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Huawei crackdown

Huawei's mobile ambitions at risk as US calls for app boycott

Key Kirin mobile chip series also set to go 'extinct' due to Washington crackdown

TAIPEI -- Huawei Technologies' ambition of building its own globally competitive mobile operating system and app ecosystem are under threat after Washington called on domestic and foreign app developers to boycott the Chinese tech giant's platform.

The U.S. Department of State on Wednesday launched the "Clean Apps" program urging companies to remove their apps from Huawei's app store "to ensure they are not partnering with a human rights abuser." Clean Apps is part of the broader Clean Network initiative aimed at excluding Chinese Communist Party-linked companies from sensitive networks.

Huawei has been working to develop its own answer to the Android mobile operating system and the Google Play store, where users can download third-party apps, since Washington cut off the Chinese company's access to key Google services last year.

While the Clean Apps initiative is not yet legally binding, it will force app developers to weigh the geopolitical risks of continuing work with the Chinese company, whose consumer electronics business is already struggling in overseas markets.

"This could impact the expansion of the developer ecosystem around Huawei's new OS Harmony, just as the OS is moving towards more widespread deployment on Huawei platforms likely later in the year," Paul Triolo, head of geotechnology research at risk consultancy Eurasia Group, told the Nikkei Asian Review.

On top of the challenge to building its own app ecosystem, a Huawei executive confirmed at a China tech conference on Friday that the company will not be able to produce its leading in-house designed chips, the Kirin series, after next month.

"Because of the second round of the [U.S.] sanction, the production of the chips will be stopped after Sept. 15. It will very likely be the last generation of the Kirin series. It will be extinct," Richard Yu, CEO for Huawei's consumer business group, said. "Huawei spent more than 10 years developing chips. ... It will be a great loss to us."

Huawei's self-designed chips have been crucial for making its smartphones competitive with Apple's iPhones and to differentiate them from other rivals. Yu's comments indicate that Washington's tighter export controls announced in May, which restrict Huawei's key contract chipmaker Taiwan Semiconductor Manufacturing Co. from making chips for the Chinese tech giant, are having a major impact on its phone business.

Washington's latest move against Huawei came as the Chinese company just overtook Samsung Electronics as the world No. 1 smartphone maker by shipments, thanks largely to its dominant position in its home market. Huawei had a 41.4% market share in China in the first quarter of this year, according to Counterpoint.

Overseas, however, Huawei has suffered from the loss of access to Google Mobile Services, a suite of popular apps that includes Google Maps, Gmail and YouTube, as well as Google Play.

Huawei's Mate 30 smartphone series unveiled last September was its first premium handset to come without support for the services.

To make up for this, the company has been investing heavily to lure app developers to its Huawei AppGallery, its version of Google Play. Huawei in September last year pledged to spend $1 billion to attract developers in order to boost its open-source Huawei Mobile Services ecosystem, the planned replacement for Google Mobile Services. Huawei's HarmonyOS is an alternative to Google's Android OS.

Huawei's AppGallery previously was only widely used in China, where Google is unavailable, but it has now become the only option for Huawei smartphone users worldwide who cannot access Google Play.

Huawei has managed to attract around 1.6 million app developers to build apps for its OS over the past year, according to the company, but that is still less than one-tenth of the number of app developers on either Apple's iOS or the Android platforms. Apple had more than 20 million registered app developers on iOS as of 2018 June, CEO Tim Cook has said.

The removal of apps, if it materializes, would likely affect Huawei's overseas users more than those in its home market. In China, Huawei's top 50 most popular apps by downloads in the gaming, education and productivity categories are all from Chinese developers, according to data from Qimai Data.

"It has become a quite bipolar world for app developers -- you have to prioritize your resources for either the Chinese ecosystem or the international ecosystem. The rules of the two systems are totally different," said Lawrence Lin, partner at DMC & Partners, a tech consultancy company.

Lin, who is also a longtime app developer and entrepreneur, said China has already tightened many rules, including asking all international app developers to store all their data on local servers if they sell their apps in the country. Those measures, he said, have already caused many small developers and startups who do not have the resources to devout to multiple versions of apps to shy away from the country.

"The new U.S. initiative will make international developers even more reluctant to customize for the Chinese app market, if the Chinese market is not their top priority," Lin said.

S.C. Chen, an experienced app developer and CEO of Brave Knight, echoed Lin's view.

"It's definitely easier for us as startups to work on apps first for Apple Apps Store and Google Play, as you have to hire local Chinese distributors and there is a lot of paperwork and reviews if you are entering the Chinese app market. There is no immediate incentive for global developers like us to customize a version for Huawei's AppGallery."

Stacy Wu, an industry analyst with Omedia, said it is unclear at the moment how many app developers will respond to the U.S. call to remove their apps from Huawei's platform. "But if they do, it will overall affect the user experience of Huawei devices and further hit the Chinese company's smartphone sales," Wu told Nikkei.

Huawei's global smartphone shipments are estimated to fall by around 20% to 196 million units this year and drop further to 147 million handsets next year due to the challenges in the overseas market amid the Washington clampdown, according to an Omedia forecast.

The expansion of the Clean Network program on Wednesday also calls for "untrusted" Chinese apps to be removed from Apple's App Store and Google Play. And on Thursdsy, President Donald Trump signed an executive order banning transactions with WeChat and ByteDance, the ownert of TikTok, beginning 45 days from now.

Huawei declined to comment for this story.

"I'd like to stress again that Huawei and many other Chinese companies unilaterally sanctioned by the U.S. are innocent. Their technologies and products are safe to use, and they have never done any harm to any country. ... The U.S. is not qualified to build a coalition of 'clean countries' because itself is dirty allover," Chinese Foreign Minister Wang Yi said on Thursday.

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