In what could be a huge blow to Huawei, Reuters reports today that Google will suspend any business it has with Huawei except for hardware and software dealings that are covered by open source licenses. This means that Huawei will "immediately" lose access to Android updates and the next series of Huawei phones will not come with the Google Play Store and other Google apps including Gmail. While Android is an open source operating system that is free for phone manufacturers to use, Google does charge those companies-like Huawei-a licensing free to include its Android app storefront and other apps on their phones.
Google is reportedly taking these actions after President Donald Trump used an executive order to declare a national emergency over threats to U.S. technology last Thursday. At the same time, the company and 68 of its affiliates were placed on the Bureau of Industry and Security (BIS) Entity List. This prevents U.S. firms from selling parts, components, hardware, and software to Huawei without obtaining a license from the U.S. government.
While Huawei spent $11 billion procuring parts from U.S. based companies last year like Qualcomm, Intel, and Micron, the company does design its own Kirin chipsets and Balong modem chips for its high-end phones. Both are manufactured by TSMC.
Huawei could have its own Android alternative ready to go
The move by Google certainly could dash Huawei's attempt to be the largest smartphone manufacturer in the world by next year. After shipping over 200 million handsets in 2018, and keeping up the momentum in this year's first quarter (by delivering 50% more units year-over-year), Huawei is now number two on the list after surpassing Apple; Samsung is the current leader.
The anonymous source cited by Reuters says that Google is internally discussing exactly which of its services it will deny to Huawei. The Chinese manufacturer is said to be studying the impact of being placed on the Entity List. Yesterday, company founder and CEO Ren Zhengfei said that the U.S. actions would slightly reduce Huawei's revenue growth this year to under 20%. He also said that Huawei has been preparing for this type of action by the U.S. Besides designing its own chips, there have been reports in the past that Huawei was developing its own alternative to Android. Earlier this year, the head of the firm's consumer technology division, Richard Yu, said that Huawei already has its own operating system ready. However, that same report noted that Huawei doesn't want to be put in the position of employing its own operating system. Huawei's next high-end line, expected to include the Huawei Mate 30 and Mate 30 Pro, will be affected if Google does officially announce that it will halt business ties with Huawei.
Last year, the U.S. government placed an Export ban on ZTE that almost destroyed the company. ZTE was not allowed to purchase any hardware, software or components from the U.S. until an agreement was finally reached. Before the ban, ZTE was the fourth largest smartphone vendor in the U.S., but dropped off the list following the imposition of the ban and has yet to return.
The U.S. moves against Huawei come against the backdrop of a major trade war between the U.S. and China. Last week, the president raised the tariffs on hundreds of billions of Chinese imports from 10% to 25%. He also threatened to include smartphones and other tech products on the next tier of products from China to receive a 25% tax. While U.S. businesses and consumers bear the cost of the tariffs, they also have had a negative impact on the Chinese economy.