Reuters has learnt from sources that that Google will be abiding by the US President’s executive order which stipulates that it suspend business with Huawei with regards to transfer of hardware, software and technical services for IP which isn’t open source. This means basically that future Huawei phones will not get access to a full functioning form of Android, but instead, they will only get the AOSP stack which doesn’t come with Google’s suite of cloud services including the Google Play app store and YouTube. This is a major body blow to Huawei’s smartphone ambitions as it will hobble its efforts in every market outside China. Let’s take a look at what does it actually mean.

Why is it happening

  • It is an obvious escalation of the US-China trade war after recently talks broke down between the two superpowers. This is a tactic for the US to strong arm the Chinese to come on the negotiation table and change the semantics of the trade agreement between the two.
  • For the longest time, US security services have been suspicious of the Chinese company which is also a prime player in 5G technology. Huawei has been accused of corporate espionage and also a proxy for the Chinese government to wage some kind of cyber warfare.
  • Last year, Huawei’s CFO was detained in Canada and put under house arrest as the company was said to have violated a US trade embargo with Iran. Huawei for its part denies this, but the US had a big role in the sudden arrest of the Huawei CFO in Canada. She’s also the daughter of Huawei’s founder.
  • 5G technology is crucial for the next stage of cyberwarfare. Huawei is a leader in 5G deployments as its technology is superior to players like Nokia and Ericsson, apart from being cheaper. Paranoia which is fuelled by sketchy evidence has also led to this scenario.

What does the executive order mean

  • Perhaps the biggest problem will be the Google license for Huawei. Android has more than 2 billion users on the planet. It is by far the most ubiquitous operating system on the planet. More so, Google’s cloud services are defacto internet standards. No platform has survived without their support. Even Microsoft couldn’t sustain Windows Phone without proper support for YouTube, Gmail, Google Search, Google Drive, Chrome apart from a bevy of others. Amazon Android AOSP based “Fire tablets” which even has its own App Store haven’t been able to do well because of the same reason. Huawei will struggle to sell phones if these services will not work on its devices.
  • However, this will not be a problem for Huawei in two of the three largest smartphone markets in the world. In China, already Google’s cloud services are banned and not operative. With the clamp down on Huawei in US, its phones haven’t been on sale on the western side of the planet for over a year. So in two of the biggest smartphone markets, this executive order has no bearing.
  • Another big problem for Huawei will be its supply chain which is dependent on US based component providers. Its PC business will struggle because all its Windows based devices use Intel chips. For modems, a chunk of its phones use Qualcomm SoCs along with Broadcom’s technology. Even though it says it has stockpiled enough components for a while for the storm to pass over, chances are if the ban doesn’t get revoked, its consumer side of the hardware business will be in tatters sooner than later.
  • Huawei and its sub brand Honor has been growing at a slow pace in India. It already faces stiff competition from the likes of Xiaomi and the BBK group apart from Samsung. Things will be much harder for Huawei to compete as India is an Android country and people love their Google apps. It will lose the world’s largest smartphone growth avenue.
  • For current users, things should remain the same. Google has already announced that access to the Play Store and Play Services will not be revoked for existing users. Google will also continue to support phones that are already released with the latest versions of Android.

What has Huawei done to counter this?

  • Huawei has invested deeply in its own silicon technology and modem technology. Its phones, particularly flagship models, have their own Kirin line of SoCs which perform very well and are competitive up against offerings by Qualcomm and Samsung. Its modem technology is ground breaking which is why it was even in the running to supply iPhones an 5G modem, but that’s not going happen as Apple inked a deal with Qualcomm.
  • It has also developed its own operating system which it has kept as a last ditch resort in case it had issues with Google over Android. Looks like the time has come to go to market with its own OS as the Android wall is closing in on it. Theoretically, it can make this OS work even better on its own hardware but the smartphone market is too mature for a new player as neither developers or users would support it.
  • It has also indulged in a huge PR campaign to clear its name. Its founder who is famously reclusive has given out interviews to the BBC and other global publications. So far that PR campaign hasn’t had much of a benefit. Its networking gear is being boycotted left right and center. New Zealand, the UK and multiple countries in the EU are considering not using Huawei technology and that domino effect could swell to smartphone business as well.
  • Huawei created a sub brand called Honor which is one of the fastest growing smartphone brands in the world. That being said, there is no illusion that Honor isn’t a Huawei subsidary. This kind of tactic has worked for the BBK group which is the parent company for brands like Oppo, Vivo, Realme and OnePlus, however, that’s not worked in Huawei’s favour for Honor.

What does this mean for the smartphone industry

  • Android as a platform is getting balkanised into small silos as a result of Google’s incredible scale and trade wars and tensions between different countries. The US-China situation isn’t isolated, Russia has been trying to something similar and Google’s anti-trust case in the EU means that Android will not be the way it is right now in the near future.
  • This scenario is just bad for consumers and smartphone innovation. Huawei’s P30 Pro is arguably the best smartphone in the world right now with ground-breaking camera technology. Unfortunately, this phone isn’t sold in the US because of the ban on the company. This will also stall innovation from Huawei which has been pushing mobile technology in the space of networking, camera, silicon, AI and hardware design.
  • It also opens up the floodgates for retaliation against US companies like Apple and Dell which have their supply chain stationed in China. This would mean their devices would likely become more expensive for consumers.
  • It also throws up a spanner for net neutrality and the open internet as different countries will have different laws and this could spell doom for the open internet.

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