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May 24, 2019

The Huawei Challenge

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There are dark times ahead for Huawei, due to the U.S. Government’s decision to blacklist the vendor. And while the move was inevitable, it will now not only impact the network infrastructure side of the business, but also its ability to support Android smartphones. Regardless of whether this is a reasonable step or not, the reality is that it will happen, leaving the second largest smartphone manufacturer without access to Google’s services, including the latest updates to Android.

While a major blow to Huawei, it’s also a rather risky scenario for the smartphone market in general, and particularly Google. After all, the second largest smartphone manufacturer is hardly going to just fold up overnight. Indeed, the Chinese vendor is quite well prepared for this move as it builds its own chipset (Kirin) and has been planning for a post-Google world for some time, developing its own OS that will - apparently - work with Android apps.

Of course, the smartphone market is scattered with the dead carcasses of failed operating systems (Windows Mobile, for example), but this time could be different. For one, Huawei (at least outside the U.S.) has a major customer base. Huawei also builds some of the best smartphones available today, with superior camera capabilities. So there is indeed demand for the devices that may help support a transition to a new OS without losing too many customers. Additionally, with a large share of Huawei’s base being in China, there is a patriotic loyalty factor, not to mention the fact that Google’s services are banned there anyway, so the loss of Maps and so on will not be noticed.

But there is a bigger play here for Huawei: other Chinese smartphone OEMs are watching the U.S. moves very closely, wondering if they are next. ZTE, for example, came close to closing down when the U.S. banned hardware exports for a while. These other Chinese OEMs could – and probably should – be considering alternative strategies and Huawei could release an OS alternative that they can all license. And if that happens, Google has the potential to lose its dominance in the smartphone OS market.

Of course, there’s far more to Huawei’s pending woes than simply an OS and the news gets worse every day. ARM’s announcement that it will comply with the U.S. mandate and stop working with the Chinese OEM is a far greater hurdle for Huawei to overcome (ARM provides the underlying chipset designs for Huawei). And Panasonic also recently said it will stop working with the Chinese giant. Further, the issue has moved beyond the original fight over telecoms and appears to be impacting a wider range of Huawei’s products, including PCs and tablets.

But regardless of how well Huawei performs in the next few years, the rest of the world is now very aware that basing a product on U.S. technology comes with a real risk. ZTE was effectively shut down last year until the U.S. softened its stance; now Huawei faces similar pressures. The bottom line is that the rest of the world will likely now look to develop around U.S. technologies to reduce their dependence. Ironically, that will have the opposite effect to what the U.S. Government hopes to achieve with this move: in the longer term, this initial ban will create a telecoms industry that does not rely on – or use – U.S. manufactured components. And that, surely, is not the intended consequence.



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