Huawei’s growth a threat to US technological dominance

Though founded in 1987 and rising to as high as 83rd in the Fortune 500 list, Huawei remains an enigma to many investors and consumers in the US. It has grown to become the world’s third largest smartphone vendor behind only Samsung and Apple. (In Q3 of 2017 Huawei surpassed Apple to be #2 on that list.) Huawei doesn’t come by this success easily though as it spent more than $14B on research and development in 2017.

Huawei is based in China, founded by a former engineer from the People’s Liberation Army. And even though the majority of consumers don’t know the name, the US government has taken several steps over the last few years to prevent it from making a significant entry to the US markets. Just this past January AT&T backed out of plans to offer Huawei devices in its flagship stores due to pressure from US institutions under warnings of espionage.

But this doesn’t diminish the power and influence Huawei has and continues to build. In some ways, the direction the company is on mirrors that of Apple. When it began, Huawei built phones using technology and chips exclusively from third parties, like Qualcomm. As it gained engineering talent (and revenue to support it), Huawei decided to build its own Arm-based processors under the Hi-Silicon brand for its flagship devices, taking a direction that Apple started.

But Huawei is going even further. It has its own modem technology, an area that Apple continues to have trouble with due to complications in its relationship with Qualcomm.

Huawei also differs by continuing to address the mainstream and budget markets with its smartphone brands in China, something that Apple hasn’t show the desire for.

The growth and expansion of the Huawei product portfolio is an obvious encroachment on Qualcomm territory. Huawei started as a substantial partner to the San Diego-giant, buying its Snapdragon mobile processors for its phones. With the Chinese OEM now building its own chips for its higher end products, Qualcomm only provides solutions for the lower tier, lower margin segments. As Huawei grows its share in the Chinese and global markets, Qualcomm will have less of the Android smartphone space to address.

The decision of Huawei to build its own chips could also risk empowering other Chinese and global phone makers to go down the same route. That’s a risky venture for any company without significant cash on hand as building custom silicon for any market is a complex task. Huawei might also decide to sell its chips to outside companies and compete directly with Qualcomm, though today it is keeping its technology in house for its own devices, just as Apple is doing.

Qualcomm has years of relationships built with smartphones vendors around the globe and years of experience building high performance, high efficiency processors for mobile designs. There are few companies that would have the capability and budget to build technology to rival it.

The Chinese tech giant also is putting pressure on Qualcomm as it withholds some $1B in royalties. Huawei continues to submit patent applications regarding 5G technology too, a sign it wants in on Qualcomm’s licensing business.

Huawei can address areas of the technology chain that Qualcomm and Apple cannot individually. They have the obvious capabilities to build and sell smartphones and smartphone chipsets, but Huawei is also a significant player in the areas of radio networks, fiber backhauls for ISPs, and the software and artificial intelligence stacks at the consumer edge. We have seen rumored plans to build its own operating system for mobile devices. It aspires for the autonomous driving market and for the coming IoT (internet of things) revolution, building out a “city-aware” network just this past September.

The Chinese government has proven that it wants to create the next generations of chip technology inside its borders and Huawei is the posterchild of this movement. This is why the US government, and major US tech players, are worried about the potential influence Huawei might have, going as far as being mentioned as part of determination to block to the Broadcom acquisition of Qualcomm earlier this year by President Trump.