Forget Samsung And Google—Huawei Now Has A Serious New Threat In China – Forbes

Just a few months ago, Huawei defied the blacklist odds and outsold rival Samsung for global smartphone shipments—initially for April and then for the entire second quarter. Huawei had finally achieved its ambition to reach that coveted world number one slot. But what a difference those last few months have made.

The news this week that Samsung’s third-quarter profits are likely 58% up on last year, that smartphone sales have surged as markets have recovered, means that the Korean giant is likely to retake that top-spot from its Chinese rival. The two were neck and neck for sales in the second quarter, albeit Huawei edged very slightly ahead. China’s early recovery from its coronavirus shutdown proved to be the key.

Now, at a headline level, Samsung is a huge beneficiary from Huawei’s U.S. woes. The latest blacklist restrictions to deny Huawei access to the chipsets needed to power its flagship smartphones looks set to decimate 2021 sales, when its current stockpiles run down. The latest of those flagships, the Mate 40, launches on October 22. Absent a U.S. U-turn, it will be the last device for some time to carry an in-house Kirin chipset—some reports even suggest there may not be enough left to meet Mate 40 demand.

Huawei has already seen a sharp decline in smartphone sales to its hard-won export markets. The loss of Google software and services from its devices saw to that. It turns out that a cut-down version of Android doesn’t cut it when the full-fat alternative is available. The company’s focus on its HarmonyOS alternative to Android is the response, and that’s likely to find its way onto new (and existing) smartphones in 2021. 

If there are any new smartphones, of course. The cliff-edge in smartphone sales next year is pretty much a given, unless there’s a U.S. backtrack or Qualcomm secures a license and a fast platform redesign follows. Some reports suggest Huawei’s 200 million-plus devices might drop to a paltry 50 million units in 2021. And that’s some 150 million users who would be buying a Huawei device but will now go elsewhere.

Huawei has survived, even thrived, through the first 18-months of the U.S. blacklist through stellar sales in its domestic market. By the second quarter this year, the company had secured a dizzying 46% share, and that was even higher in the premium segments. That has meant more than 70% of Huawei smartphones being sold in China.

But this means that even if Huawei stopped exports to maintain its domestic market, it would not have enough chipsets to prevent a staggering decline in China. Hungry rivals Xiaomi, Oppo and Vivo are standing by with plenty of new 5G handsets—and once tens of millions of Chinese users leave, they need to be won all over again. 

We have already seen this play out internationally. Xiaomi’s staggering export growth coinciding with Huawei’s staggering export decline is no coincidence. Xiaomi has been quick to replicate Huawei’s effective export strategy—premium smartphones at a lower than premium price to compete head on with Apple and Samsung. And Xiaomi has no loss of Google to contend with. It has found these prized marketplaces wide open.

Huawei’s answer to this is to shift strategy. The company prized for the quality of its hardware is now reinventing itself as a software player—even an ecosystem player. This despite Huawei’s software boss Wang Chenglu acknowledging at a recent Huawei conference that “developing a good ecosystem is far harder than developing good technologies… We don’t have a long history of software development in China.” 

Huawei’s focus on HarmonyOS and its HMS smartphone framework and app store to rival Apple’s and Google’s equivalents started as an ecosystem for its own devices, putting its own smartphones front and center. But with those restrictions on new smartphones—the new news is that HarmonyOS is going open-source, an alternative to Android’s AOSP. Huawei is playing a China card here, building a bridge, it says, between China and the rest of the world, to create more TikToks, to launch a genuine alternative to iOS and Android.

But there’s an obvious twist. For this to work, Huawei needs to persuade other manufacturers to opt for its ecosystem, to adopt HarmonyOS. Those would be the same Chinese OEMs set to benefit from market-leading Huawei’s imminent decline. China itself may step in here and mandate or incentivize good behaviors, but left to its own devices, the market is only going to respond one way to this kind of conundrum. And that’s a major threat to Huawei’s new ecosystem strategy.

Next year is critical for Huawei’s smartphone business, to say nothing of the billions of dollars of future profits hanging in the balance. The company has been talking “survival” since the turn of the year—now that hyperbole resonates more realistically. Huawei will undoubtedly persuade China’s IoT peripherals and gadget makers to jump aboard its new strategy. But it needs a smartphone solution and fast to give itself any chance of avoiding a lengthy and costly moratorium on sales and market relevance.

What wouldn’t hurt in the interim would be a Joe Biden victory in America’s November election, and a softening, even ever so slightly, in the stranglehold the U.S. now has on Huawei’s business. A couple of temporary supplier licenses—any relaxation in restrictions—may be enough to buy some time. And, right now, time is running out almost as fast as those depleting stockpiles of chipsets.

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