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After “Hammer Blow” From Google, A “Paralyzed” Huawei Scrambles To Develop Its Own Operating System

Via Zerohedge


On Monday, Beijing woke up to a new, and far more dire trade war reality for its flagship telecom company: Google which in 2005 bought Android, whose software has since become the most popular mobile operating system in the world, said it would stop supplying Huawei with Android software in order to comply with a US government ban.

Speaking to the FT, Tim Watkins, head of Huawei in Western Europe, said the company had been “astounded” by the ban, but said Huawei was “as well prepared as we could have been.”

Perhaps… yet even so analysts said being cut off from Android was what the FT dubbed “a hammer blow” to a company whose smartphone business has been soaring in recent years, and rose 50% year-on-year to 59 million in the first quarter, while its rivals Samsung and Apple dropped 10% and 23% respectively. In all of 2018, the company shipped some 200 million smartphones, most of them preloaded with Android software.

“Huawei seemed to have unstoppable momentum but with one single blow this could undermine their ambition to become the world’s largest smartphone maker,” said Ben Wood, principal analyst at CCS Insight. Another telecom consultant quoted by the FT, said that the move by Google was the clearest sign yet that Huawei’s partners are “abandoning ship”. He predicted that Washington would begin to “really squeeze the supply line properly now”.

Even without further squeezing, Huawei is in deep trouble: the world’s second-largest smartphone maker is already facing the prospect of being shut out of the world’s most popular smartphone operating system after being placed on a “banned entity” list by the White House, which forbids US companies to supply it with technology.

But with China reportedly being the party that instigated the collapse in trade negotiations in their late stage, surely Beijing, and Huawei was prepared for this contingency?

Not really.

According to a separate report by the FT, Huawei said “it will be able to roll out its own mobile phone operating system “very quickly” if its smartphones are cut off from Google’s Android software.”

Which they now are. And while Huawei is confident that it will have its own (reverse-engineered knock off) operating system “soon”, the bottom line is that the Chinese telecom giant has no Plan B available right now.

This is a major problem for the company which on Tuesday will launch its new flagship Honor phone in London. But, as the FT reports,  “networks such as Vodafone and EE are reviewing whether they can press ahead with Huawei handsets at the heart of their launch strategy for 5G, the next generation of mobile internet.”

Scrambling to find alternatives, Huawei has promised its customers that their current phones would continue to work, and have access to Google’s Play Store to buy apps, although it is unclear based on what it can make such a representation. Indeed, as Tim Watkins warned: “The future is not so certain.” Huawei has cast itself as the victim of the ongoing trade war between the US and China, and Watkins said the company was “caught in the middle”.

Watkins also said the group had been preparing for the worst, after becoming a target for the US last year, and that it had been working on its own operating system, which “can kick in very quickly”. He noted that the OS has been trialled in some parts of China.

It was unclear if the name of the new OS will be iSpy 1.0.

Joking aside, creating a new operating system is not a trivial matter: China’s online retail giant, Alibaba, tried to build “China’s Android” but ended up locking horns with Google over just how different its Aliyun OS was from Android. Its successor, ALIOS, is based on Android. Similarly, Samsung has failed to gain much traction for its Linux-based Tizen operating system.

Plan B

Huawei, which in addition to Android on mobile phones uses Microsoft’s Windows on its laptops and tablets which will likely be targeted next, has long sought to develop its own operating systems. In an interview with Germany’s Die Welt newspaper, and subsequently confirmed by Huawei, Richard Yu, chief executive of the consumer division, said the company would “be prepared” in the event of any blacklisting.

“That’s our plan B. But of course we prefer to work with the ecosystems of Google and Microsoft,” he told the German publication in March. Microsoft declined to comment.

Adding to Huawei’s headaches, the company relies on chips made by Qualcomm and Intel and following earlier news that these US tech giants may be next to shut off supplies to Huawei, Watkins said the company has stockpiled five years of spare parts for its phones and one year’s worth of components.

That’s great, the only problem is that such a strategy virtually paralyzes Huawei’s future development. Worse, Citi analysts published a research report saying the potential software ban “could paralyse Huawei’s smartphone and equipment business.”

To be sure, the worst case scenario could result in a far more dire outcome: if Google blocks Huawei from Android, which is used on nearly three-quarters of the world’s mobile phones and offers more than 2.5m apps, the Chinese company will still be able to use the basic, open-source version of the software.

But its future smartphones may lose access to apps including YouTube, Gmail and Maps, and to the Google Play store and to security updates. This is likely to have a severe effect on their attractiveness to consumers outside of China, where many Google apps are already banned.
The hit to the company’s top and bottom line would be severe: while Huawei does not break out its smartphones business, last year it said that the consumer business contributed 48% of company revenue. Richard Windsor, an independent analyst, said losing the Google ecosystem “is very likely to cost Huawei all of its smartphone shipments outside China” — which, according to data consultancies including Counterpoint Research, is about half its total.

No wonder then that Huawei’s bonds are plunging at the fastest pace on record…

…as the company’s offshore creditors flee for both fundamental reasons, as the company’s cash flow is expected to grind to a halt, as well as concerns they may be forced to liquidate any securities belonging to the Chinese telecom.

Saxo Bank’s head of equity strategy, Peter Garnry, said Google’s move was “the starting signal of a technology cold war”, adding: “What we are witnessing is a potential reconfiguration of global trade.” Although, in an ironic twist, the strategist believes that “US companies with significant revenue exposure to Greater China (both the mainland and Hong Kong) are the ones facing the most downside risk from any further escalation of the trade war.”

If Garnry is correct, watch for China to do everything in its power to respond by hitting the US where it hurts the most: the sale and production of iPhones. We can only wonder if Tim Cook will be as unprepared as Huawei is, when China blocks not only the sale of iPhones and apps on the mainland, but also bars all the assembly of iPhones for the foreseeable future…

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mijj
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mijj

capitalism is awesome

Serg
Guest
Serg

Another very, very stupid move by the US. Huawei may have been unprepared, but the open source variant of Android is just as good, side loading official google apps for users may be an extra step, but very much doable. This will only ensure that the world will seek and build alternatives to US controlled software, hardware, systems etc. The US has become hostile to everyone, including the boot licking vassals it calls allies. So there is absolutely no incentive to trap oneself in a US controlled ecosystem, which could be taken away, along with ones business, at the whim… Read more »

The Spamburglar
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The Spamburglar

Trump is just upset at not having his own back doors installed worldwide, that is…after a crack two day WH briefing explaining what a back door is.

Cudwieser
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Cudwieser

Except he does, If he can blackmail Bill Gates and the NSA

Pshaw
Guest
Pshaw

No need to blackmail, they’re willing participants.

Cudwieser
Guest
Cudwieser

Not for Trump they’re not. Obama certainly, Deep State sure, but Trump…It’s need to know and he don’t need to know.

The Deep State is a Black Hole
Guest
The Deep State is a Black Hole

Oh Christ, Trump is so deep into the Deep State that he’ll be needing that Nord Stream pipe layer pretty soon just to keep breathing.

Shaolin Monk
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Shaolin Monk

Stupid moves by the US are something like suicide by a thousand cuts. Anyone keeping count?

Maizee
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Maizee

Myamaria Marina Nikolich “It is suppose to be an Economic Transformation for better or worse marriage agreement , if it for worse why is the other not suffering the same pain ?”

tracy
Guest
tracy

Good! I don’t want an empire I want my country back. Let the nasty globalist pigs all move to China. That government is more in keeping with their anti human rights philosophies anyway.

onanist socialist
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onanist socialist

wanna know how I know this is a shill article?
“But with China reportedly being the party that instigated the collapse in trade negotiations in their late stage”

do better Duran

Foiltus interruptus
Guest
Foiltus interruptus

I think it’s true though. Trump chimed in with his now famous offer of “It’s my way or the highway” and after giving it considerable thought, the Chinese finally replied with “Thanks for the generous offer but we’re building our own highway..it’s called the BRI.”

Victor Shakapopoulus
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Victor Shakapopoulus

“Reportedly” being the operative word. The word you seem to have missed.

Orwell's Caboose
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Orwell's Caboose

Reporting ain’t what it used to be. In fact, in the MSM’s sphere of influence it ain’t much of anything at all.

Regula
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Regula

I saw that too. I agree with you that this is a shill article. Huawei is likely closer to developing its own hardware and software than the public knows. The Chinese government already made available several hundred million dollars to accelerate research and development of all the parts to be made in China. What looks like a big killer shot from the part of Trump now will in a short time reverse, when Huawei is able to produce all parts, components and chips in China. Qualcomm, the current leader in chip technology sells 65% of its product in China. So… Read more »

David Ricardo
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David Ricardo

Remember Wang and the Wang Workstation? Chinese immigrants were front and center in midwifing the birth of modern computing in America. Now they all stay home, unless traveling abroad to do business.. You figure out how long that Chinese juggernaut will take to pass the US like it’s standing still. I said it over a decade ago. China is 1980’s Japan on hyper-steroids.

For example: China produces solar panels. American produces solar panel bankruptcies. What’s a chip factory here or there for that crew?

Cosimo
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Cosimo

The one thing that all the comment are missing is that the chips are made for Huawei in Taiwan by TSMC, one of the world’s biggest semiconductor fabs. Huawei only owns HiSilicon, an IC design company. I’m almost certain that TSMC would be under the same US sanctions if TSMC were to sell chips to Huawei, and TSMC would itself be unable to get next-generation technology from companies like AMSL out of the Netherlands due to sanctions. Unless I’m greatly mistaken, there are no fabs in China that are within a country mile of TSMC’s 7 nm FIN-Fet, and that… Read more »

android
Guest
android

China has many options and one of the ace cards is rare earth minerals. While Intel, Qualcomm, Apple will be losing the China market, farmers are going bankrupt or committing suicide. If China choose to stop shipping rare earth to US, the military industrial complex is gonna take a major blow. Lets see who is gonna emerge as the victor in the ring.

bsamsin
Guest
bsamsin

although zerohedge is pretty good on most topics, when it comes to China, they’re in like flint with the China bashing rhetoric coming out of the White House or Pentagon. Sometimes I wonder if they use Gordon Chang or “China Uncensored” as advisors on the topic.
ZH is quite open minded regarding Russia, so it’s almost like they’re in accordance with the “divide and conquer” philosophy.

A Silver Lining to Every Cloud
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A Silver Lining to Every Cloud

Best way I can think of to break the Android and Google Tool monopoly.

FlorianGeyer
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FlorianGeyer

Yes, I will make a point of not replacing my phone with another that has any US content.

Victor Shakapopoulus
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Victor Shakapopoulus

My thoughts too.

FlorianGeyer
Guest
FlorianGeyer

@Victor Shakapopoulus

I have been boycotting Israeli goods for years and US goods unless there is little option, but now I am willing to boycott a US company product even if is unique, on the basis that I lived without ‘the product ‘ before and can continue to do so. 🙂 I include all the US and Israeli food and drink products in my boycott as well. I would rather go hungry.

Hmmm
Guest
Hmmm

The only Israeli ‘goods’ I ever saw sold in the US were western-subsidized plastic bowls made in occupied zones at the Dollar Store. What else do they make, besides mayhem?

George Hartwell
Guest

Darn, they are sneaky.

Opera Fan
Guest
Opera Fan

I wish Huawei would buy Opera. Their browser smokes.

Herbert Dorsey
Guest
Herbert Dorsey

It is quite possible to replace operating systems like Android and Windows and still have the computing devices interact with the operating system of Android or Windows. A USB drive has been created with a Linux operating system that runs Windows on a computer much faster and efficiently than Windows does.
That is because Windows software is loaded with hundreds of megabytes of largely unnecessary software.

FlorianGeyer
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FlorianGeyer

@ Herbert Dorsey
I voted you up and now you are at ‘0’. It appears that on this forum a Down vote negates an Up vote, rather than showing the totals for Up and Down separately.

Jack Dempsey
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Jack Dempsey

Not for the NSA, it’s not unnecessary. 🙂

Helen B
Guest
Helen B

I’d load that in a heartbeat if I knew how to do it …

Helen B
Guest
Helen B

What a despicable act. This will explode into a trade war, and there are items that China produces that America needs.
I have no sympathy for the mess this will cause, because it will rebound on them.

tracy
Guest
tracy

I hope iphones and apple go away. They are American traitors who have also abused Chinese workers. The price they charge is outrageous!

Vera Gottlieb
Guest
Vera Gottlieb

Do business with the US, any business, and risk ending up with burnt fingers.

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