Published by Thanos Makris, 31 May 2019.
Trump’s administration progressively escalates the trade war with China. The latest development to this clash was the addition of Huawei to the “Entity List” of the Commerce Department’s Bureau of Industry and Security, which practically means that it is virtually impossible for Huawei to do business with any U.S. company.
Even though the official explanation for this decision cites national security, the actual reason may relate to a potential dominance of China in the 5G race which would result to huge financial loses for U.S. based companies and technological disadvantage.
Following this decision, Google suspended business with Huawei which, among others, means that Huawei cannot use Android on its mobile devices except for the open-source version that is publicly available. The UK-based chip designer ARM has ceased all activities with the brand as well. Several other major companies have followed suit such as Microsoft, Intel, Qualcomm, Toshiba, and more. On top of this, major standardization bodies such as SD Association, Bluetooth SIG, JEDEC, and Wi-Fi Alliance restricted Huawei from participating to their activities.
We believe that these decisions isolate Huawei and will have a tremendous impact on its market share. Let’s not forget that before the announcements of the respective bans, Huawei had consecutive quarters of significant growth that led to the brand being the second largest manufacturer of mobile devices surpassing even Apple. According to Statista, Huawei owned 19% of total smartphone shipments in Q1 2019.
As for its current market share in terms of active Android devices, according to OPAL, our Customer Engagement Platform, Huawei is in the top three Android manufactures. Specifically, its share in EU ranges from 12% to 16% and holds the third place following Samsung and Xiaomi, while in Asia (excluding China) its share ranges from 22% to 27% holding the second place behind Samsung.
Despite the fact that Huawei recently trademarked its own operating system and confirmed that they are aiming for a fall release in China and an international release in the first half of 2020, the impact of its isolation on its sales may be profound, especially in EU. Their competitors will try to siege this opportunity in order to increase their market share and gain further traction. Nokia CEO has publicly mentioned that there may be a long-term opportunity for his company.
Even though Trump’s administration issued a temporary extension to Huawei’s ban until August 19th and Huawei challenges U.S. defense bill, the impact on the company’s financial results will be significant unless the sanctions are lifted or a compromise is reached.
Based on the current pricing strategies of the other manufacturers of Android devices, we believe that Xiaomi, OPPO, and Vivo will be most benefited from a potential shrink in Huawei’s market share.
As the current situation remains extremely volatile, many questions wait for answers. Will Huawei manage to retain its growth rate if the sanctions become permanent? What will be the impact on the mobile industry in general if Chinese government decides to retaliate and enforce similar sanctions to US-based companies in China? How this will affect Apple and iOS? Will a potential Huawei fallout impact the Android market share in general? The next period is critical and will give the answers to these questions (and many more).
As this is the first time in recent years that government decisions impact so profoundly the mobile industry, which is a catalyst for many more other business sectors, we are entering uncharted waters and no one can predict what the final equilibrium point will be.