Huawei set to focus on software as US sanctions mute smartphone business
Shenzhen— Huawei Technologies is expected to experience slower 5G business and push further into software in 2021, while hoping its smartphones get a reprieve from US sanctions that in 2020 struck the chip-reliant heart of its group, analysts say.
Limited access to high-end semiconductors means rationing during China’s network upgrade, they said, while the dissection of its mobile arm will send Huawei tumbling down rankings while it continues to develop a proprietary operating system.
China’s leading telecommunications equipment maker found itself on a US trade blacklist in May 2019 due to national security concerns. Huawei has repeatedly denied it is a risk.
That effectively banned US-based firms from selling Huawei essential US technology. In August 2020, the ban was extended to foreign firms with US business, reaching chief suppliers such as Taiwan Semiconductor Manufacturing (TSMC).
The change hit an achilles heel as Huawei depends on TSMC to make advanced chips for its handsets, 5G network base stations, servers, cloud computing and artificial intelligence products, said Paul Triolo, head of global tech policy at Eurasia Group. Stockpiles only last so long, he said.
“Passage of this death sentence does not involve a swift execution,” technology analyst Dan Wang said in a client note. “Instead, the process is much more like a slow strangulation.”
Huawei declined to comment.
Wang said Huawei will feel the effect most acutely in its consumer business, which brought in 54% of revenue in 2019.
In November, Huawei spun off budget smartphone line Honor in a sale founder Ren Zhengfei said would allow the brand to regain access to chips. Huawei could look to do the same with its premium lines in 2021, Triolo said.
Huawei was the world’s biggest smartphone maker as recent as the second quarter of 2020, but the Honor sale and chip shortage will probably take it out of the top six in 2021, said data firm Trendforce.
Its luck may change with the US presidential inauguration of Joe Biden, from whom analysts expect more leniency towards Huawei’s smartphone business. The inauguration in January comes as CFO Meng Wangzhou discusses a deal with US prosecutors over allegations of doing business with Iran.
In the meantime, Huawei is expected to focus on the Harmony operating system it is developing for its smartphones after being cut off from Alphabet’s Android, said Nicole Peng, vice-president of mobility at consultancy Canalys.
Elsewhere in software, Huawei is expected to pivot more towards services such as cloud computing and internet-of-things devices, though these are unlikely to offset slowdown in smartphones and telecommunication infrastructure, analysts said.
Huawei’s network business does have bright prospects, but with major markets such as Britain and Japan banning its equipment, it will likely focus on China, analysts said.
The company has enough chips to make about 500,000 5G base stations, said Jefferies analyst Edison Lee. Yet rather than use up that supply, the government will likely slow 5G introduction, taking “a middle-of-the-road approach to balance between expanding coverage and waiting for Huawei to catch up”, he said.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.