Back to basics for Huawei as China remains the bedrock of success

Pretty much everyone in the technology world knows Huawei is under pressure, though with its dominance of the Chinese market, it has more than enough to weather the storm.

According to new estimates from IDC, Huawei has now officially become number one in the market share rankings for tablets in China. These estimates follow smartphone shipment figures which demonstrate extraordinary dominance from the under-fire firm.

Over third quarter of 2019, Huawei shipped 2.12 million tablets, up 24.4% from a year ago, to take 37.4% of the total market. It has leap-frogged Apple to lead the market, the iLeader currently controls 33.8% of shipments, while the rest of the field are no-where near the leading two. Xiaomi currently sits in third position, with market share of 5.9%, a decrease of 47.4% year-on-year.

Although increased tablet sales in China are not going to compensate for the troubles which Huawei are facing in the international markets, alongside the smartphone dominance during the same period, it demonstrates the comfortable position Huawei is currently in.

Talking of smartphone shipments, as you can see from IDC’s figures below, the strong market share position is duplicated.

2019 Q1 2019 Q2 2019 Q3
Shipments (Million units) 29.7 36.3 41.5
Market share 35.5% 37% 42%
Year-on-year growth 40% 27% 64.6%

And even with heavy criticism from the White House, Huawei is maintaining its position as the leading network infrastructure vendor worldwide. In the third quarter, Dell’Oro estimate Huawei owned 28%, though some might suggest this is due to its dominance of the Chinese market. The firm has been missing out on valuable contracts in some European markets though it doesn’t seem to be having a disastrous impact.

Noise from the White House might be starting to have an impact on the Chinese vendors influence on certain Western markets, but let’s not forget how Huawei created such a dominant position in the first place.

Some might suggest the dominance of Chinese companies on the Chinese market is only due to an uneven playing field, Western challengers might be handicapped when it comes to competition, but this is largely irrelevant. This is not a situation which is likely to change in the future, regardless to the number of complaints, therefore it should be accepted.

This dynamic afforded Huawei the confidence to aggressively expand in bygone years, and it will continue to be a comforting thought as uncomfortable aggression floats both directions out of the US.

With continued dominance in the Chinese smartphone, tablet and network infrastructure segments today, Huawei has firmed up its bank accounts. The spreadsheets will not be under anywhere near as much threat as they potentially could have been, as the management team can rely on revenues continue to flow through the domestic market. This is the same position Huawei was in prior to its international expansion.

Huawei is not necessarily a Chinese company anymore. Yes, it was founded in China and the country continues to house its headquarters, but this an international beast with considerable influence around the world. The management team will not be happy its international revenues are being eroded, though the Chinese domestic market can prop this giant up; it is that big.

Irrelevant to the amount of noise coming out of the White House, and regardless of the success it has in convincing its allies to ditch Huawei as a vendor, it will always have the Chinese domestic market to lean on. And as long as it is still one of the country’s leading companies, it will always have the opportunity to expand aggressively internationally. It just has to wait for the anti-China rhetoric to die down, like it did in the early 2010s.

China joins the race to 6G

Days after 5G was switched on by the three telecom operators in China, the Chinese government officially launched a 6G R&D programme.

Yes, you read it right. 6G is officially on the card. Reported by the Science and Technology Daily today, the official launch meeting was hosted by the Ministry of Science and Technology (MOST) on 3 November, three days after the country’s three incumbent telecom operators started offering 5G commercial services. The government department oversees the country’s long-term strategy in science and technology, and also owns the newspaper.

Two organisations will be set up to drive 6G R&D in China. The 6G R&D Working Group will be composed of government representatives from different departments, and will be responsible for overall promotion and implementation of R&D in 6G. The Experts Group will include 37 scientists and technology experts from academia, research institutes, and businesses, and will be responsible for setting 6G R&D agenda and conducting technology evaluation, as well as advising on important government policies.

The government officials believed this will be a prescient programme, when 6G technology roadmaps and use scenarios are still far from having an industry-wide consensus. Such an early move will help China assume a driving role to define where the technologies are going. Some industry experts have estimated that 6G will start taking a more concrete shape from around 2030.

China is not the first country to officially start research in 6G. The Finnish government endorsed the “6Genesis” programme already last year. The programme, led by the University of Oulu in northern Finland, will run into 2016. The first 6G Wireless Summit was held in March in Levi, a ski resort in Finnish Lapland, and the world’s first 6G whitepaper, “Key drivers and research challenges for 6G ubiquitous wireless intelligence” was published in September.

Shortly before the Finns came onstage at Mobile World Congress to announce their ambitions and plans, the most high-profile advocate for 6G was President Donald Trump, who tweeted at the beginning of the year that he wanted 6G in the United States as soon as possible.

US on the verge of signing some kind of trade deal with China

US Commerce Secretary Wilbur Ross has said his country is close to signing a deal with China that could lead to an easing of some trade restrictions.

Ross (pictured) said as much to Bloomberg, with the usual caveats about nothing being set in stone. Many media have been reporting their own conjecture about what this could mean for Huawei as fact, but Ross was keen to stress this deal doesn’t affect the ‘entity list’, which prevents US companies doing business with Huawei.

There was some couched optimism about licenses being granted, that would enable specific companies to conduct specific trade with Huawei, but then again the US has been sitting on a bunch of license applications for a while without apparently granting any. Arguable the biggest of these would be one that allows Google and Huawei to work together, thus enabling the latter to install the full version of Android on its phones.

It’s all very well for Ross to insist the entity list and the trade war are unrelated, but US foot-dragging over granting those licenses implies the contrary. Trade wars are a game of chicken in which each side raises the stakes to give them more weight in negotiations. Putting national champion Huawei in existential danger via the entity list is just too convenient a negotiating chip for its to be plausible that the two issues are unrelated.

 

Chinese state-linked hackers compromise Western telco networks

A new malware family used by state-linked Chinese hacking group APT41 has been used to compromise telco servers, potentially exposing text messages from military and government officials.

Unveiled by security firm FireEye, the malware was discovered on Linux servers operating as Short Message Service Centres (SMSC) servers. These machines are responsible for routing Short Message Service (SMS) messages to an intended recipient or storing them until the recipient’s device is available.

“Named MessageTap, the tool was deployed by APT41 in a telecommunications network provider in support of Chinese espionage efforts,” FireEye states on its blog.

“APT41’s operations have included state-sponsored cyber espionage missions as well as financially-motivated intrusions. These operations have spanned from as early as 2012 to the present day.”

Starting in 2012, Chinese cyber threat group APT41 has carried out numerous state-sponsored espionage activity, as well as financially motivated operations to line its own pockets.

The list of industries which APT41 targets is extensive, though it generally falls in-line with the 5-year economic development plan of the Chinese Government. Big tech, telco and education have been the most recent targets, though it has consistently attempting to manipulate digital currencies for its private financial gain.

In this specific example, FireEye suggests the call detail record (CDR) databases indicates foreign high-ranking individuals of interest to the Chinese intelligence services were the primary targets. With this tool, APT41 was able to capture the content of text messages, as well as the intended recipient.

The revelation does underscore the increasing concern Chinese authorities are illegally monitoring high-profile targets around the world. The US might be somewhat buoyed by the news, as it does as credibility to the case that its allies should build network void of Chinese component and products.

However, as the compromised telcos have not been identified, it is impossible to state conclusively that Chinese equipment was a contributing factor. The compromised telco might not have made use of Chinese equipment, therefore this should not necessarily be viewed as evidence to support the condemnation of Huawei and ZTE.

Unfortunately for the users who might feel they are a target, FireEye has suggested it is incredibly difficult to defend against this type of malware. That said, it does promote the case for end-to-end encryption, a technology which has proven to be unhackable to date.

What remains to be seen is the impact which this incident will have on the on-going trade war which has dogged the economy for months, and the attitude of European Governments towards working with Chinese network equipment manufacturers. Cybercriminals are common place, so it might not cause too many ripples, however it might just reinvigorate the friction which has largely dominated 2019.

Huawei destroys the competition in Chinese smartphone market

According to the latest numbers from research firm Canalys, Huawei’s Q3 smartphone shipments in China increased by 66% while all its competitors declined.

Huawei’s massive shipment numbers are all the more impressive when you consider the overall market is in decline, with total Chinese smartphone shipment numbers down 3% year-on-year. Somehow, in the space of a year, Huawei has managed to turn a competitive market into one it dominates, with more than double the market share of the second placed vendor.

“Huawei opened a huge gap between itself and other vendors. It has 25% more share than this quarter’s runner-up, Vivo,” said Nicole Peng of Canalys. “Its dominant position gives Huawei a lot of power to negotiate with the supply chain and to increase its wallet share within channel partners. Huawei is in a strong position to consolidate its dominance further amid 5G network rollout, given its tight operator relationships in 5G network deployment, and control over key components such as local network compatible 5G chipsets compared with local peers. This puts significant pressure on Oppo, Vivo and Xiaomi, which find it very hard to make any breakthrough.”

“Vivo, Oppo and Xiaomi’s shipments are in freefall, despite new products constantly being pushed to market,” said Louis Liu of Canalys. “Smaller vendors hope to leverage 5G to rapidly boost market share given that China major operators have aggressively pushed 5G pre-registration with plentiful discounts and free 5G data allowance, which has resulted in over 10 million subscribers registering an interest to move to 5G.

“In addition to Huawei, Vivo, ZTE, Xiaomi and Samsung have launched 5G-capable smartphones between US$500 and US$1000, with more products likely to follow in Q4. However, Canalys expects 5G tariffs and device prices to fall rapidly to attract mass market consumers, with similar intense competition to the 4G era among major vendors, causing first-mover advantage in 5G to diminish in next to no time.”

So apart from simply acknowledging Huawei’s overall size and strength, Canalys seems to think its advantages in 5G account for this violent swing in its favour. This may be a factor but it seems unlikely to be the main reason. More likely Huawei has been aggressively cutting prices and incentivising the channel to show preference to its products as it seeks to show the US its sanctions aren’t biting.

This enabled Huawei to be bullish over its last quarterly numbers, but it’s not a sustainable strategy. The overall market is in decline and smartphone replacement cycles are typically at least two years. Huawei may have one or two more quarters of domestic smartphone growth to come, but after that it may not find revenue growth so easy to come by.

FCC wants to use state muscle to ban Huawei and ZTE even more

What little presence Chinese vendors still have in US networks will be further eroded by a new initiative from the US regulator.

Federal Communications Commission Chairman Ajit Pai (pictured) announced at the World Radiocommunication Conference that the FCC will soon vote on a move to deny federal funds to any company that does business with any company that poses a national security threat.

Right now US operators get some state wonga from something called the Universal Service Fund, which is positioned as a pot of cash to ensure everyone in the US is connected. Any time a company is dependent on the state for funds, however, that leaves it vulnerable to state intervention in its business and that seems to be what Pai has in mind. Suddenly universal service is secondary to geopolitics.

With the usual preamble about how Chinese companies are compelled to assist their government in its spying operations, Pai said he thinks even more needs to be done to counter that threat to US national security.

Recognizing this risk, today, I’m circulating an order that would prohibit the use of Universal Service Fund dollars to purchase equipment or services from any company—like Huawei—that poses a national security threat,” said Pai. “Going forward, we simply can’t take a risk when it comes our networks and hope for the best.”

In the process of examining this issue, I also determined that the FCC needs to take a look back, so to speak. That’s because some rural wireless carriers that receive USF funds have already installed Chinese equipment.  So, I’m proposing that the Commission initiate a process to remove and replace such equipment from USF-funded communications networks.

“My plan calls first for an assessment to find out exactly how much equipment from Huawei and another Chinese company, ZTE, is in these networks, followed by financial assistance to these carriers to help them transition to more trusted vendors. We’ll seek public input on how big this “rip and replace” program needs to be and how best to finance it.  I hope that my colleagues will join me in voting for these important steps to protect our national security at our November 19 meeting.”

Public funds are a two-way street, you see. They can be taken away if you’re bad, but increased it you’re good. We don’t know how substantial the USF is, but operators could always just forgo that cash if they really felt like using Chinese gear, we suppose. However they would then find themselves on a governmental naughty list and presumably face all sorts of other state sanctions, so will probably decide discretion is the better part of valour when it comes to doing what they’re told in this case.

US Senators suspect TikTok could be a national security threat

Republican Senator Tom Cotton and Senate Minority Leader Chuck Schumer have written to the Intelligence Community to request a national security investigation into social media video app TikTok.

Although TikTok has been paid particular attention in the request, the duo is asking other China-based applications with a significant US presence are also given some consideration. The move could represent an expansion of the aggression towards China and strain trade-talks between the two parties further.

“We write to express our concerns about TikTok, a short-form video application, and the national security risks posed by its growing use in the United States,” the pair said in the letter to Acting Director of National Intelligence Joseph Maguire.

“TikTok’s terms of service and privacy policies describe how it collects data from its users and their devices, including user content and communications, IP address, location-related data, device identifiers, cookies, metadata, and other sensitive personal information. While the company has stated that TikTok does not operate in China and stores US user data in the US, ByteDance is still required to adhere to the laws of China.”

The comments above pay homage to a Chinese law which requires Chinese companies to comply with requests from the Government and its intelligence agencies. While the law also states Chinese companies can refuse the request if it contradicts with the domestic laws in which the company operates, it is clear the US and others do not believe this clause holds much credibility or weight.

After being launched in 2017 by ByteDance, TikTok has proven to be a very successful additional to the social media scene. The app boasts more than 110 million downloads in the US alone and became the world’s most downloaded app on Apple’s App Store in the first half of 2018.

While this is the first-time politicians have waded into the waters, there has been criticism of TikTok from other avenues. US think tank Peterson Institute for International Economics described TikTok as a ‘Huawei-sized problem’, posing a national security threat to ‘the West’. The thinking here seems to be that the app collects location and biometric data and is unable to deny requests from the Chinese Government.

TikTok has proven to be an immense success in its short life, though the attention from security agencies in the US is an ominous sign. Alongside the shadow of doubt which will be cast on the app in the eyes of US citizens, it is not unfeasible for some sort of restrictions to be placed on the business.

Huawei launches its foldy phone in China

At a smartphone launch event in China Huawei announced the imminent commercial availability of its Mate X foldy phone.

There doesn’t seem to have been much in the way of formal announcements and none in English that we can see. So we’re reliant on Huawei’s Weibo announcement and its Chinese consumer site, via the magic of Google Translate, as well as some reports, for confirmation that the Mate X will soon be seen in the wild.

Apparently it will go on sale on 15 November for 16,999 yuan, which is not far short of a couple of grand. Ten years ago that would have been a ridiculous proposition, but China has evolved so rapidly since then that it’s easy to imagine a few people dropping that kind of cash, if only for the status symbol value.

Since the foldy form factor is still very novel and untested, it makes sense for Huawei to only launch it in China, where it can presumably contain any damage from teething troubles more easily than anywhere else in the world. Samsung had to delay the launch of its foldy phone earlier this year after it broke in the hands of early reviewers.

Incidentally Huawei has also seen fit to send a press release announcing it has shipped 200 million smartphones already, two months earlier than last year. They didn’t really say anything else other than to conclude it must be because their phones are so great. The unspoken sub-text, however, is defiance towards the US and its allies but demonstrating Huawei is doing better than ever. Let’s see how things look this time next year.

Trump’s blocking techniques finally start to trouble Huawei

President Donald Trump has seemingly been on a mission to cripple the prospects of Huawei and it seems one of the haymakers have finally landed.

If the quest to undermine the carrier business group through influencing allied nations towards bans is failing, the entry onto the Entity List to supper plans in the consumer unit seems to now be causing the desired level of discomfort. Speaking to the Financial Times this weekend, a Huawei executive confirmed the absence of Google’s Android and the various services is proving troublesome.

“After the entity list, we were able to figure out some of the alternative solutions,” said Joy Tan, VP of public affairs at Huawei’s US business. “The most challenging part is Google-managed services. We can continue to use the Android platform, since it is open-source, but we cannot use the services that help apps run on it.”

This was always going to be a challenge to circumnavigate, though it certainly took some time to bed in. Whether it is because Android is arguably the best operating system on the market, Google services are widely utilised or there is a strong feeling of trust towards Google, replicating or replacing these elements on the smartphones was a big ask.

Officials in the White House might have been frustrated, as despite efforts to tarnish the reputation of the Chinese firm, sales continued to grow. For the first nine months of the year, Huawei sales grew 24% year-on-year, an increase from the last earnings statement, which suggested growth was 23% year-on-year for the first two quarters. However, this revelation will spur on some confidence in the Trump vendetta.

Google has proven to be the stumbling point for Huawei. Much to the horror of US suppliers, the firm has largely managed to replace US components in its supply chain, it has even started producing 5G base stations completely void of US parts, though the smartphone business has bore the brunt of the damage.

In launching its own operating system, which is based on the Android open-source code, the building blocks of an OS are there, but many would have suspected it was little more than a pale imitation. Firstly, Huawei would have to bridge the trust question which lurks at the back of the mind of many Western customers, and secondly, it would have to prove it could match the standards of Android. Let’s not forget, Android currently accounts for roughly 76% market share in the OS segment.

This is the toughest part of the equation. Huawei has pushed huge amounts of cash towards creating a developer ecosystem, but the number of applications simply are not going to be able to meet what Android offers. Secondly, time is not a friend here. Tan highlighted the Google Maps product is difficult to replicate, but unfortunately there is no quick-fix here.

The Google Maps product is market leading because of years of investment, billions of man-hours of tweaking and a colossal amount of data which has been fed into the machine to improve accuracy and performance. There is no substitute for time here and it is one of the reasons few can dream of competing with Google in this segment.

Unfortunately for Huawei, this is a monumental blow to the attractiveness and performance of its smartphone devices. Android and the Google services are trusted by billions around the world and, in some cases, are the best on the market. We’ve already seen what happens when some smartphone OEMs attempt to produce their own OS; it very rarely works out for the better.

This is not the end for Huawei as a business, or as a smartphone manufacturer. It still has a domestic market which boasts roughly a sixth of the world’s population and China’s influence on the global stage should hold strong in some markets. But in the Western markets, the very ones which have underpinned success for the smartphone business, which has in turn fuelled growth across Huawei during the last few years, it does not look good.

CTA suggests Trump’s tariffs doing more harm than good

The Consumer Technology Association (CTA) has labelled the logic behind President Donald’s Trump’s trade strategy with China as a “one-step-forward, two-steps-back” approach.

The current resident of the White House certainly does polarise opinion, though the CTA is claiming the strategies in play during trade talks with China are having a negative impact on the consumer. With an election looming large on the horizon, if the idea of Trump hitting the US wallet consumer gains traction, it could prove to be a very damaging piece of rhetoric.

“The tariff delay on $250 billion worth of Chinese goods is welcome news for American businesses and consumers – but a one-step-forward, two-steps-back approach means US businesses will continue to struggle under the burden of tariffs and uncertainty in supply chains,” said Gary Shapiro, CEO of the CTA.

“American businesses thrive when they can dedicate their time and resources to innovating and competing globally, not checking Twitter for trade policy updates and combing through HTS codes to find which products are facing higher taxes. We’re encouraged by the progress from today’s round of trade talks and hope that President Trump will stop using tariffs as a weapon during this Phase 1 agreement.”

According to estimates from the CTA, US consumer tech companies paid an additional $1.8 billion on tariffs in August alone, with $124 million on products critical to 5G deployment. Considering these figures are only focusing on a single month, and 5G network deployment is not scaled to mass market just yet, the bill is likely to be eye-wateringly higher in the future.

Although Trump’s approach to Chinese trade negotiations has been criticised by industry, the consumer has not necessarily been involved in the argument. And why should it? Trade talks are something which happen in the background without the ‘man on the street’ being too bothered in the past, though there is a different element to consider here; if wallets start to get impacted, the very citizens Trump is supposed to be protecting from the evil communists might start to get a bit irked.

Citizens are consumers after all, and in a consumer-driven society, cheaper is usually better. There will of course be homage paid towards quality, though this can only be drawn out so far. Consumers have gotten used to paying less and getting products right now. Being asked to pay more for the dubious claim of national security might not sit well with some.

According to the same data presented by the CTA, the tariffs have the consumer technology an additional $14 billion since they were first introduced in July 2018. $1.3 billion can be attributed to 5G-related products. These costs derived from a more expensive supply chain will be eventually passed onto the consumer.

What is worth noting is that there is probably worse to come if the President decides this approach to negotiations is proving successful. And we suspect from the tone of statements and tweets, the inner-circle of US politics are very much committed.

This is perhaps one of the worst elements of the current saga for US business, the idea of uncertainty. If these companies knew exactly what was going to happen, changes could be made to the supply chain. It might cost a little more, and while this is not ideal, operational efficiencies could be driven elsewhere. Knowing that there is something terrible on the horizon is much better than it popping-out from behind a tree.

The risk of the unknown, and a political leader who seemingly reads the Beano for strategic inspiration is likely to make many businesses very nervous.