US further chokes HUAWEI’s access to 5G. What that means for its phone biz?
HUAWEI’s access to 5G components just got even more difficult, thanks in no part to tighter restrictions imposed by the US government. The Joe Biden administration has made some changes to the existing licenses that allowed companies to trade with HUAWEI and has informed the suppliers about tighter restrictions that prohibit the sale of components used in 5G devices. The changes have already been put into place, and they might severely impact the licensing terms agreed upon by the previous administration.
“The rules create a more explicit prohibition on the export of components like semiconductors, antennas, and batteries for Huawei 5G devices, making the ban more uniform among licensees,” says a report by Bloomberg. As per another report by Reuters, the items that are covered under the amended licensing rules can’t be used “with or in any 5G devices,” an umbrella term that covers everything from smartphones to networking equipment.
“Another amended license was not authorized for use in military, 5G, critical infrastructure, enterprise data centers, cloud or space applications, effective March 8,” adds the Reuters report. The updated licensing terms also impose a limit of 6GB memory on devices that use the components provided by the suppliers to HUAWEI. And even though the company has legally challenged the ‘national security threat’ label bestowed on it by FCC, the new leadership in the US has made it clear that the status quo is not going to change – at least not in the immediate future.
A brief history of HUAWEI’s misfortunes
To recall, HUAWEI was put on the US Commerce Department’s Entity List back in 2019 citing threats to national security. The company has also been put on a military blacklist compiled by the Department of Defense over alleged ties with the Chinese military. Ever since the trade sanctions were imposed, suppliers had to obtain a license in order to continue doing business with HUAWEI. But the latest amendments to the trade license terms make it even more difficult for HUAWEI to source 5G components.
Back in December, US lawmakers even backed a $1.9 billion fund to remove telecom equipment from HUAWEI and ZTE from the country’s networking infrastructure. The decision was made over risks of espionage posed by HUAWEI’s telecom equipment. US officials have argued that HUAWEI’s telecom gear can be exploited for state-sponsored theft of corporate secrets, content censorship, and even tracking dissidents of the Chinese government, per a CNBC report. HUAWEI has categorically denied those allegations.READ MORE: HUAWEI dealt another blow by US government that could cripple its PC business
“U.S. officials say Huawei Technologies Co. can covertly access mobile-phone networks around the world through “back doors” designed for use by law enforcement, as Washington tries to persuade allies to exclude the Chinese company from their networks. Intelligence shows Huawei has had this secret capability for more than a decade, U.S. officials said,” TheWallStreetJournal reported back in February last year.
HUAWEI is not getting a respite anytime soon
The US government has made it clear that it is not going to lift the trade restrictions imposed on HUAWEI anytime soon. In fact, the revised license terms are being seen as an attempt by the present administration to iron out the loopholes and making the restrictions more consistent to levels the playing field for all suppliers.READ MORE: President Trump extends US trade ban on HUAWEI for another year
With even tighter rules that further chokes HUAWEI’s access to 5G equipment, the company stands to bleed more ground in the smartphone market. Earlier this month, it was reported that HUAWEI has lost a significant chunk of its market share in China to rivals such as OPPO and Xiaomi, and the primary reason for it was the company’s weak 5G phone portfolio. The Chinese telecom equipment giant has recorded a sharp decline in its smartphone business and was even forced to sell its Honor sub-brand earlier this year.
5G might just be the key to revival
HUAWEI has committed to making high-end P-series and Mate-series phones after rumors emerged that the company might sell these two brands as well. However, the new US trade restrictions on the supply of 5G gear might hamper HUAWEI’s plans of moving forward with launching premium phones in China moving forward – and elsewhere as well. And HUAWEI’s absence has not only benefited its Chinese rivals, but the likes of Apple have also had record growth in China in the past few months.
As per Counterpoint Research, 65% of all phones sold in Q4 2020 in China were 5G-ready. And it goes without saying that launching flagship phones that cost north of a thousand dollars in value and lacking 5G is a recipe for disaster in 2021, especially in a market like China.READ MORE: HUAWEI is reportedly cutting phone production by more than half due to trade sanctions
But it is not just China where HUAWEI stands to lose significantly – a market where it reigned supreme not too long ago. Ever since HUAWEI was put on the Entity List, the company’s phones have lost access to essential Google services such as Gmail, Maps, and Play Store, all of which are a part of the Google Mobile Services (GMS) core.
While phones lacking GMS access aren’t an issue for buyers in the Chinese market, they become a lot less desirable for smartphone users in other markets where these Google services are an integral part of day-to-day mobile usage. Losing access to these Google services has already reduced the appeal of HUAWEI phones in some key markets such as India, Europe, and Latin America – and the situation will continue to deteriorate.
The fight is on, but…
HUAWEI has tried to fight back with its own ecosystem of apps based on the HMS (HUAWE Mobile Services) core that has led to the creation of its own app repository called AppGallery. However, it is far behind Google’s Play Store and Apple’s App Store in terms of the number of apps and the developer ecosystem backing it.
The troubled Chinese company has also been working on its very own operating system called Harmony OS that can run on everything from phones and tablets to TVs and even cars. In the past, HUAWEI has stressed that it would like to continue using Android on its phones, but if the ongoing restrictions tighten further, the company will move ahead with its plans of using Harmony OS across a whole ecosystem of devices. And as far as smartphones go, 2021 is going to be a crucial one with plans of HarmonyOS-powered phones already in place.READ MORE: Is HUAWEI preparing to give Google and the U.S. the middle finger?
However, the challenges are immense, especially when it comes to competing against established names such as Google and Apple, both of which are rapidly diversifying the scope of their services to cover more product categories than just mobile and computing hardware and have ambitions of becoming major players in other segments such as automobiles and smart home devices to name a few.
Coming back to smartphones, HUAWEI was a force to reckon in the industry until recently – toppling Apple and breathing down Samsung’s neck for the crown. But with the fresh restrictions that further impede HUAWEI’s ability to source 5G hardware, chances of bouncing back to the big league on a global appear slimmer. 5G is going to be a key growth driver in the smartphone industry moving forward, and right now, HUAWEI stands at a juncture where things appear more gloomy than ever before.
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