Huawei's Booming Smartphone Business Is Dealt a Blow by U.S. Ban – The Wall Street Journal

The U.S. blacklisting of Huawei is cutting off American businesses from a big client. WSJ’s Dan Strumpf looks at the American technology that has powered the Chinese company’s smartphones. Photo composite: Sharon Shi

The recent U.S. move to blacklist Huawei Technologies Co. mainly targets the Chinese giant’s market-leading telecommunications-equipment business. But Huawei is also one of the world’s biggest smartphone makers, and the U.S. export ban now threatens to cut off its access to crucial phone components and software for devices used by millions of people world-wide.

The U.S. sees Huawei as a national security threat, and most Americans have never used a Huawei phone. For many people around the globe, however, the brand is known almost entirely for its affordable but desirable smartphones.

In the first tangible setback to its business, Huawei canceled the launch of a new laptop and paused production in its personal-computer business because of the restrictions on buying U.S. components. Its PC business is relatively small but relies on Microsoft Corp.’s Windows operating systems and Intel Corp. chips.

The world’s No. 2 smartphone maker also is postponing its longtime goal of becoming the top vendor, a Huawei executive said at a tech conference Tuesday in Shanghai. Huawei devices have become more popular than Apple Inc.’s iPhone, trailing only those from Samsung Electronics Co. in global sales in the first quarter of 2019.

In many European markets, Huawei is the top smartphone vendor. Customers bought into the Chinese company’s formula of low-priced phones, sleek design and high-end camera technology—the result of a tie-up with Germany’s Leica Camera AG. Its wide range of products generally comes in at lower price points than Samsung and Apple.

A barrage of U.S. actions now threatens Huawei’s upward move. U.S. officials believe Beijing could use Huawei’s telecom gear to spy or disrupt communications networks, accusations Huawei denies.

Because Huawei’s smartphones also rely on U.S. suppliers for some crucial components and software, the export ban threatens to hit Huawei’s ability to update current phones and develop new models. For example, it was revealed last week that Huawei phones would no longer be sold pre-installed with Facebook Inc. apps, including Instagram and WhatsApp.

That follows the loss of licenses to use Google’s Android operating system for new Huawei phone models, which led some Japanese and European carriers to drop plans to launch such phones. The Chinese government is pressuring large U.S. technology companies to avoid aggressively acting on the U.S. trade restrictions.

Huawei has said it has stockpiled parts to weather the disruption and is working on launching a homegrown operating system—trademarked “Hongmeng”—to eventually replace Android, but convincing consumers to adapt to new operating systems is a difficult task.

Consumer devices like handsets are Huawei’s biggest revenue generator, pulling in more than $50 billion last year, according to the company. Analysts say its long-term smartphone success is in doubt if it remains cut off from American technology and loses customers. JPMorgan analysts cut their forecast for Huawei’s overseas smartphone shipments by 30% to 90 million units for the year because of the Android disruption.

Douglas Palmer, a 37-year-old London resident, bought his first Huawei phone last Christmas and says the P20 Pro—a triple-camera device unveiled at a glitzy event in Paris’s Grand Palais exhibition hall last year—is an improvement over his old Samsung Galaxy S5.

Lower prices helped persuade Massimiliano Reggi, a psychologist and anthropologist in Milan, who moved to a Huawei smartphone from an iPhone 5 two years ago. The new device cost less than €200, he said, or about $220. On average, Huawei phones cost $276 in the first quarter, compared with $426 for Samsung and $777 for Apple, according to Canalys, a market-research firm.

“I’ve never missed the iPhone and see no reason to spend so much money on a phone,” he said.

Price competition is heating up. In Singapore, Samsung last month increased a discount offered to customers who trade in their old Huawei phones for a new Galaxy device. A Samsung spokeswoman said the trade-in applies to numerous brands.

In Saudi Arabia, Huawei’s largest market in the Middle East, the Chinese phone maker discounted its year-old Mate 20 Pro smartphone by 18%, according to the company’s website.

And in Russia and Saudi Arabia, Huawei was including a free smartwatch with shipments of its top-of-the-line P30 Pro. A company spokesman called the discounts normal marketing promotions.

Huawei wasn’t always a top-tier smartphone vendor. For years since launching Android-based phones in 2009, the Shenzhen-based company had a reputation for cheap devices. Over time, it made inroads with higher-end phones that underpriced rivals.

A child plays with bubbles in Beijing, China, in May. Huawei smartphones have become more popular than Apple’s iPhone, trailing only those from Samsung Electronics in global sales in the first quarter of 2019.Photo: Ng Han Guan/Associated Press

It spent lavishly on ad campaigns with Hollywood stars, like Scarlett Johansson and Gal Gadot. A long-term partnership with Leica in 2016 firmed up Huawei’s image as a leader in smartphone photography.

Huawei’s success comes despite an extended slump in the smartphone market. Smartphone shipments in the first quarter fell 6.7% from a year earlier, according to IDC, a market-research firm. Huawei phone shipments soared 50% over the same period.

For users of Huawei phones in China, where Google products are already mostly banned, analysts say the loss of Android licenses won’t be noticeable. Everywhere else, it’s likely to prove highly disruptive. Wayne Lam, a smartphone analyst at research firm IHS Markit , said Huawei could lose about half of its European market share if it’s unable to license new software and services from Google.

Share Your Thoughts

Would you buy a Huawei phone if it was unable to use certain apps or operating systems? Why or why not? Join the conversation below.

Adri Bruckner, a Hungarian-American living in Barcelona, chose a Huawei over a Samsung because of price. Now, the communications consultant says she won’t be buying another one.

“Google apps are essential to my work, which I do online and on the go,” she said.

Others aren’t willing to give up on Huawei. Bence Földi, a political scientist in Budapest who has been a Huawei customer since 2015, believes assurances that his phone’s software will be functional for some time.

“I want to wait to see where this issue is going” before choosing a new phone, he said.

Write to Dan Strumpf at

Appeared in the June 14, 2019, print edition as ‘Huawei’s Phones Face Pressures.’

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