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Huawei bets on AI-powered operating system to revive smartphone business

Huawei Technologies expects to revive its once high-flying smartphone business on the back of its latest Harmony operating system upgrade, even as the US-blacklisted company continues to face uncertainty over its 5G chip supply and a challenging macroeconomic environment.

“Huawei’s flagship smartphones are making a comeback,” Richard Yu Chengdong, chief executive of the company’s consumer business group and its Intelligent Automotive Solution business unit, said last Friday at its annual developer conference in Dongguan, a city in southern Guangdong province, where its HarmonyOS 4 was unveiled.

Yu’s optimistic assessment comes after privately-held Huawei resurfaced as a top-five smartphone vendor in mainland China during the second quarter, according to data from research firm IDC. Huawei had surpassed Samsung Electronics to become the world’s biggest smartphone vendor in the second quarter of 2020, but saw this business struggle subsequently owing to tightened US sanctions that cut off its access to advanced mobile chips.

At its developer conference, Huawei said HarmonyOS 4 has been integrated with the company’s own generative artificial intelligence model Pangu to provide ChatGPT-like services, including automated messaging and creation of images.

HarmonyOS 4 is also expected to enhance support for other devices such as smart electric vehicles, a major sector that Huawei has targeted in recent years. At the conference, Yu said HarmonyOS is now connected to more than 700 million devices and had more than 2.2 million developers in its ecosystem.

This latest development reflects the lengths taken by Huawei to strengthen its global operations, as US trade sanctions continue to bite, and the company weighs its response to a US-China decoupling after reports earlier this year that the Biden administration wanted to cut off the firm from all of its American suppliers.

The latest iteration of HarmonyOS is “crucial” to Huawei’s smartphone strategy, which aims to improve the experience on the software side to make up for certain disadvantages in the hardware, Ivan Lam, senior analyst at Counterpoint Research, said on Monday.

“It has always been the goal for HarmonyOS … to make a big contribution by creating a smoother experience on Huawei devices that have less advanced chips,” Lam said.

HarmonyOS debuted as an alternative operating system for Huawei in August 2019, three months after the firm was added to Washington’s Entity List. Under this trade blacklist, Huawei is barred from buying software, chips and other technologies from US suppliers, including the Android platform from Google.

Huawei over the past year has managed to maintain a relatively stable share of 9 to 12 per cent in China, the world’s biggest smartphone market, according to Counterpoint’s Lam.

The company’s share of smartphone sales on the mainland grew 58 per cent year on year in the second quarter, seizing an 11.3 per cent share of the domestic market, on the back of a resumed pace of product launches, according to Counterpoint data.

“If Huawei can hold on to that stable market share, its growth momentum can continue, despite an overall decline in China,” Lam said.

Huawei shipped a total of 14.3 million smartphones in China in the first half of 2023, up nearly 40 per cent compared to the same period last year, bolstered by resilience in the industry’s high-end segment, according to Will Wong, senior research manager at IDC Asia- Pacific.
“One of the key reasons for the improved pace of product launches is that Huawei managed to optimise its supply chain after years of negative impact from US sanctions,” Wong said.

Still, Huawei has not been able to launch a new 5G smartphone since late 2020 and missed a couple of updates to its premium smartphone models in the past few years.

Huawei resumed the launch of its flagship P-series smartphone in April after a hiatus of more than a year. Its latest Mate-series handset was released last September after skipping an update in 2021. These two models, however, only support 4G connectivity.

The company is expected to resume its release of 5G smartphones by the end of this year, as it gets a fresh supply of chips from local suppliers, according to a Reuters report last month that cited a number of research firms as sources.

Although Huawei has solved certain supply chain issues and adopted domestic replacements, Counterpoint’s Lam said lingering uncertainty revolves around procuring the latest camera and 5G chips.

“In the best-case scenario where 5G chips are procured and used in the flagship model, it will give Huawei a small boost, but it won’t be enough to drive its sales back to the top-three position in the market,” Lam said. “Even if it solves the 5G chip issue, the scale of production might still be constrained.” South China Morning Post

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