September 09, 2019

Smartphones - Caution Rising About Huawei Smartphones for 1Q20

005930 KS, 066570 KS, AAPL, GOOG, GOOGL
By Hartmut Leuschner
European smartphone procurement managers have started to evaluate other suppliers in the event that Huawei fails to get the standard Android platform for new device launches in 1Q20.

European Operators Show High Interest in Other Brands
Shortly after the supplier ban affecting Huawei Technologies Co. Ltd. took effect in May, most European sources said many consumers were staying away from Huawei but had not yet switched to other vendors (see OTR Global’s May 29 note). By mid-July, Huawei’s smartphone sell-through had recovered slightly (see the July 19 Connected Devices report); however, in OTR Global’s Aug. 16 note, sources said that despite recovering sales of Huawei smartphones in Europe during 3Q19, they were worried about their Huawei device sales after the temporary Alphabet Inc.’s Android license expired on Aug. 19.

Now that the license has yet to be extended, major smartphone buyers meeting with suppliers Friday at IFA Berlin (Europe’s largest consumer electronics show) were concentrating on how to replace large volumes of Huawei smartphones with other Android device vendors if the Chinese company cannot equip its next-generation flagship devices with the standard Android platform. Huawei’s high-end phone Mate30 device -- intended to compete with Samsung Electronics Co. Ltd.’s (005930 KS) Note10 -- is the first Huawei phone to be affected by the license problem. Although Huawei has announced the global launch of Mate30 would be Sept. 19 for sales later in the year, none of OTR’s sources has expressed interest in adding the device to their portfolios, as they are still ordering Huawei’s current flagship devices P30 and P30 Pro for 4Q19. “There is no way we can sell this product [Mate30],” said the senior manager of a large distributor, because the device would be stripped of major Google services -- maps, mail, search, YouTube and other features.

Sources said they are not worried about their 4Q19 business with Huawei, but they are very concerned about 1Q20, when Huawei’s flagship phones for 2020 are expected to be launched. “We will start our 2020 portfolio planning no later than the end of October, so we need clarity by then,” a network operator source said.

Buyers Focus on Android Vendors
Although buyers expect Samsung to gain some share from a Huawei shortfall (similar to commentary in OTR Global’s July Connected Devices report -- in which sources identified Samsung and Google Pixel as beneficiaries of a drop in Huawei smartphone sales), all four sources said they are also looking into HMD Global Oy’s Nokia brand. “Most Nokia devices are also made in Vietnam, not in China. That could be an advantage, “one buyer said. Three others said they will most likely increase their in-house share of smartphones with LG Electronics Inc. (066570 KS), two said they believe Google’s Pixel phone could gain meaningful share, especially in the high end. A retail source said he is most likely going to sign a larger contract with Xiaomi Inc. (1810 HK) this year, while a distributor believes Huawei volumes in many markets may be replaced by BBK Electronics Corp Ltd.’s Oppo and Vivo brands. He said, “We currently believe Huawei will face a major drawback and that other large Chinese vendors will take over that are not selling network technology, like Oppo and Vivo.” None of the buyers suggested Apple Inc. would benefit from Huawei’s problems. One said, “Their current device portfolio is too weak to play a major role when dividing up the cake. The biggest benefit to Apple could be that Huawei is no longer taking share from them if they are crashing.”

Huawei OS Not Suitable
None of the sources believes Huawei’s recently introduced proprietary operating system, Harmony OS, would help the vendor replace the Android platform. “We believe -- from speaking with Huawei -- that their own OS is far, far away from being ready for anything in phones,” one source said. Another buyer said he does not believe Huawei’s Harmony OS will be available any time soon and that when it arrives, it will most likely not be suitable for the European consumer market.

What is an OTR Snapshot?

OTR Snapshots are direct feeds from our editors expressing their views on key issues and events in their industries, within and beyond our core coverage. Snapshots feature industry insights, source commentary, and general observations.