Why Trump’s Huawei ban could cripple the company

Things just keep getting worse for Chinese tech giant Huawei.

After Google revoked Huawei’s Android license over the weekend, a handful of U.S. companies, including chipmakers Qualcomm and Broadcom and storage supplier Western Digital have reportedly stopped working with the Chinese company as well.

If this kneecapping continues, not only could Huawei’s smartphone business outside of China be screwed, but there could be far wider-ranging consequences than most realize.

A Google Play alternative won’t be enough

There’s no way to sugarcoat the current situation Huawei is in: It’s really bad.

Not only has Google effectively cut Huawei off from getting early access to new Android builds, but it’s no longer allowing the Chinese company to load the Google Play app store and its services such as Gmail and Google Maps on devices.

In China, this isn’t really an issue since Google and its services are banned and Huawei phones use alternative apps from homegrown companies such as Baidu and Tencent.

But outside of China, history has shown that it’s nearly impossible for phone maker to succeed without having access to Google Play or Google’s services. Take your pick of dead phone platforms   (Windows 10 Mobile, BlackBerry 10, and Amazon’s FireOS for the ill-fated Fire Phone are three that come to mind) and all of them failed because they didn’t have access to a robust app ecosystem.

With the exception of those who live in China (the country might as well be another planet when it comes to app ecosystems), who would buy a Huawei phone that can’t access essential services such as Gmail, YouTube, and Google Maps? Who would purchase a phone that has no way to install Instagram or Twitter? Most people wouldn’t.

Huawei’s official stance is that its existing devices will still have access to Google Play and Google services and that it’s still going to update them. Future devices, however, won’t have them.

“Huawei will continue to provide security updates and after-sales services to all existing Huawei and Honor smartphone and tablet products, covering those that have been sold and that are still in stock globally,” the company said in a statement sent to Mashable.

The company also says it’ll “build a safe and sustainable software ecosystem, in order to provide the best experience for all users globally.” Huawei’s been rumored to be working on its mobile operating system and many are interpreting this statement to mean the company’s Android backup OS could be just as good as Google’s, but that seems unlikely unless third-party developers get onboard.

We’re not saying there’s no chance Huawei will succeed, but the odds aren’t in its favor. Samsung previously dipped its toes in alternative Android waters with its own Tizen OS for phones, but that didn’t pan out.

“You basically can’t sell a phone without the Google Play Store or Google Maps outside of China,” says Techsponential tech analyst Avi Greengart. “Even if you’re gonna be putting your own app store on top — everyone [in China does] does — losing access to the Android license is a serious problem.”

Greengart says it might not be as challenging for Huawei to source hardware from non-American suppliers (for example, Corning Gorilla Glass for screens), but a replacement app store outsideof China is going to be more difficult.

Apple, Samsung, and Chinese phone makers win

Without access to Google Play, Huawei’s phones will no doubt be less attractive to consumers, especially in Europe, where the company has seen tremendous growth in the past several years thanks to feature-packed flagship phones like the Mate 20 Pro and recent P30 Pro.

Huawei’s troubles will likely mean consumers will look elsewhere when shopping for a phone. Apple’s iPhones and Samsung’s Galaxy phones are the two most obvious devices consumers could switch if they can’t get a Huawei phone.

“If Huawei doesn’t have access to Google Android services and updates and needs to rely on AOSP (Android Open Source Project), Apple and Samsung will gain short-term,” says Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “I would expect consumers to shift purchases, in particular, to Samsung.”

It makes sense potential Huawei buyers would switch to an Apple or Samsung — the brands are established and have proven track records for building best-in-class devices. But while most technology analysts we spoke to said Apple and Samsung could see a small tick in sales, the popular opinion is that it’d only be a short-term bump.

Consumers simply aren’t without myriad phone options to choose from says Carolina Milanesi, a consumer tech analyst at Creative Strategies.

“I think consumers will look for other Android brands before they look at Apple, unless they had an iPhone before Huawei,” says Milanesi. 

Milanesi says pricing and operating system are two reasons why consumers might not pick up an iPhone if a Huawei is no longer an option. “Consumers have options that don’t require moving away from Android.”

“There will probably be very little effect on Apple as the two companies have limited overlap in terms of smartphone addressable market,” says David McQueen, research director at tech advisory, ABI Research. “Huawei and Apple both use differing OS platforms and apps stores, while brand loyalty also plays a part during the users’ purchase decision process.”

The companies that stand to gain the most from Huawei’s loss are lesser-known Chinese brands such as s Oppo, Xiaomi, and OnePlus, all of whom have made aggressive moves to court consumers outside of China.

Almost all of these Chinese brands are making phones that push mobile innovation forward in ways Apple and Samsung aren’t — with features such as a crazy 10x periscope camera zoom, motorized cameras, and notch-less displays — and selling them at hundreds less than an iPhone or Galaxy.

With Huawei bleeding, this could be the opening all other Chinese phone makers have been waiting for. It’s in their favor to capitalize on this moment.

But while it might seem like consumers still have plenty of options for mobile innovation, the Apple and Samsung duopoly will likely strengthen without Huawei forcing them outside of their comfort zones.

Uncertain future for laptops and foldable Mate X

Trump’s ban directly affects Huawei’s smartphone business, but the company’s woes extend beyond mobile.

For example, what’s going to happen with its MateBook laptop lineup? Will Microsoft follow Google and stop selling Windows 10 to Huawei?

It’s very possible. Trump’s executive order essentially bans any U.S. company from working with Huawei and supplying it with hardware or software. Microsoft might have no choice but to comply.

And what about Huawei’s upcoming Mate X foldable phone originally slated to launch in June? What good will the foldable phone be if it doesn’t have access to Google’s many apps that have been specifically adapted to work with bendable displays?

“I don’t see how you can sell foldable smartphone outside of China without Google services — without a full version of Android, without the version of Android that supports folding phones,” says Greengart. “The apps won’t work properly. I’m not sure you can even launch that phone inside of China without an Android license. You’d have to see which [app] libraries are part of open source or not. The lack of an Android license could certainly kill the Mate X. Could it kill everywhere. Certainly outside the U.S.”

Moorhead shared similar thoughts. “If the ban continues, the Mate X revenue opportunity will shrink significantly as the biggest region for the higher end phones would have been Western Europe and higher income regions in Asia like Australia and Singapore.”

Huawei’s only hope

If the U.S. doesn’t loosen its choke on Huawei, China could retaliate against the Trump administration by taking aim at U.S. companies. For example, it could increase tariffs on imports, which would hurt American companies like Apple. Milanesi and Greengart both think it’s unlikely China would retaliate, but not completely out of the realm of possibility.

“If China lashes out at U.S. companies that make cars or phones in China, it’s hurting some of its own people too,” says Greengart. “We’ve absolutely seen China retaliate for previous trade restrictions. They’ve done it before. It’s def a huge risk.”

Some kind of trade agreement between the U.S. and China seem to be the only foreseeable resolution. If one isn’t reached, Trump’s ban and the severing of partnerships from its many hardware and software partners could cripple Huawei for years to come and potentially force it to change its operations. Perhaps by designing and building all of its own hardware and software instead of relying on others, but that would take years and set it back for just as many.

Putting aside the fact that Huawei’s close ties with the Chinese government might really be a risk to U.S. national security, the tech world will be worse off without Huawei keeping competitors on its toes. The race to build out 5G might not have been as urgent and Samsung and Apple would still have a vice-like grip on the smartphone market instead of being forced to keep pace on innovation. Competition is good for consumers. Blacklisting Huawei isn’t… unless it really is spying on consumers. But we don’t have any hard proof of that yet.