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Huawei crackdown

Customers ask: Is a Huawei phone without Google worth $1,000?

Consumer question goes to heart of US efforts to curb China's biggest phone maker

Sales of Huawei's Mate 30 have been strong in China but losing Google services could hurt it overseas. (Photo by Ken Kobayashi)

TOKYO -- The U.S.-China trade war is testing whether smartphone users are more loyal to their devices or the apps that run on them, and the answer is not as clear cut as Donald Trump may have hoped.

Washington's ban on the use of Google services by Huawei Technologies means the Chinese smartphone maker has had to roll out its latest Mate 30 series of smartphones without apps like Gmail and Google Maps. It is one of the more visible attempts by the Trump administration to curb Huawei's growing international reach, and Huawei itself originally estimated the ban would cause sales to fall about $30 billion short of its goal.

But thanks to users like Helmi Nashirudin, the impact may not be as severe as expected.

Nashirudin is among those keenly awaiting the release of the Mate 30 in Indonesia, but the amateur photographer has a conundrum. He loves posting on Instagram -- a photo-sharing app owned by Facebook but downloaded from the Google Play store -- but he also wants a Huawei phone for its advanced camera technology. His solution, he says, will be to buy a Mate 30 but keep a second phone for using Instagram and other apps the new Huawei phones can't.

"Google is still the king of OS right now for smartphones, so it is quite difficult to change," he said. "[But] if I'm choosing the best camera phone, I'll still choose Mate 30."

This goes against a long-held belief that users would pay a premium for a single device that does everything and does it well.

Speaking at company headquarters in Shenzhen in late September, founder and CEO Ren Zhengfei cut the forecast sales loss from U.S. sanctions by two-thirds to just $10 billion over the next two years.

But for other users, especially in the U.S., losing access to their favorite apps is a deal breaker, meaning current Huawei customers are likely to either switch brands or stick with their older handsets for now.

Reports that Google recently closed a backdoor that allowed Huawei users to download Google apps despite the U.S. ban may give potential Mate 30 buyers further cause to think twice. Meanwhile, anyone hoping the trade spat would soon cool down and the smartphone issues be resolved will have been disappointed by Washington's recent blacklisting of 28 Chinese tech companies, a move that has further fanned tensions with Beijing.

Google has amassed vast amounts of data through its suite of popular services, which include YouTube, Gmail, Translate and Google Maps -- the preferred map app of 67% of smartphone owners, according to data from The Manifest.

"I really don't see any other company offering as detailed and accurate mapping information," said Brad Gastwirth, chief technology strategist at Wedbush Securities. "The barrier is quite high" for other players to break into the mapping arena.

That does not mean no one is trying. OvitalMap, Huawei's third most downloaded map app with 31.5 million users, is built on Google data supplemented by Bing Maps and Chinese satellites.

"It will work on Mate 30," OvitalMap told Nikkei.

In China -- where Huawei phones are banned by the government from carrying Google software -- 1 million Mate 30 and Mate 30 Pro handsets have already been sold, continuing Huawei's upward trajectory since it edged out Apple earlier this year as the second-largest smartphone vendor in the world.

But outside China, Huawei has been handily defeated by its smaller Chinese competitors. Xiaomi and Oppo enjoy a bigger slice of the pie in the Philippines, Malaysia and Thailand. In Indonesia, Huawei's 1.03% market share is dwarfed by Samsung's 25%, followed by Xiaomi and Oppo. Analysts expect Huawei's market share in those countries to shrink further without Google apps.

"The beneficiaries of a lack of Huawei sales are the other Chinese handset manufacturers -- Xiaomi, Oppo, and Vivo," said Brad Gastwirth, chief technology strategist at Wedbush Securities in California. "These three Chinese companies offer the most competitive high-end offerings when compared to Huawei, [and] they are allowed to have Google apps."

Jose Medina, a former Huawei user in Los Angeles, said he will pass on Huawei's new models for now. "Unfortunately, not having Google apps and the U.S. ban on Huawei makes it hard to pay $1,000 for a phone with no U.S. warranty or support," he said.

U.S. consumers like Medina would likely find it difficult to replace Google Maps. Chinese users have Gaode Map and Baidu Map -- the two most popular map apps on Huawei's app store -- but neither has Google's accuracy and detail outside of China.

Apps that build on Google Maps like OvitalMap could take advantage of this gap in the market, as well as a gray area in the US ban. Whether OvitalMap's use of Google's API to make it available on Huawei phones violates U.S. law is unclear, as the API is open-source code and U.S. companies like Google are barred only from directly collaborating with Huawei.

Huawei said it is investing $1.5 billion in app development, but it is too soon to say when or if having its own offerings will offset the expected sales loss.

"I believe the Mate 30 series is going to be an interim product for Huawei while they are sorting everything out with the U.S. government, and ultimately with Google," said Gian Viterbo, editor of Gadget Pilipinas, a tech blog in the Philippines.

Users of Huawei's older models, which continue to run Google apps, are in no rush to upgrade to the Mate 30. If they hang on to their older Huawei handsets, it could buy the company time to develop its own apps, or resume ties with Google.

Louiza, a French exchange student in Japan who bought a Huawei P20 Lite in March for 25,000 yen ($230), praised its camera and battery life. "It has a very good performance for a reasonable price."

"It really is a shame that Huawei is blocked from having Google apps as we would argue that their high-end phones are probably the best Android phones on the market," said Gastwirth, the analyst.

Researchers from the National Bureau of Economic Research in Massachusetts found last year just how attached people are to their apps. According to their report, the average person would stop using map apps if they were paid $3,500, email for $8,500, and search engines for $17,500. While alternatives for these essential services are available on Huawei's app store, they may not be enough to break Google's chokehold on consumers outside China.

Medina, the Huawei user in Los Angeles, said as much. "Once the ban is lifted, I will be back to Huawei."

Nikkei staff writers Lauly Li and Cheng Ting-Fang in Taipei contributed to this report.

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