Huawei without flagships and processors. The inevitability of the fall of a giant?

Hey.

The situation in the US trade war against China and the way America is trying to destroy Huawei is constantly heating up. Back in early summer, US officials pressured Huawei’s suppliers, in particular TSMC, to stop them from releasing processors for HiSilicon, a division of Huawei. In some ways, the situation is reminiscent of the World Cup, in which one of the teams was the favorite, but suddenly the opponents turn out to be more assertive, play better and do it beautifully. They reach the semifinals, win easily, and now the final match is looming. It even begins, and at this moment, under a far-fetched pretext, the goalkeeper of the winning team is removed from the field, as the hostess of the championship puts on her team. One needs help at any cost, and don’t care how it looks in the eyes of others. By the break, the newcomers hardly, but score a goal, behave more aggressively, the home team show a rough and tough game, but they cannot change the situation. Before the game continues, it is announced that under the new rules, beginners must play with their hands and feet tied, otherwise they have an unreasonable advantage. The announcer depicts the disgusting thing that this team arranged in the locker room – they then poured clean benches, threw towels on the floor, not thinking about the work of the cleaners and how hard it was for them. The stands are on a rampage, because it is not in any way like football, but the victory of the home team will be undeniable. Something similar is happening in relation to Huawei, they are trying to hobble the company, but they do not succeed very well.

You do not believe me? Let’s take a look at the numbers we have, for example Huawei / Honor smartphone sales in Q2020 XNUMX.

Huawei without flagships and processors. The inevitability of the fall of a giant?

Despite the US sanctions, the abandonment of Google’s GMS services and the transition from the Play Store to the App Gallery, the company rushes like a tank and has become number one. In many ways, this result is the result of growth in its native Chinese market; de facto, Huawei ousted all players, both relatives (OPPO, Vivo, Xiaomi) and Apple. In the middle of summer, Huawei smartphones began not only to lead in sales, but also the largest number of them appeared in the hands of the Chinese. In fact, Huawei has absorbed the huge Chinese market and continues to grow in it; it is another matter that the potential for growth is practically exhausted, and the decline in foreign markets is noticeable. Add to this the aggravation of relations between India and China, the fact that the Indian market for Huawei is becoming difficult and virtually closed (it is possible that a “local” brand will be launched for India, which will not be associated with the parent company). There is no doubt that sales of Huawei smartphones will decline in global markets, this is both the lack of regular Android in these devices and problems with the hardware.

The Chinese edition of Caixin quoted Richard Yu, CEO of Huawei Consumer Products: “As of September 15, we will no longer be able to release the flagship Kirin processors. Also, we will not be able to release processors with AI algorithms. This is a huge loss for us. ” In the media, these words began to be replicated, although nothing new, in fact, happened. The tightening of sanctions happened back in May 2020, when the US Department of Commerce banned the supply of Huawei chip development tools, as well as the production of such chipsets for any company that uses American intellectual property, and even more so has American investments (for this, it is enough to be listed on the stock exchange in USA). The vast majority of players on the market fall under such a description, in fact, Huawei had no chance to continue developing Kirin in one form or another.

American officials, perhaps, are not much different from their counterparts on the planet, their favorite trick is “an elephant in a china shop.” The blow they are doing to Huawei certainly hurts the company, but does not destroy the core infrastructure business. These are long contracts for 5-10 years, planned financial flows that are already transparent and understandable. Over the next few years, nothing will change for Huawei, the corporation will remain the leader in the telecom market worldwide. But for the market as a whole, this means not just turbulent times, but extremely dangerous waters, in which the hopes of many American corporations may die.

The first “fatal” blow to Huawei smartphones was inflicted by a similar ban on working with software companies, for example, Google. The reasoning of American officials was superficial: since Google and, accordingly, Android are our systems, we will make it so that Huawei cannot use them. It was assumed that the Huawei carcass would crawl under the snag, where it would die, and the streets would be filled with joyful people who would celebrate the victory. The warnings that Huawei has enough developers to create its own blackjack and everything else went unheeded. What happened in the end? In almost a year, Huawei created Huawei Mobile Services, which completely replaced GMS, and every month the gap in capabilities is narrowing more and more. In a little over a year, it will not be at all or it will be minimal.

Has the company survived in the smartphone market? Definitely. Increased sales? You yourself saw the sales results and how the home market helped in this. America’s next “fatal” blow is similar to the previous one, moreover, it seems that this time the company will be finished off. Moreover, inside Huawei they are strenuously pretending that now they will definitely be finished off. But this is, to put it mildly, not so, and it is necessary to be aware of it.

Until the spring of 2020, Huawei went for military cunning (the whole situation is described within the company as a war and in terms inherent in military operations, individual markets are theaters of war). Since HMS was not ready, until March 2020, most of the new Huawei / Honor models were old smartphones that had been introduced before. Under new names, with different body colors, perhaps, characteristics changed in detail. And Google turned a blind eye to this, as they were too clumsy, did not want to go into conflict with Huawei in a direct, head-on collision.

This, in turn, created a curious perception – without services from Google, no one needs Huawei products. The stereotype of the perception turned out to be incorrect, in Russia the Honor 9th series flies with a bang, while the company constantly and everywhere repeats that there are no services from Google there. And this does not stop anyone, the cost of these smartphones removes all sorts of questions.

Huawei without flagships and processors. The inevitability of the fall of a giant?

In fact, the abandonment of Google partially slowed down the victorious growth of market share for Huawei, made the growth not so fast. The company has reoriented itself to all markets where it can count on success. And made it possible.

But what happens when HiSilicon is unable to release Kirin processors? let’s take a close look at this situation.

Kirin processors – who are they very important to?

There are not so many companies in the world that create their own processors and chipsets; Huawei has consistently invested money in this direction, copying the strategy from Samsung. Both companies have custom cores from ARM, the processors themselves are licensed from this Japanese company (at the moment they are Japanese, but there are rumors that Softbank may sell them to Nvidia or someone else). Then there are Qualcomm, MediaTek, Unisoc, and a whole host of smaller players. For the development of processors, software from American companies is used, for example, Cadence Design Systems or Synopsys. Such software is not cheap, and each partner is worth its weight in gold. Having lost Huawei, these companies cannot make up for the loss; there are simply no other players on the market who need their services. This is a loss for American companies.

How was TSMC able to quickly develop manufacturing technology for 7nm and advance in 5nm equipment? The answer is to be found in investments from Huawei, the company was interested in the development of new technologies, as they allowed to improve the Kirin processors. Not only Huawei benefited from this, but also other partners of TSMC, for example, Apple received a new technical process, but did not invest a dime in its development. Now everything will change, which means that TSMC will have to look for another investor, a partner that is interested in developing new technologies. Samsung will not invest money in this direction, as they create such production and technologies on their own. There remains only the same Apple, but for them this is a blow below the belt, the cost of processors in this case will increase by 15% at least.

American officials did not realize what processes they launched with their bans, the market is completely changing, as if dominoes are falling one after another. In theory, Qualcomm should benefit from the actions of officials, doesn’t that sound logical? The American company loses its direct competitor, gets carte blanche for the supply of processors to all those players who try to bite off Huawei’s market share. On paper, it may look like this, in fact, everything is exactly different.

The Wall Street Journal was able to get acquainted with the presentation of Qualcomm for the White House, in which the American corporation claims that the ban on the supply of Huawei chips will lead to losses of American business in 8 billion dollars, and the industry will become less competitive. Ultimately, America will lose, as direct competitors (Samsung, MediaTek) will strengthen, and Huawei will still have access to the necessary technologies. It is worth listening to the words of Qualcomm top managers, if only because they know this business well. Indeed, Huawei can get access to any technology and components, not the time for someone to turn away from money. The supply of such components will be difficult, they will cost more, but they will be. But Qualcomm will comply with the sanctions and will lose its piece of the pie. There is no friendship or love between companies, only a pragmatic approach to reality.

Another point that is very worried about Qualcomm and should be worried about any American company. Huawei holds key 5G infrastructure patents, and today these patents are licensed under normal terms. For example, Qualcomm and Huawei have cross-agreements, the cost of many patents is near zero, that is, mutual offset occurs. What happens if Huawei doesn’t need Qualcomm’s patents, but they are directly linked to devices such as smartphones? A terrible thing for Qualcomm will happen, Huawei patents will cost several times more, and this will cut Qualcomm’s profits, since it is impossible to sell its chipsets to partners even more expensively, especially in a falling market. But this is an unlikely scenario, it is only partially realized.

Huawei’s strategy will most likely be simple and straightforward, the company will not be able to produce flagships, but it will be able to saturate the market in the middle and budget segments. And this will put pressure on all manufacturers, without exception, both Samsung and Apple will feel it the hard way. It becomes important for Huawei to hold out for 2-3 years, exactly until the moment when the company receives its own development tools and factories for this. When Richard Yu gives the impression that his company has been defeated, it looks like a tactical move. Huawei not only did not give up, but strengthens its developments in all directions, squeezing out everything that is possible from the current market.

Aggression against Huawei also leads to unprecedented support within China, and not only is it patriotism of buyers, the state is doing its best to protect this asset. There is so much money inside China that there is enough money for more than one Huawei, but history has proven that the company knows how to multiply it. Therefore, in the coming years, inexpensive money in the form of loans will come to Huawei, which will provide a much-needed respite. Part of this money will go to subsidies for the same smartphones, but mainly to develop solutions that are so necessary. And this is the worst thing that can happen for America. China will receive not only its OS (and this is already a time span of a year or two, Android will begin to be altered for themselves, another development branch without the participation of Google in any form), but also the development tools for processors, as well as their production. The domestic market will support the factories in the early stages, it is huge and ready to digest all the products (the US market is not like that at all). American manufacturers understand that in the next 5-10 years, with such a course, they will lose the Chinese market almost entirely, but they will also lose many foreign markets, and competition will intensify. Since the Chinese approach is aggressive, they are ready to lose money, but to break into new markets to take a share there.

America’s trade war against China is only growing, it is impossible to play back the situation. And therefore, the course taken by both China and Huawei will not change. Whatever rhetoric may be heard, Huawei will create its own development tools, build its factories. The future of the company and, in many respects, the future of the technological race depends on this. And if for American companies this is just a matter of business when it comes to profit and loss, then for Huawei employees it is something different. They are in a war in which literally everything can be lost, but the main thing is the future of their country. Today it depends on them what China will be like in ten, twenty, thirty years. It may sound unusual for us, but it is this motivation that makes people in China work hard, they are literally in a war and do everything to achieve victory. They tried to stop them, destroy them, and they respond by going out and doing their job every day, trying to do more than possible. They are literally running into the future as fast as they can. The parties to the conflict have too different motivations, so the strength of America is leveled by the enthusiasm of China. Before our eyes, the technological formation of China as a world power is taking place, from a factory for the production of anything, the country is slowly turning into a world-class technology developer. Which, in fact, has already been proven not only by Huawei, but, for example, by the drone manufacturer DJI, which has no analogue in the world. And therefore, they are also under American sanctions, as they pose a threat. It is possible to slow down China, but it cannot be stopped. And officials in America were clearly in a hurry, as they pushed China with their own hands to create alternatives to American technologies, read, companies. The gap has taken place, and it will only grow further.

Who do you think will win in the end – America or China?

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