Huawei – Nowhere to run pt. XIII.

Software is not a refuge.

• Faced with the complete collapse of its smartphone business outside of China, Huawei is trying to develop its own ecosystem but without any users, this is a forlorn hope.
• Android devices that ship outside of China are almost entirely Google Ecosystem devices carrying services that billions of users like and rely which are front and centre and set by default.
• Consequently, when it became clear that Huawei devices would no longer carry Google services as a result of Huawei being placed on the entity list, users and distributors outside of China stopped buying Huawei phones en-masse.
• Huawei’s response has been two-fold:
  • First, China: Huawei has managed to capitalise on a whirlwind of Chinese patriotism and has gained a lot of share at home.
  • This has come at the expense of other Chinese vendors rather than Samsung or Apple, but Huawei is seen as a symbol of Chinese strength overseas and so users have flocked to buy its phones.
  • Also, to be fair to Huawei, it does make excellent quality devices these days and is a worthy rival to Samsung from a hardware perspective.
  • However, while it has no Google Ecosystem, no one outside of China will buy the brand.
  • Market share gain at home has offset the collapse overseas but this is not going to help much this quarter as the Chinese market is suffering from the Corona Virus impact and at 40% share Huawei has pretty much topped out.
  • Furthermore, the entity list effect really only kicked in after Q1 2019 meaning that the YoY comparison for Q1 2020 is going to be pretty grim.
  • This is why The Information is reporting that Huawei expects a 20% YoY decline in shipments this year and given the circumstances, this should come as no surprise.
  • Second, ecosystem: despite the obvious futility in trying to compete with Google, Huawei figures that it has nothing to lose and is trying to replace the Google Ecosystem it lost with one of its own creation.
  • Its latest addition to this effort is Huawei Search which is an app that does exactly what the title says.
  • This app is currently in beta testing, but it looks to me that it has a long way to go before it could offer even the vaguest challenge to Google’s competitors let alone Google itself.
  • Search is all it does and the there is to cross-pollination like there is with Google Search into the assistant or Lens and so on.
  • It looks like the search functionality has been created in-house as it is operated by Aspiegel Ltd which is an Irish Huawei subsidiary where all of Huawei’s smartphone software assets now sit.
  • Huawei Search is also available from any web browser raising the question as to whether this search app is merely a WebView wrapper.
  • Given how basic the functionality is, I would not be surprised to find that this is the case.
• Huawei is back on the full ecosystem route again and using its AppGallery it will be trying to compete for the hearts and minds of its users with its own Digital Life services to address what users do with smartphones on a daily basis.
• Unfortunately, I don’t think that Huawei has a chance of prising users away from Google and so until it sorts out its relationship with the USA, its position outside of China will not improve.
• This will take some time as Huawei is being used as a pawn in the wider trade dispute between the USA and China where no immediate resolution is in sight.
• However, when a deal is finally done, I would expect Huawei to get an immediate reprieve and be able to return on overseas markets with credibility.
• The main beneficiary, for now, remains Samsung which now has a freer reign to increase its dominance of Android and no longer has Huawei snapping at its heels.
• That being said I no longer hold Samsung shares due to my extreme caution over the impact of the Corona Virus on Q1 reporting across the board.
• I am sticking with cash and gold for now.