Huawei, the Chinese IT hardware giant is walking a tight rope after getting blacklisted by the United States for security reasons. The company has now been separated from western tech partners and the U.S. that formed the bulk of its market. Now, things are moving from bad to worse as U.S allies start implementing similar restrictions!
The order from the U.S administration also barred U.S. firms from selling software or hardware to Huawei. Immediately, Huawei was cut off from companies like Intel, Infineon, and Samsung. But it is the cut off from ARM (the chip maker that works with virtually all smartphones) and Google (the owner of Android operating system) that have threatened to draw the last straw of life from Huawei.
Now the big question that every stakeholder is asking is: “Can Huawei survive the storm?”
A Closer Look at the Damage
The damage inflicted on Huawei is threefold. Experts are indicating that though Huawei appears to be the primary target in the current trade debacle between the U.S and Huawei Incorporation, the ultimate goal appears to be taming China’s glittering global position. But Huawei is the biggest loser. To demonstrate this, you only need to look at one of the Huawei’s competitor, ZTE.
When U.S. shit ZTE from its market, the company saw its smartphone shipment fall by over 75%. Now, Huawei is expected to take the same route.
Because the bulk of Huawei revenue comes from manufacturing of high telecoms equipment such as semiconductors and smartphones, the impact could be bigger. For example, the Huawei-Owned HiSilicon could close down for under production.
Huawei will further feel the effect as important firms in the U.S. and its allies such as the UK cut ties. For example, EE and Vodafone in the UK removed Huawei from their 5G launch plans. Another firm, Softbank, postponed the sale of Huawei P30 Lite to weigh the expected implications.
The headache for Huawei is that the current damage could multiply as most companies want to play safe. One way of achieving this is by offering products from companies that are not blacklisted anywhere in the globe.
Cut off from Chip-maker ARM Could Bring Huawei to its Knees
As Huawei management weighed about the impact of the current ban, the news from the Chip-maker, ARM, that it was ending all active contracts and all pending engagements with Huawei was perhaps the hardest pill to swallow.
ARM is considered the lifeblood of the smartphone market because the chips are responsible for how a smartphone works. From how a smartphone operates to how it processes information, it is virtually impossible to think of it without factoring ARM technology. This implies that Huawei has simply lost the technology required to craft competitive smartphones.
Without ARM, Huawei could literally be back on the drawing board. If the current ban continues, Huawei would require years and a lot of money to craft such technology. And, with Huawei’s commitment to advance networking and customer support, it is likely to go back and try reinventing the smartphone’s hardware and software.
The only option that Huawei has for now is the wish that the trade wars can ease so that access to important components it needs for smartphones or products it makes can resume. Will this happen any time soon? Only time will tell.
Google Annexing Huawei Products from Android will reduce its Market Share
In what appears to be a global war that’s gaining momentum against Huawei, Google added its weight by indicating that it will stop its support for Huawei products. Google pointed out that it was complying with the U.S. order on restricting its operations with Huawei because it is a security risk. This means that Huawei will only be able to use the basic open-source Android.
Though current Huawei smartphone users will continue enjoying the Google Android OS and getting updates, new handsets will not have the support. This has great ramifications because Google services have virtually everything that smartphone users want. From YouTube to Google maps, it is difficult to imagine buying a smartphone without Google Services.
In as much as Huawei was quick to indicate that it has a new operating system that it has been testing for years, building it to deliver all the services that Google offers can take years. Reports indicate that Huawei is working on a fork of the latest Google Android. However, this might not offer much without Google services and updates. Huawei’s big challenge will be crafting a formula to move forward and maintaining an upward growth trajectory without relying on Google.
The ban from Google’s Android could easily cause unprecedented balance for Huawei’s global market share because other Chinese smartphone manufacturers are still allowed to continue using Google Android and Google services. Experts in international trade have indicated that this could have two major impacts.
Other companies that are still allowed to continue using Google Android and Google services on their phones are likely to enjoy an undue advantage over the weakening Huawei. This could be a major ploy to bring down the leading brand in China.
Other smartphone makers in China could read this as a wakeup call on what could befall them in the future. If Huawei, a global giant can be brought to its knees, what about other smaller firms? This might be an ideal time for them to start redefining own products such as operating systems.
Huawei Products Likely to Get Replaced for Lack of Updates
With the current Huawei problems appearing to be far from over, people using its network and wireless products are likely to face a major problem for lack of updates. The regions expected to suffer more are the rural areas. For example, most rural areas of Colorado, South Dakota, Nebraska, Wyoming, Montana, and Nebraska relied on Huawei for affordable switches, routers, and other internet and telephone infrastructure.
As Huawei’s access to the U.S. market remains banned, it means that those already using its telephone and internet infrastructure could be running on obsolete systems. This could result in inefficiencies and security risks. Even if they continue using Huawei products, most of them have a lifespan of 3 years. This means that they will be gearing to replace them with alternatives.
Companies such as Cisco that had initially not taken interest in the rural telecom infrastructure could be the beneficiary of the Huawei ban from the U.S. However, they will still need significant investment to roll out their networks in the expansive rural areas.
The exit of Huawei product for lack of updates could further damage its reputation both at home and away. Even users in other countries considering to buy Huawei products are likely to hold back wondering whether a similar problem (lack of updates) will befall them.
Can Huawei Manage to Go it alone?
As arguments about Huawei survival lingers on, another question that comes to the fore is: “Can the company survive on its own?” Though the company has been pushed into a tight corner, there is no doubt that it has been building its financial base in the last couple of years. Part of this preparedness was reflected in the company’s indication that it had already commenced preparing its own operating system. But does the company have the financial might to enchant the way alone?
In 2018, Huawei revenue grew by 19% from what it made the year before to hit $100 billion. That growth was driven by its consumer products which grew by 45%. Even as the U.S. seeks to choke the company, its product diversification could give it a softer landing. For example, the company could still look for alternative markets in Europe and Asia for its diverse products. However, this might be less lucrative compared to the U.S.
One thing that has propelled Huawei into its current global position is support from the Chinese government. Therefore, you cannot rule out the ability of the Chinese administration to back it again for further growth. China could also be looking at other companies with potential and support them to grow to the level of Huawei.
Even with more resources, it is unlikely that Huawei can make a significant impact on the market on its own. It will need the support of its home administration to survive especially in the long-term.
Turning to the big question: “Can Huawei survive? The company is outnumbered and even its competitors appear to somehow fancy its downfall. The truth is that Huawei cannot survive alone.
The U.S. market that provided the bulk of its revenue has suddenly faded. Now, the U.S. is persuading its allies to also blacklist the company. The company is chocked from inside and strangled from outside. But with Chinese authorities not appearing in a hurry to agree to a raft of measures prescribed by the U.S administration, Huawei life hangs in a balance.
Without intervention from the Chinese administration, Huawei will simply have to get back to the drawing board. Though it can still rise again, such a path would be lengthy and expensive. But experts indicate that it is still possible. If things do not work in Huawei favor, it could partner with other telecom companies for a faster resurgence in the future.