The fallout from the battle between the U.S. and Huawei will reshape the smartphone industry this year—and China could well get more influence than it has ever enjoyed before. The downside risks from America blacklisting one of the world’s largest smartphone makers are now becoming much more serious and much more real.
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Now it gets interesting. Unsurprisingly, the lobbying and peacock politics are in full swing as the world waits to see where the new Biden administration will land on Huawei. This battle came to symbolize the tech war between Trump and Beijing. Now Biden’s team need to unpick the differences between security-focused restrictions on 5G equipment sales and a punitive stranglehold on a consumer smartphone business.
Cruz wants Biden’s team to “commit to keep the massive Chinese Communist Party spy operation Huawei on the Entity List,” and is holding up the Senate nomination of Gina Raimondo for Commerce Secretary until such assurances are forthcoming. And the new administration is making it clear that the national security concerns remain and so the restrictions remain. But it’s not that simple.
The challenge for Biden is that it is difficult to justify the extent of Huawei’s blacklist on security grounds alone—it was tied into trade negotiations and a broader tech standoff, well beyond the 5G concerns which triggered U.S. action. If America’s house style is now more measured, less emotional, less theatrical, then this debate will be viewed differently. Which takes us back to the critical question for Huawei—where’s the security threat in people around the world using Google apps on a smartphone?
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Even on the 5G side, where there is a case to be made for national security interests over buying critical infrastructure from a privately owned Chinese entity, the SolarWinds debacle paints a brutal truth for the west. Hiding backdoors in Huawei kit is too obvious—it’s pretty much coming at you through the front door. It’s clearly better for a nation state to compromise someone else’s supply chain, to make sure you don’t see the threat coming.
Ironically, Huawei’s equipment is also reportedly vulnerable to such a compromise, say the experts, not because it is Chinese but because it has holes in its security and build quality. This has the been the consistent finding, year after year, from the Huawei evaluation center set up under the remit of the U.K.’s GCHQ spy agency to monitor Huawei’s role in the country. The infamous U-turn that eventually banned Huawei from the U.K.’s 5G network came about because the U.S, sanctions ultimately restricted Huawei’s supply chain too extensively, increasing this kind of risk.
There is another factor here, of course. Huawei was China’s fabled export champion. Its first big tech player that managed to go head-to-head with western champions in their own backyard and win, to compete on a level playing field. Huawei cleared a path for TikTok to conquer the west, and the likes of Xiaomi and Vivo and Oppo are now soaring because Huawei proved this could be done and showed them the way.
As I’ve commented before, Huawei changed the global smartphone market dynamics—that hasn’t retrenched simply because Huawei’s own sales have plummeted. There’s a very real threat to Apple and Samsung (and Google) from the premium quality for less strategy that Huawei perfected in key export markets, which its Chinese peers are now pursuing in its absence. Huawei became the world’s second largest smartphone maker, even taking top spot for a while. The others want to do the same.
Which brings us to the latest threat to the established smartphone pecking order—Honor. Huawei’s former junior brand once focused on cheaper phones, but following its divestment as a result of the blacklist, it is free to reassemble Huawei’s supply chain of chipmakers and software developers, and embark on the same kind of “new Huawei” strategy that is fueling stellar growth for Xiaomi, Oppo and Vivo. Huawei won’t say this, but there’s a clear pathfinder in Honor. If it works, then a wider break-up, shifting Huawei’s smartphones into independent hands, may become inevitable.
All of which made Honor’s confirmation that it is continuing with Huawei’s “1+8+n” IoT strategy entirely unsurprising. It will be equally unsurprising if Honor does take up Huawei’s opensource Harmony alternative to Android for the same reason. It’s Harmony that’s at the heart of 1+8+n after all. Honor will target the established smartphone leaderboard, chipping away at Apple and Samsung, for the same reason that Huawei took that approach and that Oppo and Vivo followed suit.
Xiaomi and Oppo now have around 13% of global shipments—each, both could outsell Apple in 2021. Oppo is also part of Chinese conglomerate BBK, which has Vivo, RealMe and OnePlus in its stable. BBK can outstrip Samsung with ease.
Suggestions that Huawei will divest its premium Mate and P-series phones have been denied by the company—but it’s unlikely to confirm anything ahead of time. And, realistically, nothing is likely to happen until the weathervane in Washington points in one direction or the other. Plan A remains a reversal of fortunes.
That said, there has been a fairly material fly in the ointment for Huawei, with the disappointing early reports on the reality behind the HarmonyOS marketing buzz. After jumping through security hoops to get hold of a developer release, reports suggest it’s little more than Android’s opensource build with Huawei’s existing front-end layer. That’s not what the marketing had promised at all.
“HarmonyOS takes advantage of a large number of third-party open-source resources,” a Huawei spokesperson told me in response, to accelerate the development of a comprehensive architecture. Although certain UI elements from EMUI 11 are kept in the current developer beta, HarmonyOS will launch with an all-new UI together with upcoming smartphones.”
As for those reports that the rest of the smartphone business might be sold, I was told “there is no merit to these rumors whatsoever. Huawei has no such plan. We remain fully committed to our smartphone business and will continue to deliver world-leading products and experiences for consumers around the world.”
All in all, we still have no answers, no clear sense of direction. Just more players. And that could quickly become even more complex. Beyond the threat to Apple, Samsung, et al from an unleashed Honor, there’s a chance we will see some kind of rejuvenated Huawei consumer business in the coming months under a subtle change of focus in the U.S., whether that’s through the return of Google or the restoration of its Huawei’s silicone supply chain or a further divestment within its consumer business.
The killer question for Huawei smartphone users (outside China) remains simple—will they see a restoration of Google apps and services to new flagship devices. I wouldn’t bet against it over the next 6-18 months. But don’t expect Harmony to drop from Huawei’s plans either way. The company will not want a future change of tone or administration sending it spiraling again, and will keep its defenses shored up.
The Link LonkFebruary 07, 2021 at 05:50AM
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