The US blacklisting of Huawei which was swiftly followed by Google’s announcement it would cease supplying the Chinese firm with Android support will backfire on many US technology sectors if sustained beyond the three-month reprieve that ends August 23rd. Both the US and Google have granted Huawei a stay of execution over Android after realizing an immediate ban would have a severe impact on existing owners of Huawei devices, especially smartphones, after buying them in good faith. The reprieve was contemptuously brushed aside by Huawei which has decided to come out fighting, having failed with its previous conciliatory efforts in which it had offered to submit software and hardware to independent verification before deployment.
The real battleground for Huawei is not the US market, which is a lost cause, but the rest of the world outside China, where it has gained market share rapidly in telecoms infrastructure and smartphones, accelerating over the last year. In Q1 2018 it held 11% of the global smartphone market ranking third behind Apple on 14% and Samsung on 22%. But it has soared past Apple, with the shares at the end of Q1 2019 being Samsung 21%, Huawei 17% and Apple 12%. These figures give some context to the issue, which dates back at least until 2011 when concerns over Huawei’s potential threat to national security posed by its role in mobile infrastructure were first raised in public by western government agencies.
Since then, especially under Trump, the US government has worked itself up into a frenzy of paranoia over China in general and Huawei in particular. At least that is the impression given, for there is equal fear over China’s phenomenal industrial and technological advance, so that faux security concerns make a good camouflage for measures that would otherwise contravene all international trade agreements and conventions. Many commentators have taken the word of security agencies with their pronouncements they have intelligence linking Huawei with the Chinese government despite complete lack of any direct evidence of such a threat. We should remember the second Iraq war, when intelligence indicating presence of weapons of mass destruction that proved wrong clearly suited the political objectives of Tony Blair and George Bush. It could be the same this time.
For the US government too, the real battleground is the rest of the world outside China and hence the intense pressure it has exerted not just on the country’s allies but also even distant trading partners. It is part of a wider trade and technological war which, while being preferable to the proxy wars between the US and Soviet Union of the Cold War era, never mind full blown conflict, nevertheless still has victims and negative consequences for the world.
Before the latest escalation and Google’s move to deprive Huawei of access to the full Android ecosystem, it was unclear the US government’s lobbying would be successful. There was that infamous leak from the UK government security meeting indicating that the current Prime Minister Theresa May – admittedly not in the job for much longer – was in favor of allowing Huawei limited contribution to the country’s impending 5G infrastructure.
Other European countries, including Germany, had backed away from imposing outright bans on Huawei, or for that matter its Chinese competitor ZTE, over 5G, partly through pressure from their own mobile operators eager to have the most advanced equipment as soon as possible. Huawei had enjoyed some success in the run-up to Mobile World Congress in February 2019, as well as at show itself, courting these countries, before going on the legal offensive in North America.
The latest actions turn the focus on Android, with implications incidentally for Huawei’s emerging TV strategy which seems focused on displays without tuners optimized for 5G reception. At least its budget models under the Honor brand incorporate Android, so Huawei may be looking to move these towards its own alternative OS that has been under development for some years. We should emphasize at this point that it is not Google’s gift to deny any firm access to the Android Open Source Project (AOSP) which by definition is open to everyone including Huawei. This allows Huawei to build its own version of Android and its TVs could access services developed on the Android Operator Tier. It also means that Google Play, the digital distribution service for Android’s official app store, will continue to work on existing Huawei devices. Current owners will still be able to access their third-party apps.
The problem comes for future purchasers, since they will be denied access to the latest versions of Gmail, Google Drive, Maps and YouTube. Furthermore, loss of Android support means the handsets will also be denied OS updates, so even existing owners will not get future versions such as Android Q or even Android Pie, the latest available version now deployed on around 10% of Android phones.
This would surely cripple Huawei’s smartphone business outside the US assuming Google’s current dominance of the smartphone app arena continues. Currently almost 75% of smartphones are Android, with Apple’s iOS just under 23%, leaving just 2% for the rest. It may well be that Huawei will have to pin its hopes on building on that 2% with its own OS. Indeed, Huawei has already indicated it will accelerate work on its backup OS called Emotion UI (EMUI) that has been earmarked as a potential replacement for Android, highlighting that the recent escalation has been anticipated for several years or at least feared.
The irony is that EMUI is itself based on Android, but only the open source version so would not be affected by the ban. Of greater concern here to Huawei is that the EMUI software available so far on its phones has not gone down well either with users or developers, with the deficiencies most prominent on the Huawei Watch GT which depends just on a stripped version of this OS with no Android. Huawei’s smartphone success has come through its hardware, with its Huawei P30 Pro consistently ranked the best camera phone, while it has been able to defer to the full version of Android and the associated app ecosystem for software. Huawei will have to escalate investment in software dramatically and hire some good developers to have any hope of narrowing the gap between EMUI and Android proper.
It is also worth noting here what role Amazon will play, which being a US company is also subject to Trump’s actions. On the other hand, Amazon’s CEO Jeff Bezos has a well-known antipathy to Trump and will be loath to give in to pressure. Amazon has been working with Huawei in various areas including voice technology for the phones and TVs and it is notable that while Microsoft was quick to toe the line and pull Huawei products from its store this week, Amazon has not done so yet.
Amazon after all is an intense competitor of Google and has already severed its direct dependence on Android to create its own app store. Again, this is built on open source Android so is not dependent on Google’s favor. Whether we will see Huawei getting closer to Amazon remains to be seen but clearly it will have to move in a similar direction.
A wider question is the impact on the global CE market, especially smartphones. Given Huawei’s accelerating pace of innovation, it is likely that Apple and Samsung will be glad of a breather. For both, this is at the very least a reprieve and for Samsung means Huawei is unlikely after all to usurp its position as global top dog in smartphones, at least for now and quite likely forever. But it is likely to slow rate of innovation as Huawei’s rivals will be under less pressure with respect to the key features of the camera, display and foldability.
For Google itself, the implications are not altogether positive because unless Huawei collapses it significantly reduces the reach of Android. Perhaps of greater concern is the incentive this will give to developers of alternatives as it highlights the risks for CE makers and operators alike of being hitched to a platform to which access can be denied by a foreign government. Again, there is irony here in that the campaign against Huawei is predicated on suspicions of Chinese government involvement and here we have Google immediately toadying to the US administration. Belatedly, Google has signaled it will reconsider the situation, but it would have been better not to act first and ask questions afterwards.
Whatever the outcome of this dispute and even if a compromise is reached, it is quite clear that China will greatly step up its efforts to reduce dependence on US technology, other than through espionage. Huawei has been more successful building up its own silicon business than in software so far and has been moving its handsets away from Qualcomm towards its own Kirin chips and Balong modems. It has closed in on Qualcomm rapidly and last year came out with what it claimed was the first commercial SoC incorporating the latest 7nm technology, as well as combining cores of different sizes for optimal efficiency. Being made by the Taiwan Semiconductor Manufacturer Company, the US can do nothing to impede this effort other than to block its own companies from implementing this chip on security grounds.
There could also be implications over how Chinese firms engage with the rest of the world as they know they must do more to be seen to be independent of their government. This may lead to more partnerships with foreign firms and guarantees enshrined with independent third parties for verification and updates of software. Huawei has not yet even given up on the US entirely and certainly believes it can convince other countries that it can be trusted, while offering earlier access to innovation in some areas, even if it struggles to match Android. For Google, the fear is that Android will start to lose ground and that the dispute will galvanize Chinese efforts to develop a rival ecosystem that will have wider appeal, with guarantees of freedom from government interference.
In the shorter-term, Huawei itself, even with its resources, will be stretched to respond to the crisis on all fronts but further ahead may benefit both from a coordinated response by the Chinese and resentment elsewhere over US government actions that extend beyond its borders.