, which was defined at this meeting, isn't just an evolution, but a revolution. It brings to the state, to municipal, state and federal governments, the perspective of the use of this technological evolution for telemedicine, education and public safety,” Dória said.

Brazil's telecoms regulator Anatel is preparing a tender to auction 5G frequencies sometime next year.

According to Dória, if all goes well in the auction, Huawei will be able to have 5G infrastructure available in the market by March 2021.