While Apple’s early 2024 China sales numbers have grabbed headlines, there’s a much more serious threat that was also quietly confirmed this week. And this is a real problem for Google and Apple and could fundamentally change the smartphone market over the next few years.
Apple’s continued travails in China made headlines this week, with Counterpoint reporting sales down 24% inside the first six weeks of the year. But that’s not the only interesting news this week—it’s the twist behind that tale which could be a more serious issue for Apple and its iPhone longer term, and which spells a major shift in Google’s influence over 2/3 of the world’s smartphones.
Despite China’s Vivo now leading the pack, toppling Apple from top spot, the real winner is Huawei, whose sales soared 64%, putting it into second spot ahead of Apple. Even those stats ignore that Honor—the Huawei spinoff prompted by US sanctions—is broadly on par with Apple. Add Huawei and Honor together, and you would be back to the kind of dominance we saw pre-Trump.
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This Huawei resurgence is independent of the US tech that drove its smartphone growth last time around. Huawei’s initial recipe was to broadly replicate iPhone/Samsung device performance at a lower price point, and then run Android and its apps and services ecosystem to level the user experience. The US ban first removed Android and then the chipsets making all this work.
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Now Huawei is back with a seemingly independent supply chain and a new OS and ecosystem that is about to fully free itself from the Android world from which it was spawned. Nothing happens by accident in China. The domestic independence learning lessons from 2019-2021 is well planned. And what happens next will be just as well programmed.
I warned in 2019 that “the prize for Huawei over the next decade if it can build out a successful HarmonyOS ecosystem is huge. Not only does this deliver independence, but it also puts Huawei in control of the ‘third way’, the first major shake-up of the smartphone ecosystem in more than a decade. All of which would be bad news for Washington and California.”
Five-years later, and here we are. The pace of Huawei’s independent resurgence has surprised analysts. The Chinese giant has announced plans to split from Android with HarmonyOS Next. And even Nvidia has said that Huawei’s chipsets now make it a serious competitor in the AI space.
The crux of my warning five-years ago was as much—if not more about China—than just Huawei. The irony was that Huawei—just as TikTok has been doing since—was putting all its efforts into escaping China’s gravitational pull to be as western as it could, to compete on a par with the US giants.
The risk for the cozy smartphone world dominated by Apple’s walled garden and Google’s Android ecosystem was always that a third-way, born in the world’s largest smartphone market and corralling consumers, developers and OEMs, would shake apart the duopoly. Again—here we are.
The perhaps even more interesting news this week is that Shenzhen, the city at the heart of China’s high-tech industry—including Huawei, is stepping into the fray.
As reported by the South China Morning Post, Shenzhen “plans to expedite the adoption of [Huawei’s] self-developed mobile operating system HarmonyOS, heating up the platform’s rivalry with Google’s Android and Apple’s iOS in the world’s largest smartphone market.”
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Not only does Shenzhen plan to “boost the number of its native apps built on HarmonyOS and push for their adoption across several major sectors,” the city’s 2024 Action Plan, published last weekend, mandates that “HarmonyOS-based apps will be adopted in sectors that include government services, education, healthcare, banking and finance, transport and welfare.”
Back in 2019, I suggested that “if Huawei takes a broad view, playing licensor rather that product owner, then it will pull other device manufacturers into the mix—starting with its Chinese stablemates,” and a few months later that “if Huawei can coral Chinese (and maybe non-Chinese) smartphone makers to jump from Android to its own operating system and app store, it will be a massive achievement. It will also be a serious threat to Google’s lock on the Android market.”
This pilot will be an interesting test case to see how independently China can run. Take Apple out the equation, and with Samsung nowhere to be seen the OEM market is all domestic. Add the alternative ecosystem and OS and suddenly you have that third-way.
Right now, this is just a domestic China issue, which has hit Apple hard given its exposure to that market. This doesn’t have any short-term implications much beyond that. But in China, it is starting to look much more realistic now than it seemed back in 2019/20, when Huawei was on the back foot and HarmonyOS was seen as a desperate move for survival.
It’s easy to see how Shenzhen’s move could expand across more of China—the country would like nothing more than breaking apart US dominance of the smartphone space and promoting its own solutions. Just look at its approach to telecoms network equipment procurements. But as to whether non-Chinese vendors would ever play—that’s a much more difficult question.
But there we have the next potential twist in this ongoing saga—AI. Google is pushing its as hard as it can across its mobile services and applications. Samsung—Android’s leading global OEM—has put Galaxy AI at the heart of its strategy. And Apple has teased that this fall’s iOS 18 will be all about AI.
On-device AI mandates expensive hardware. And this will play right into the hands of the Chinese OEMs, whose playbook has always been more device for less money. That’s how Huawei built its pre-sanctions international growth, and it’s how Xiaomi is doing the same now. Forget North America and Western Europe, look instead to the rest of Asia, Eastern Europe, Africa, ask about the pull of a low-cost, AI device in those markets powered by an end-to-end Chinese ecosystem.
AI could be the leveler China needs for its next wave of international growth. And there again, the news that has slowly been building all plays to a theme. Huawei’s ecosystem includes hardware, chipsets, devices, an operating system and the AI that underpins the lot. Chinese OEMs are racing to match international advances in generative on-device AI. It all comes together.
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At this stage, this is largely speculation—but at least for the Chinese market, it’s entirely predictable. We are exactly where I suggested we would be. China finding a third-way smartphone ecosystem, and then looking at how to promote its growth across its vast domestic market and then further afield.
Which brings us back to Apple. The US giant has always been heavily exposed to China, which has driven those recent sales headlines and pressure on its stock price and future sales forecasts. The issue isn't an iPhone 15 or iPhone 16 one. It’s much bigger than that.
Huawei is back with all that entails—bad news for Washington and California indeed. Could it be that November’s US election will see a rematch, a full return to those battles of the past, and if so, what cards are left to play that weren’t tabled last time around. We’ll have to wait and see...
