May 20, 2019

Huawei's smartphone effort takes a giant hit

Photo: Ina Fried/Axios

Huawei, which rapidly rose through the ranks to become the world's No. 2 smartphone maker, could see its fortunes fall just as fast amid U.S. sanctions that limit its ability to conduct business with American suppliers.

Why it matters: To make its phones, Huawei relies on Google's Android operating system. Google has stopped supplying its own apps and services to Huawei, in accordance with a U.S. ban enacted last week.

Most pressingly, the ban has led Google to turn off Huawei's access to the Google flavor of Android, including its services and app store. (Huawei can still access and distribute the open source version of Android, but that lacks a lot of the key selling points of the custom Google version.)

Between the lines: In China, phone buyers don't rely on Google services and there are a number of other outside app stores. In nearly all other markets, though, access to Google's Play Store and key apps like Maps, Gmail and YouTube are considered table stakes for an Android device. Huawei doesn't sell a meaningful number of phones in the U.S., but has grabbed a significant share in Canada and parts of Europe.

Huawei has been working on its own operating system for some time. While a sensible backup plan, creating a rival software ecosystem, even one based on open source Android, is a tall order.

The bigger picture: One advantage Huawei does have is that, unlike many smartphone makers, it makes its own core processors, meaning it doesn't rely on chips from Qualcomm. However, a lot more goes into a phone than just the software and main processor. And, while Huawei has apparently tried to stockpile other key smartphone components, it is unclear just how large a supply it has built up.

Per Bloomberg, a number of U.S. chipmakers have stopped supplying chips to Huawei, including Intel, Qualcomm and Broadcom. (Intel and Qualcomm declined comment; a Broadcom representative was not immediately available for comment.)

Huawei also has a smaller computer unit that uses Microsoft Windows, which seems likely to also be impacted by the U.S. ban. (Microsoft did not immediately respond to Axios' request for comment.)

More importantly, Huawei also relies on U.S. software and technology for its even larger networking business, which is the core of its operations. It's unclear just what effect the U.S. ban will have on that business.

Flashback: Huawei has been an up-and-comer in the global market, even without making inroads in the U.S. As a sign of its growing role, Google itself tapped Huawei to make one of its Nexus devices, the Nexus 6P, back in 2015. Huawei had hoped to not only solidify its place as a major Android phone maker, but perhaps gain a larger share of the U.S. market.

What's next: Huawei and Google can seek U.S. Commerce Department permission to continue their work together, either broadly on phones or perhaps more narrowly to ensure existing customers maintain direct access to security updates. Likewise for other partners.

Bottom line: This is a giant blow to Huawei, but don't expect China to sit idly by. Just as Huawei is dependent on U.S. software, many U.S. tech companies, including Apple. are largely or wholly dependent on Chinese companies to manufacture their products.

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