Apple – Huawei Fallout—Serious New China Threat Strikes At Google, Samsung And Apple
LightRocket via Getty Images
It is now clear that the fallout from the latest U.S. sanctions against Huawei will reshape the global smartphone industry in 2021, impacting Google, Samsung and Apple, potentially giving China more influence over the global technology sector than it has ever had before. Put simply, the downside risks from America blacklisting one of the world’s largest smartphone makers are now becoming very real.
While there are no tears being shed at Huawei HQ in Shenzhen for Donald Trump’s imminent departure from the White House, there is not yet any cause for optimism either. Huawei has fought the blacklist for the best part of two years, and it remains unclear exactly what size and shape of business will survive.
Huawei denies any cyber ties to Beijing and there is still no substantive, public domain evidence of genuine backdoors in its 5G equipment, but it is reasonable to suggest that western countries buying critical telecoms infrastructure from a privately owned Chinese company is a potential security risk. It is no surprise, therefore, that Huawei’s 5G business has been decimated in key export markets by America’s blacklist.
But more seriously for Huawei has been the massive impact on its smartphone business. The facts are now well known—the loss of Google in 2019 was bad enough, but then last year the U.S. ratchetted the pressure by cutting Huawei’s access to the chipsets needed to power its premium devices.
While the latest unconfirmed rumors suggest it may have more of a stockpile of those in-house Kirin chips than previously thought, analysts are forecasting a steep enough drop in 2021 smartphone sales to remove the company from the top tier of manufacturers, made worse by the divestment of its Honor brand and unsavable by sales at home in China given that shortage of chipsets.
There was never any real downside risk in the U.S. campaigning for international bans on Huawei’s (and ZTE’s) 5G equipment sales, whether core network or just radio systems. The only fallout was the limited competitor set and the capacity of Nokia and Ericsson to step up, and others such as Samsung and NEC to step in. Yes, the cost to rip and replace Huawei equipment is substantial, and Huawei’s competitors inevitably fear a Chinese backlash, but it’s fair to assume that Huawei’s global 5G equipment dominance will not be restored.
The smartphone situation, though, is a very different matter. The downside risk here for the U.S. is substantial, and the fallout from Huawei’s turmoil is a major risk for western tech giants and America’s dominance of the global mobile standards for software and services.
As I commented back in June 2019, a month after Trump’s blacklist came into force, forcing Huawei into a corner risks “an alternative ecosystem… that does not rely on U.S. hardware or software and which breaks Google’s monopoly in particular. The economic implications for the U.S., if this was to take hold, would be stark.” This is now in play. Huawei has quietly confirmed that its Harmony OS will be made available to other smartphone makers, and it has said that it intends to beat Android and create a third global mobile ecosystem.
Huawei is now embarking on the development of search and mapping, its own wider app store and development community, news dissemination and information services. As I’ve argued before, all this raises a very serious question about a Chinese entity controlling the provision of information to millions of people in the west. This risk of censorship and influence on the narrative on key stories one of the more realistic arguments against TikTok. There is also the question on data collection and analysis. Google derives extraordinary levels of insight across the world through the use of its Android software and services.
Huawei is keeping its options open for the moment. Maintaining its development roadmap for new smartphones while driving its opensource ecosystem and soliciting partners. Prior to the chipset ban, Huawei’s strategy had seemingly been to replicate Apple’s approach, to control its hardware, software and services. “We are one of only two companies globally that can have this hardware and software solution for our own ecosystem,” Huawei’s UK. consumer boss told me last year. “Only Huawei and Apple can do this—it’s our long-term strategy—we are committed to our investments, our ecosystem… This strategy will work.”
But the chipset ban threatens to kill that strategy—if there’s no guarantee of future premium in-house smartphones, then it doesn’t work. Huawei’s ecosystem places its smartphones at the center of a user centric IoT web. Replicating Android’s opensource approach was the natural evolution, seeking other smartphone makers as a fallback.
But somewhat ironically, the biggest threat to Huawei’s strategy is not Apple or Samsung or Google, it’s the other leading Chinese smartphone players. And this brings us to the second Chinese threat to the global smartphone status quo. Xiaomi, Oppo and Vivo have embarked on “new Huawei” strategies, seeking to replicate the blisteringly successful recipe of taking premium hardware at discounted pricing into key markets to beat Samsung and Apple.
Make no mistake, these exceptionally well funded Chinese brands have every chance of repeating Huawei’s trick. Xiaomi and Oppo have each now secured around 13% of global shipments, both could outsell Apple in 2021, Xiaomi might even take a run at Samsung if its internal forecasts are to be believed. To complicate matters, Oppo is part of Chinese conglomerate BBK, which counts the Vivo, RealMe and OnePlus brands in its stable. Taking all these brands together—albeit they claim independence from one another, BBK will overtake Samsung with ease.
The Huawei recipe is enabled by Android. None of those other Chinese smartphone makers have been hit by Huawei-style U.S. sanctions, they retain access to full-fat Android outside China (where the software itself is banned). Absent that, their ability to ramp up market share would be hugely diminished. If Huawei cannot restore its manufacturing capacity—notwithstanding that its blacklisting has made the market more competitive—and given that it’s hard to see how it will switch its domestic rivals from Android in overseas markets, it’s difficult to see how the ecosystem play will strip significant market share from Android.
And so, all eyes on Biden and the inevitable lobbying from the U.S. tech sector after January 20th. The reality is that Huawei would not have been targeted by such extreme measures if it was simply a smartphone and consumer products player. The irony is that it was these non-threatening business areas that were driving its growth and profitability pre the blacklist. If the U.S. can find some way to delineate Huawei’s access to chipsets and U.S. tech between 5G and consumer, it’s clear that the best thing for U.S. tech dominance of mobile standards would be to return Huawei to Android and limit the damage from its alternative OS.
But then we have the politics. America’s more hawkish China watchers are waiting for any sign of Biden softening on Huawei as a litmus test as to wider attitudes to Beijing. The risk is that this becomes a political trap. The trick will be for the U.S. to bank the win on 5G and concede the non-threatening consumer gadgets, the phones, laptops, tablets and wearables. All of which might see the dismantling of Huawei into mini-Huaweis—a consumer business free to export at will, perhaps the same for cloud, automotive and enterprise, then a 5G business restricted by a U.S. stranglehold.
Putting aside the cybersecurity concerns that prompted the U.S. to target Huawei, the launch of its new OS and the concerted export plays from its key domestic rivals is all part of a loosely managed strategy in Beijing to challenge America’s technology dominance, to build a more independent ecosystem in China and to challenge U.S. players across the world. The Chinese threat from to the established mobile ecosystem is now very real and the west will need to counter China’s long game. The Huawei blacklist has changed the mobile landscape—the west’s next moves are critical.
Rocks and hard places. No easy answers. If 2020 was a huge year for Huawei and the fallout from its battle with the U.S., it looks like 2021 may be even more of a rollercoaster ride.
