Forget Samsung and Google – Huawei now has a serious new threat in China
Just a few months ago, Huawei defied the odds of blacklisting and outperformed rival Samsung for global smartphone shipments, initially for April, then for the entire second quarter. Huawei had finally achieved its ambition of reaching that coveted world number one. But what a difference the last few months have made.
The news this week that Samsung Third-quarter earnings likely up 58% Compared to last year, that smartphone sales have surged as markets have recovered, means the Korean giant is likely to take over the top spot from its Chinese rival. Both were neck and neck for sales in the second quarter, although Huawei took a very slight lead. China’s rapid recovery from its coronavirus shutdown has proven to be key.
Now, at headline level, Samsung is a huge beneficiary of Huawei’s woes in the US. The latest blacklist restrictions to deny Huawei access to the chipsets needed to power its flagship smartphones are expected to decimate sales in 2021, when its current inventory runs out. The latest of these flagships, the Mate 40, will launch on October 22. Absent an American U-turn, this will be the last device for quite some time to carry an in-house Kirin chipset – some reports even suggest there may not be enough left to keep up with Mate demand. 40.
Huawei has already seen a sharp decline in smartphone sales in its hard-earned export markets. The loss of Google software and services from its devices contributed to this. Turns out a scaled down version of Android doesn’t cut it when the full alternative is available. The company’s focus on its HarmonyOS alternative to Android is the answer, and it should find its way to new (and existing) smartphones in 2021.
If there is are all new smartphones, of course. The edge of the cliff in smartphone sales next year is pretty much a given, unless there’s a rollback in the US or Qualcomm secures a license and a quick overhaul of the platform follows. Some reports suggest that Huawei’s more than 200 million devices could drop to a paltry 50 million units in 2021. And that’s some 150 million users who would buy a Huawei device but now go elsewhere.
Huawei survived, if not thrived, the first 18 months of the US blacklist thanks to stellar sales in its home market. In the second quarter of this year, the company had achieved a staggering 46% share, and it was even higher in the high-end segments. This means that more than 70% of Huawei smartphones are sold in China.
But that means that even if Huawei stopped exports to maintain its domestic market, it wouldn’t have enough chipsets to prevent a steep decline in China. Hungry rivals Xiaomi, Oppo and Vivo stand ready with plenty of new 5G handsets – and once tens of millions of Chinese users are gone, they have to be won 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 was quick to replicate Huawei’s effective export strategy – high-end smartphones priced below the premium price point to compete head-on with Apple and Samsung. And Xiaomi has no Google losses to contend with. He found these prized markets wide open.
Huawei’s response to this is to change strategy. The company prized for the quality of its hardware is reinventing itself today as a software player, even an ecosystem player.. This is despite the fact that Huawei’s software boss, Wang Chenglu, admitted at a recent Huawei conference that “developing a good ecosystem is much more difficult 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 compete with Apple and Google equivalents started as an ecosystem for its own devices, bringing its own smartphones to the fore. But with these restrictions on new smartphones, the news is that HarmonyOS is going open-source, an alternative to Android’s AOSP. Huawei is playing a Chinese card here, building a bridge, it says, between China and the rest of the world, to create more TikToks, to launch a real alternative to iOS and Android.
But there is an obvious twist. For this to work, Huawei must convince other manufacturers to opt for its ecosystem, to adopt HarmonyOS. These would be the same Chinese OEMs that stand to benefit from the impending decline of market leader Huawei. China itself can step in here and force or incentivize good behavior, but left to its own devices, the market will only answer this kind of conundrum one way. And this is a major threat to Huawei’s new ecosystem strategy.
The next year will be pivotal for Huawei’s smartphone business, not to mention the billions of dollars in future profits at stake. more realistic. Huawei will no doubt persuade Chinese manufacturers of IoT devices and gadgets to embrace its new strategy. But it needs a smartphone and fast solution to give itself a chance to avoid a long and costly moratorium on sales and market relevance.
What wouldn’t hurt in the meantime would be a victory for Joe Biden in the US election in November and a loosening, however slight, of the stranglehold the US now has over Huawei’s affairs. A few temporary vendor licenses – any easing of restrictions – can be enough to save time. And, right now, time is ticking almost as fast as those dwindling chipset stocks.