Samsung & Huawei – Nasty origami pt. IV.

Folding phones are now about bragging rights.

• The launch dates of the Huawei Mate X and the Galaxy Fold have very little to do with demand or market readiness and are really about who can be first with a workable folding screen product.
• Hidden in the dreadful news (see here) with regard to Huawei’s outlook in smartphones was the news of a three-month delay of availability of its folding phone the Mate X.
• The company states (and I agree) that its issues with the US government have nothing to do with the delay but that it has taken the company longer than expected to complete the necessary certification with operators.
• It then came as no surprise that Samsung immediately stated that the Galaxy Fold was ready to be returned to the market and that it would become available over the summer.
• I think that Samsung would have liked to delay the Galaxy Fold for much longer or maybe even cancel it, but Huawei setting availability for September 2019 has forced its hand.
• Hence, I suspect that we will see the Galaxy Fold available in tiny volumes over the summer months in order to ensure that it does not lose bragging rights to Huawei.
• I still think that there is a significant risk that Huawei does not make this September date and that it will end up significantly delaying or even cancelling the Mate X.
• This is one area where it’s banning by the USA could work in its favour as it could cite this as the reason for the cancellation rather than the critical weakness that I am sure the device has.
• Huawei’s design offers a better user experience and is simpler as the fold is on the outside rather than the inside, but it has the issue of screen durability.
• Most smartphones today use molecularly hardened glass to protect the screen from scratching.
• On a flexible screen, this is obviously not possible which is why everyone is using plastic.
• The Mohs scale measures the hardness of materials (scratchability) and tempered glass scratches at level 6 with deeper grooves at level 7.
• Plastic, by contrast, scratches at a level 3 meaning that the screen of a foldable phone could end up being 9-13x more scratchable than a regular smartphone.
• Samsung has got around this problem by putting the screen on the inside, so it is protected when closed, but Huawei’s is on the outside.
• If the screen is very easy to scratch, this will prove to be a problem because users will get unhappy with it very quickly resulting in a deluge of returns as well as bad reviews.
• This is a problem that it is not going to be fixed anytime soon, so I still think that there is a reasonable chance that the Mate X never sees the light of day.
• For Huawei, this battle with Samsung is an irrelevance as its international business is already in free fall with the very real prospect of a 34% decline in smartphone revenues in 2019 and a further 25% in 2020 (see here).
• This will come with very heavy losses as Huawei has said that it will keep its cost base (excluding marketing) in place for now.
• Huawei’s number 1 priority must be to fix this issue and get its devices back into the market before it joins the less than illustrious ranks of Nokia, HTC, Blackberry, Motorola, Sony Ericsson who were once great mobile phone makers.
• Samsung is the main beneficiary here and its shares have yet to react meaningfully to this golden opportunity.