It’s not an easy time to be a Chinese company working with US partners. With the two countries on the verge of a fully-fledged trade war, relationships are likely to become more fraught, particularly in a market such as telecoms, which is increasingly a global enterprise.
So far, Huawei and ZTE have suffered in the US. With both companies supplying devices and infrastructure, they are important players on the global stage, while the US has remained largely closed to them.
Huawei has failed to sign-up an operator partner to sell its smartphones, is unable to sell infrastructure to US carriers, and is facing an investigation into whether it violated trade restrictions with Iran. The company’s business has been subject to controversy for years.
For ZTE it is worse: the company is unable to trade with US partners for seven years, having breached the terms of a settlement again related to the violation of trade restrictions. Of course, ZTE is in a different position due to its acknowledged wrongdoing, meaning the sanctions placed on it are draconian.
With this as a backdrop, it would be unsurprising if Chinese companies look to mitigate the possible impact of US actions. And while these may be driven by short-term necessity, it could lead to a longer-term shift which will see them exercise caution when working with US partners.
Significantly, it is not only the Chinese companies who could stand to lose out: the vendors involved are important customers for a number of US businesses. Qualcomm is the prime example, and already acknowledged its financials will be hurt by “expected ZTE order effects”.
While Qualcomm has managed to carve out a strong position in the device processor market, it isn’t the only game in town. Huawei has its own chip unit (HiSilicon) and while Taiwanese supplier MediaTek has struggled to build its position in the smartphone market, it may prove an appealing alternative to Qualcomm – particularly if there is a deal to be done on large orders.
Huawei and ZTE both already have relationships with MediaTek, and MediaTek’s customer list – which includes Sony, HTC, Xiaomi and Lenovo among others – shows the company clearly has something compelling to offer. If it plays its cards right, it could be a beneficiary of the current East/West spat.
But there is a potential hurdle in that MediaTek is based in Taiwan, and there is no shortage of tension between Taiwan and China – and the US is also a major trading partner. Recent reports said Taiwan’s Ministry of Economic Affairs’ Bureau of Foreign Trade had called for companies supplying ZTE to apply for approval, meaning a disruption to its relationship with MediaTek.
But the Taiwan approvals process apparently only takes a matter of days and is designed to ensure the business is legal: beyond that, there is no need for disruption.
While semiconductors are an obvious area where there are close relationships between players in the US and China, the dominance of Google’s Android platform in the smartphone market means there are also close relationships on this level.
Speculation suggested ZTE’s use of Android may prove problematic, following the US trade block. It is not clear as yet if this is the case, although Google and ZTE were said to be discussing the issue.
Huawei has already played-down speculation it is developing a smartphone (and other device) platform away from the control of Google. The company was linked with OS development before and, as the old adage goes, there’s no smoke without fire. But the question is how strongly the fire burns?
The vendor already has significant software experience. Its Android-powered devices feature an in-house user interface and it has also developed a number of apps which could be used to replace the Google alternatives. Indeed, with Google’s services restricted in China, Huawei has experience of delivering Android devices without heavy Google presence.
But attempts to build non-Google versions of Android have often struggled, even when well-supported – such as Cyanogen OS. Certainly one of the most compelling parts of Google’s Android ecosystem – the app and content catalogue – is something which is not easily replicable.
One advantage Huawei has on its side is scale: in 2017, it shipped more than 150 million smartphones, including devices from its Honor sub-brand, with a strong presence worldwide (apart from the US of course). This puts it behind only Samsung and Apple, and comfortably ahead of its other smartphone rivals.
This alone may be enough to enable it to entice key app owners to support its efforts, particularly in markets where the Huawei position is strongest.
And if it is able to make it easy for developers to port existing Android apps to its alternative platform, supported by an appealing developer programme, and make the payment and installation part easy for device owners, it may be able to create something appealing in short order.
Of course, Huawei doesn’t even need to go it alone. ZTE, for example, may not take much persuading that its rival is actually the lesser of the evils when it comes to its relationship with the US, while other platform efforts such as Sailfish would undoubtedly welcome Huawei or ZTE with open arms.
Google, of course, would not want to let Huawei go without a fight, and as yet there is no reason for these two companies to part ways. As the second-largest player in the Android smartphone market, it is an important partner, and relationships between the companies seem solid. Indeed, in 2017 I spoke to Huawei about its relationship with Google and while it was acknowledged there are some conflicts – as would be expected – overall the vendor was positive.
Due to the mix of issues involved, including politics, it would take a brave person to make strong predictions on how this situation will play out. Perhaps the most likely outcome will see all the parties involved continuing business-as-usual, with ZTE negotiating a settlement and Huawei keeping its powder dry.
But an important factor to keep in mind is that this is not a situation where there will be clear winners and losers in the longer term. While the Chinese companies have strong relationships with US suppliers, there is the possibility to reduce this even if, as in the case of smartphone platforms particularly, there is pain before gain.
And this will impact US businesses, for whom Chinese customers are often key partners.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.