What with all the panic over the past month, you could be forgiven for forgetting there’s a tech war on. But for Chinese telecommunications giant Huawei, there’s no forgetting ongoing threats from the US.

The phase one trade deal signed in January between the US and Chinese governments created the illusion of a turning point in the ongoing dispute. However, Huawei’s predicament and the uncertainties arising from it are far from over.

Bottom line: The phase-one trade deal offered little relief for Huawei. The deal, which included provisions on intellectual property theft and halted some tariff hike in the past years, didn’t mention the Huawei situation at all. 

The Shenzhen-based company still has to confront the technology and supply chain blockage from the US. It is now facing more legal charges brought by the Trump administration. The last few weeks have made Huawei’s situation clearer as US and European views of the company split further. Threats from the US are intensifying, while in Europe bans are being ruled out. The company is signaling that it will fight Google on its own OS turf, preparing alternatives to Google services for the Android platform

Endless lawsuits: Huawei’s US challenges are intensifying as its fight with the US government and competitors moves into the courts.

  • A US judge rejected Tuesday a lawsuit filed by Huawei challenging a law that banned federal purchases of the company. It filed the lawsuit in March 2019, seeking to overturn a provision in the National Defense Authorization Act (NDAA), which bans US government agencies from doing business with Huawei or ZTE.
  • The US Department of Justice filed on Feb. 13 an indictment that accused Huawei of conspiring to steal trade secrets and conducting business and technology projects in sanctioned countries like North Korea and Iran. While not many charges brought by the indictment are new, the legal action came at a critical time when the extradition hearings of Huawei CFO Meng Wangzhou began in Canada. 
  • Huawei filed earlier this month two lawsuits against US telecoms operator Verizon, accusing it of infringing 12 patents held by Huawei.

HMS push: Huawei’s phone sales outside China are threatened by its loss of access to Google apps and services on Android phones. It is actively pushing in-house replacements for Google offerings, bringing it in direct competition with the search engine giant. 

  • It is reported that Huawei plans to launch a new smartphone that will run on the company’s in-house Huawei Mobile Services (HMS) framework in Europe later this month. HMS is an alternative to the Google Mobile Services, which provides mobile applications corresponding to Google offerings such as Gmail, the Play Store (Google’s app store), and Google Music.
  • HMS is an Android skin deployed on Huawei phones sold in the Chinese market. It replaces most Google apps and services from vanilla Android with offerings such as Huawei App Gallery, a mobile wallet, Huawei Video, and a music app.
  • Reuters reported that four Chinese smartphone makers, including Huawei, Xiaomi, Oppo, and Vivo are teaming up to form an alternative to Google’s Play store to distribute Android apps to users outside China. 
  • Last month, Huawei released a new version of HMS, adding capabilities such as Quick Response (QR) code extraction, near-field communication (NFC), and identity authentication. 
  • In the same week, the company invested around $26 million into a subsidy scheme for British and Irish developers to make apps on HMS.

Fighting Google on its own turf: It has been widely reported that Huawei is going to use an in-house mobile operating system called HarmonyOS to replace Android. But recent efforts like HMS demonstrate that Huawei is sticking to Android. But with the absence of Google, it has to develop alternatives to all of the Google offerings on its phones.

Since the standard Google Play app store is not part of the open-source Android package, Huawei will have to build a new ecosystem around its own app store. To make it viable the company must solve a chicken and egg problem: it needs enough apps to bring in consumers and enough consumers to bring in app developers.

Huawei has already seen a declining trend in smartphone sales in Europe, its biggest overseas market. The company’s smartphone shipments in the continent dropped by 16% and 7% in the third and fourth quarter last year, according to market research firm Canalys.

A full switch to HMS may risk losing some users in overseas markets, but it could also turn into a profitable business for Huawei and help it take a large portion of Google’s share in the Android service market.

Google parent Alphabet is estimated to have earned around $29 billion from the Play store last year, accounting for nearly 18% of its total revenue. The earnings come from GMS pre-installed on billions of Android smartphones worldwide. 

For Huawei, the number is smaller but still significant. It is the second-largest smartphone vendor in the world and has sold 230 million smartphones last year. Huawei has said it had no plans to return to using Google’s mobile services even if the US government decides to lift the trade ban.

5G updates: The UK finally made its “Huawei decision” in late January, allowing the Chinese company to play a limited role in Britain’s 5G networks. It appears that the EU is following a similar approach, opting for risk management frameworks rather than bans.

The UK’s limitations include:

  • Huawei will be banned from supplying kit to “sensitive parts” of the network, known as the core. That part of the network is where voice and other data is routed across various sub-networks and computer servers to ensure it gets to its desired destination.
  • Its gear will only be allowed to be used in the “non-core” parts of the network, or the periphery. The periphery includes the base station and antennas used to provide a link between individual mobile devices and the core. 
  • It will only be allowed to account for 35% of the kit in the periphery.
  • Huawei gear will be excluded from areas near military bases and nuclear sites.

The decision from Downing Street has irritated the US government with President Trump’s White House chief of staff Mick Mulvaney warning there could be “a direct and dramatic impact” on the sharing of intelligence between the US and UK.

Following the UK’s decision, the European Commission published a “toolbox” of risk mitigation measures to guide EU members’ 5G rollouts. The kit doesn’t name Huawei or China, but it agrees that a supplier’s relationship with foreign states could affect its risk profile.

Tough tests ahead: With Europe rejecting US calls to ban Huawei, it’s clear that the company had dodged a bullet on market access. US export bans remain the most pressing threat, although it remains to be seen whether the bans will be upgraded to the point that the company cannot source essential components. Equally uncertain is whether a critical mass of consumers and app developers outside China will be willing to move to a new Android ecosystem that lacks Google’s popular apps and services.

Writing about semiconductors and telecommunications.

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