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USA ban: The downfall of Huawei?

July 16, 2020, at 2:30 pm

Sunday, May 19, 2019, Donald Trump's administration announced to set Huawei and its subsidiary Honor on a blacklist of foreign companies, banning all the American companies doing business with them.

The official reason announced that Huawei is accused of spying on users of its products. The immediate effect of that decision is that Huawei loses its software licenses (Android, Google services) and its hardware suppliers (Intel, Qualcomm). This ban is just collateral damage to an economic war between the USA and China with geopolitical considerations. The USA is using it as leverage during its trading negotiations with China in addition to the 5G market signified Huawei has a cheaper and more advanced technology than its competitors (Huawei has 70% of telecom market shares in Africa). We have to keep in mind that the American government already banned Huawei products from being sold on its territory in 2018. As the following figures show, it had little effect on Huawei since the brand has a strong presence worldwide, whether in telecom or smartphones and laptops.

Asides from Vivo, Huawei is the only manufacturer who saw an increase in sales volume in Q1 of 2019 compared to Q1 of 2018. With a staggering 50.3% increase, Huawei is solidly sitting in the 2nd place far ahead of Apple with a sales volume decrease of 30.2% and getting close to the number 1 Samsung, who saw its sales volume decrease as well with 8.1%. Let's keep in mind that Huawei managed to achieve this performance despite banning all Huawei products on its US soil.

Other brands, once considered among the top, are now on the verge of totally disappearing from the market.

Sony, for example, decided to cut in half its mobile division staff. There were also rumors of selling the whole Sony Mobile to other investors as it was the case with the laptop brand, Vaio. LG entirely stopped its smartphone production in its homeland Korea and moved it to Vietnam to cut down the cost, without mentioning that it officially retired from the French market. Huawei is performing the global market exceptionally well, and in the local market, where it is crushing the other Chinese brands and keeps growing while the others are slowing down or losing market shares. The foreign brands, including apple, are struggling even more in the Chinese market where Huawei is the indisputable number 1. Since Google is already banned in China, the impact of losing google services license is minimal if not null.

So, we shouldn't expect any change.

Huawei's response was pragmatic and is working with its western partner, such as Google, to find a solution to lift the ban as soon as possible. Google already provided Huawei 90 days temporary license for its services until a solution is found. In the meantime, Huawei said that it has enough components stocks to keep its production running for a year. Also, it has almost finished developing it's in house mobile OS to replace Android, in case a scenario like the one we are witnessing occurs.

In every situation, there are winners and losers. The losers are Huawei and all its partners, especially and ironically, the American ones. The winners are Huawei's competitors and especially the Chinese ones, but working outside China. Oneplus and its sister companies Oppo and Vivo, are getting more global attractions, but Xiaomi is the biggest winner in this situation. For years, it has generally imposed itself on consumer electronics as a high-quality Chinese alternative brand and in the smartphone market, particularly as the 2nd most known Chinese brand after the ogre brand, Huawei.

Of course, Xiaomi, as any other Chinese brand can be blacklisted by the American government. However, it is unlikely to happen since Xiaomi isn't involved in the 5G network market and isn't considered a threat to Trump's administration. Yet, Xiaomi has a golden opportunity to grab more market shares from Huawei in the global market and will most likely succeed in doing so, if Huawei loses its Android license.

In addition to Huawei's problems, Xiaomi is known for producing high quality and cutting-edge technology phones for almost half the price of premium brands like Samsung and Apple. Is it the downfall of Huawei? It's early to say, and it is unlikely that it will lose its Android license definitively. One thing is sure, the short-term impact of that ban is greatly damaging for the brand's image. It was expected that Huawei would become the 1st global smartphone manufactures by the end of 2019.

But it looks like Samsung will keep its crown this year.

For the rest, we can only wait and see.

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