Exclusive: China's Huawei seeks compensation from Flex over withheld goods

[August 06, 2019]  By Sijia Jiang

HONG KONG (Reuters) - Huawei Technologies said it was seeking compensation from its contract manufacturer Flex Ltd <FLEX.O> for illegally withholding some 400 million yuan ($57 million) worth of its goods in the wake of a U.S. trade ban on the Chinese firm.

Huawei spokesman Guo Fulin did not comment on the amount, but a person with direct knowledge of the matter said the company had sent a lawyer's letter to Flex on Monday demanding "hundreds of millions of yuan" in damages for lost income, wasted materials, equipment replacements and other costs.

In the letter, Huawei says Flex's Chinese unit "disregarded Chinese law" by refusing to return production equipment, raw materials and half-made products belonging to Huawei worth around 400 million yuan at its Zhuhai factory "for nearly two months" after Washington banned Huawei in May, the source said.

Headquartered in California, Flex is among the world's largest electronic manufacturers and competes against Taiwan's Foxconn Technology <2354.TW> in providing contract services for Huawei products such as smartphones and 5G base stations.

The Huawei-Flex situation marks the latest fallout from Washington's trade sanctions against Huawei that has caused much disruption and confusion in the global tech supply chain.

The ban forbids U.S. firms, or non-U.S. firms with more than 25% American components in their products, from doing business with Huawei. Washington subsequently gave a three-month reprieve until Aug. 19 and suggested it could relax the limit by allowing some suppliers to apply for export licenses.

A Flex spokesman told Reuters on Tuesday that the company was preparing a statement and could not immediately comment.

A man walks past a sign board of Huawei at CES (Consumer Electronics Show) Asia 2018 in Shanghai, China June 14, 2018. REUTERS/Aly Song/File Photo

Flex has previously said it was "actively working" with Huawei "to find a mutually agreeable way forward" after their partnership had "recently been impacted by unforeseen challenges resulting from the US/China trade situation".

Huawei had in July estimated the worth of the goods seized by Flex at some 700 million yuan. Of this, according to a source, 400 million yuan worth of goods were being held in China and the rest outside.

It is unclear how much Huawei goods is still with Flex, but Huawei sources say the firm has retrieved most of the goods via third parties, adding to its costs.

Flex said on Monday the "market situation and customer need" was impacting some of its jobs in China, where it employs more than 50,000 workers. According to local media reports, the firm could be cutting 10,000 jobs in the country as a result of losing Huawei as a customer.

Huawei spokesman Guo declined to say whether the Chinese telecommunications giant had cut ties with Flex.

Like Flex, U.S. courier FedEx <FDX.N> too has been caught up in a row stemming from the ban on Huawei after it was found to have withheld or diverted Huawei packages, leading to a Chinese government investigation.

FedEx in June sued the U.S. government over what it said was an "impossible task" of policing export content.

(Reporting by Sijia Jiang; Editing by Himani Sarkar)

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