Huawei Would "Rather Fight and Die than Surrender and Live"
► The impact of chip supply interruption is very significant.
► The enterprise business is likely to become the focus of Huawei in the future.
► HMS, the company's home-grown operating system, has made progress since it was established in 2019.
In May 2019, Google (GOOG:NASDAQ) stopped providing GMS authorization certification to Huawei mobile phones, negatively impacting Huawei's consumer business in Europe. At the end of 2019, Charles Peng, CEO, Huawei and Honor India, Consumer BG, said that "Huawei has its own HMS and is trying to build a mobile ecosystem. Most of the key apps such as navigation, payments, gaming and messaging will be ready."
One year later, the United States government announced that companies containing American technology cannot ship to Huawei without permission after a 120-day transition period. The sanction is equivalent to cutting off Huawei's sources of chips. On August 7, 2020, CEO of Huawei Consumer Business Group, Yu Chengdong, said (in Chinese) that due to US sanctions, Huawei's Kirin series chips will not be able to be manufactured after September 15. By now, only Intel (INTC:NASDAQ) and AMD (AMD:NASDAQ) are allowed to supply chips to Huawei. It is reported that semiconductor companies, including Qualcomm (QCOM:NASDAQ) and SMIC (688981:SH, 00981:HK), are also applying for permission.
Between two waves of bans across two axes, namely software and semiconductors, the smartphone business is impacted the most. On the chip side, the company is connecting Chinese companies in different areas of the semiconductor industry and helping them improve their technologies based on its own experience in this field. However, after so many years of development, the global semiconductor industry has been formed.
The difficulties in the semiconductor industry don't make the software field easier to enter; the two are not linked that tightly. From speeches and interview content on Huawei Connect 2020, we conclude that Huawei is likely to put more effort into enterprise business, forming a full-industry ecosystem by HMS, just what it has been doing since last May.
"Chip reserves for business partners are full. Huawei is still looking for solutions for mobile phone chips," Guo Ping said.
In May 2020, it was reported that Huawei had stockpiled chips as the United States government tightened sanctions.
There are two key insights from what Mr. Guo stated during the media press conference after his speech at the conference:
• The smartphone business is indeed blocked because of chip restrictions. As we analyzed in the former paras, on the one hand, it is hard to form a totally domestic semiconductor supply chain in the short term. For instance, the most advanced processing techniques are owned by TSMC (TSM:NYSE, 2330:TW) and ASML (AMSL:NASDAQ), which is the developer of 7nm EUV machines, whose techniques both contain American technologies and have a narrow supply chain problem as some raw materials for manufacturing chips are monopolized by overseas companies. On the other hand, it is not the most cost-effective option. Chips manufactured by this supply chain are not competitive in the market in terms of price.
• The enterprise sector (so-called '2B') is likely to be the focus in the future. According to Huawei's annual report in 2019, the enterprise business contributed 10.45% of total revenues while 54.41% of revenues come from consumer business. As a solution provider for companies in different areas, Huawei provides software and hardware for their customers at the same time. Considering the difficulty in making revenues from smartphones sales in the future and the high demands from enterprises' business transformation, turning focus to the enterprise service segment is a highly logical choice.
Huawei enterprise BG president, Peng Zhongyang: “Business in the digital age is a positive-sum game, not a zero-sum game.”
There are three key elements for realizing scene digitization. The first is 'technical' – and Huawei must be good at integrating multiple ICT technologies with core business. The second is to 'know the industry,' 'revere the industry,' gain insight into the industry, and understand industry know-how. Finally, 'true practice.' The digitization of the scene is not achieved by talking about it on paper, but by combining knowledge and action, exploring and creating in practice.
Huawei proposes to build a 'digital ecological cube' in three dimensions. Firstly, Huawei aims at the digital future and deeply explores the unsatisfied demands of various ('N') types of sub-scenarios in various industries, which is the prerequisite for making the cake bigger. Secondly, N capabilities need to be aggregated. Each partner will give full play to their expertise, the basis for making a bigger cake. Finally, companies must create N cooperation methods and business models to achieve symbiosis, co-creation and sharing. This is the source of power to make the cake bigger.
“Huawei would rather die one step forward than live half a step backward”: Zhang Pingan, Huawei consumer cloud service president.
From the performance of HMS presented by Mr. Zhang, we can see that it has attracted a bunch of developers to join its ecosystem. In one year, Huawei opened five engines including payment, advertising, browsing, map and search to developers and partners around the world.
By now, there are 96,000 applications integrating HMS Core. The monthly active users of Huawei's application market have reached 490 million. The number of applications distributed from January to August this year exceeded 261 billion.
Judging from what HMS has achieved in one year, we expect Huawei to dive deeper into the enterprise business in the near future.
Read more about the challenges facing Huawei in our previous article.