It has been a rollercoaster of a year for Huawei. The Chinese telecom giant surpassed Apple in most smartphones shipped during the year 2018. This went a long way to cementing its image as the second-largest smartphone manufacturer after Samsung. Huawei became a recognized big player in a market that used to be the exclusive playground for Apple and Samsung.
Things seemed to be going well for Huawei. In the first quarter of 2019, Huawei increased it’s market share from 11.8% to 19% worldwide. That is an astonishing 50.3% increase in market capitalization. Being the second-largest smartphone manufacturer in the world, and increasing your market share almost seems too good to be true, doesn’t it? Huawei would find out in just a few short weeks into the first quarter of 2019.
In late January, the United States Justice Department unsealed around 23 indictments against Huawei. Most of the counts concerned fraud, intellectual property theft, and obstruction of justice. The company was also accused of evading the sanctions the United States has imposed on Iran. The result was the U.S. government enacting a complete ban on U.S. companies from doing business with Huawei.
Why was Huawei banned?
A ban might seem like an overreaction, but let’s take a look at the history behind it.
The primary bone of contention between Huawei and the United States government is the electronics giant’s cozy relationship with the Chinese government. As far back as 2012, fears surfaced that Huawei could use the equipment it supplied to tech companies to spy on them. There were even fears that Huawei equipment could spy on governments as well.
In 2012, the United States prohibited American companies from using networking equipment manufactured by Huawei. On May 15, 2012, Huawei was formally added to the Bureau of Industry and Security Entity List of the U.S. Department of Commerce.
Of course, Huawei continues to deny any wrongdoing and maintains its equipment is only used for its intended purpose. However, for many of us, snooping on our Cox packages is very unwelcome, so we can be excused some cynicism.
What did the ban mean?
Since Huawei is a smartphone, it relies on U.S. companies like Google and Qualcomm to continue to offer marketable smartphones. It needs Google because Google owns all proprietary rights to the Android operating system on which Huawei bases its EMUI. Smartphone manufacturers can only use Android under license from Google.
Similarly, Huawei phones depend on processors manufactured by Qualcomm or manufactured by Huawei under patent to Qualcomm. Since Qualcomm has patented its processors, Huawei needs its permission to use it in its smartphones. Qualcomm earns a royalty for each processor used.
With the ban in place, Google could no longer issue an Android license to Huawei. This meant that Huawei would no longer have access to the full Android operating system. Of course, they could still use the basic Android open-source code, but Google Playstore and apps will not function on it. This leaves Huawei with no alternative but to create its operating system.
On the other hand, with the ban in place, Huawei would no longer have access to Qualcomm’s processors. This means Huawei phones will have to function with other, possibly inferior, processors from elsewhere. Qualcomm makes processors for the best phones on the market, which could be a huge blow for Huawei if the ban holds.
In summary, the ban means Huawei phones will no longer have access to anything except the Android open-source code. They will have to come up with their operating system, app store, and apps. At the same time, Huawei will have to majorly restructure its supply chain. The costs of finding a suitable replacement for Qualcomm could be astronomical.
Did you get all that? Good, because there has been a very recent development in the Huawei Saga.
The latest development: ban lifted?
On June 29, reports started coming in that President Donald Trump had agreed to lift the ban. This reportedly came after successful lobbying by U.S. tech companies to change the President’s mind about enforcing the ban. On July 1, a Trump official announced that the ban only applied to “widely available products”. If you think that’s ambiguous wait till you hear what the President had to say. At the G20 Conference last Saturday, Trump announced that American companies would continue to work with Huawei, seemingly softening his earlier stance.
Of course, the President didn’t name any specific companies like Qualcomm or Google. Instead, he highlighted the “complex and highly scientific” technology U.S. tech firms come out with. He said:
“What we’ve done in Silicon Valley is incredible and nobody has been able to compete with it, and I’ve agreed to allow them to continue to sell that product (to Huawei).”
So what does this mean for Huawei? The ban itself hadn’t technically taken effect, thanks to a 90-day reprieve. The company confirmed it was working on developing its OS. It had also reached out to other Chinese manufacturers like Xiaomi, Vivo, and Oppo to partner with it. Now that Huawei can continue to offer filly licensed Android on its phone, the future seems uncertain. Will Huawei abandon or continue to develop its OS? How will this affect Huawei smartphone sales in the U.S. market? Only time will tell.
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