Huawei founder has been expecting 5G conflict for a decade

After Motorola pulled out of discussions to purchase Huawei more than a decade ago, Huawei founder Ren Zhengfei warned executives of a conflict, but this has exceeded what he had in mind.

With Huawei as the proxy of the on-going, and increasingly aggressive, trade war between the US and China, big changes are on the horizon. Few in the business anticipated such drama.

“I could never have expected this controversy to be so intense though,” Ren said in a recent interview with Sky. “We knew that if there were two teams climbing up the same mountain from opposing sides, we would eventually meet on the peak and we may clash. We just didn’t expect this clash to be so intense and lead to this kind of conflict between the state apparatus of a country and a company.”

Ren has reportedly sent out another memo detailing the fallout of the conflict, which does finally seem to be hitting home. Job cuts are on the horizon, with replicative staff facing the axe and a simplified management structure promised. Contracts and payments will face higher scrutiny also, to keep an eye on free cash flow, while R&D seems to have been impacted also.

This is perhaps the most worry outcome of this on-going saga. Huawei can weather the storm in terms of financial impact and reputational damage but hitting the technology roadmap is not an element anyone would have wanted to plan for.

“In August and September, we will undergo a run-in period before we can mass produce these new versions,” Ren said. “So, we can only produce around 5,000 base stations each month during that period. Following that, we will be able to produce 600,000 5G base stations this year and at least 1.5 million next year. That means we don’t need to rely on US companies for our survival in this area.”

Huawei might still be considered the leader when it comes to the radio and transmission, but we would have suspected the ‘beta’ mode of its 5G products might have been completed by now. There are customers driving towards scaled deployment today, yet they seemingly don’t have the raw materials at their disposal. This is perhaps one of the most obvious impacts of the trade war and entry into the Entity List; Huawei has had to re-jig some products to ensure a US embargo could be compensated for.

The other very obvious challenge concerns the operating system on its smartphones.

Again, Ren has suggested the prospect of such a ban has been on the horizon, Harmony OS has been an on-going project for “several years”, though we suspect this is somewhat of an exaggeration. If Ren and the management team had forecast this issue, it wouldn’t be in the sticky situation it could potentially find itself in.

“If the US doesn’t want to sell the Android system to us, we will have no choice but to develop our own ecosystem,” Ren said. “This isn’t something that can be achieved overnight. We estimate that it will take us two or three years to build this ecosystem. In light of all this, we don’t believe we will be able to become the No.1 player in the device sector any time

soon.”

This is a massive problem for Huawei. The potential damage should not be undervalued whatsoever.

If Huawei cannot resolve its relationship with Android, it potentially becomes a security risk to users, as its devices will not be treated to timely security updates. Introducing Harmony OS onto Huawei devices might be the only reasonable route forward to address security concerns, but without the supporting ecosystem it becomes difficult to justify purchasing a device.

The consequences of this conflict are starting to become very apparent. Not just in the Huawei business, but there are straining relationships between governments while telco deployment plans are potentially going to be impacted.

Ren might have been able to predict a conflict between the US and China, wrestling for control of the 5G economy, but few could have predicted the current incumbent of the White House. This is the variable factor which would have caught everyone by surprise (except the writers of The Simpsons).

To call President Trump unconventional would be one of the understatements of the century. The approach to politics, relationship management and conflict resolution currently been applied by the US Government is something which is more at home on satire than it is in the home of the worlds’ most powerful and influential nations. This is the variable Ren was missing, perhaps he was expected a reasonable, mature and measured statesman.

So far, Huawei has weathered the storm, but slowly the defences are being eroded. The damage to Huawei’s business is starting to show.

Huawei unveils its answer to Android; Harmony

At the Huawei Developer Conference, the Chinese vendor has showcased Harmony OS, its in-house operating system to provide an alternative to Google.

Huawei claims the new OS is faster and safer than Android, but primarily aimed at IOT devices. That said, it can be mobilised at a drop-of-the-hat, should the Android situation continue to deteriorate. Until the point of no-return, Huawei devices will continue to make use of Android.

“We’re entering a day and age where people expect a holistic intelligent experience across all devices and scenarios,” said Richard Yu, CEO of Huawei’s consumer unit.

“To support this, we felt it was important to have an operating system with improved cross-platform capabilities. We needed an OS that supports all scenarios, that can be used across a broad range of devices and platforms, and that can meet consumer demand for low latency and strong security.”

Currently, Harmony OS is more of a competitor to Google’s IOT focused OS, Fuchsia, but it is not difficult to see this was developed with mobile in mind also. This is the scale of the threat which is facing Huawei’s smartphone business unit.

Looking through the technical details, Yu claims the OS is safer due to the fact there is there is no root access available. Using external kernel services, the microkernel is protected by isolation, while the system also applies formal verification, a mathematical approach to spot vulnerabilities that traditional methods might miss.

As you can see from Yu’s statement above, Huawei is putting a positive spin on the development, though many will be able to read between the lines.

Over the last 12-18 months, the US has been aggressively attempting to undermine the fortunes and prospects of Huawei. Many have connected the White House’s propaganda to the on-going trade ware between the US and China, though the underlying reasons are irrelevant; the ripples of posturing are going to have negative impacts.

With regard to the launch of Harmony OS, Huawei’s entry onto the Entity List, effectively banning it from working with any US suppliers, was the most important development. This of course includes Google and Android.

Huawei might downplay the importance of this move, though the implications are significant. The firm would be able to continue using Android, it is open source after all, but if it is no-longer a Google partner it would not be entitled to feature and security updates at the earlier possible time.

Don’t listen to Huawei here, this is massive and would relegate the performance of its devices down the segment.

This is a major threat to the momentum being generated in the consumer business. Huawei smartphones are becoming increasingly popular, though if you remove the Android OS, software which probably grants the Chinese vendor credibility in some markets, the consequences could be swift and drastic. In creating its own OS, some of these concerns will be removed, security updates will be timely, but you have to wonder whether it will be any good.

The power of Android is not just brand credibility through association with Google, or timely security updates and product innovations, but it is really good. There is a reason Android killed off competition and overwhelmingly controls market share; it is the best OS available.

Not only will Huawei have to create an OS which is just as good as Android, but it will also have to create the supporting ecosystem. If there are no apps, services or products which are compatible with the OS, Huawei smartphones become no more useful than a doorstop.

It is a difficult one to predict whether the launch of its own in-house OS will actually work. Not only does it have to navigate the pitfalls of a new software launch, but it also has to combat the growing anti-China rhetoric.

Such is the reliance of todays consumer on smartphones, there only needs to be one problem for noses to be turned up at Harmony OS. Android is so reliable, why would consumers want to deal with problems, even if they are incredibly rare. Let’s not forget, Huawei’s heritage is in hardware and it has had a gluttony of software problems over the last few years; we suspect there will be a few blunders.

Anything short of perfect will be a threat to the Huawei smartphone. Consumers rarely like change, though a poorly performing OS might force newly acquired smartphone customers back to Android and rival devices.

That said, it is not difficult to imagine the Huawei OS alternative becoming a preference in China and Chinese-friendly nations. In such market, Chinese alternatives are preferred to US which can be seen with the rise of companies such as Huawei, Alibaba, JD.com, Baidu and Tencent. Using the Chinese domestic market as a vehicle to scale is a common technique for Chinese technology companies in recent years before casting eyes onto the international horizon.

This is of course not the first threat Google has faced in the OS market. Samsung attempted to branch-off with the launch of Tizen, while Windows Mobile was another challenge. Both of these OS’ focused on performance and security, but neither were effective enough to have any material impact on Android. Harmony OS is a different trial however.

Google might not be worried about losing market share in the Western markets, though in the emerging nations Huawei could find some traction. Not only are these nations which have better relationships with Chinese companies, but they present lucrative growth opportunities for Google. Should Huawei manage to launch the OS without major incident, we could be talking about three OS’ dominating the world not two.