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Huawei crackdown

Huawei vs Apple: 5G phones go head-to-head as US sanctions bite

Powerful new Mate 40 series faces iPhone challenge and dwindling chips supplies

Huawei's Mate 40 range is set to compete with Apple's first 5G iPhones. (Source photos by Reuters and screenshot from Apple's website)

TAIPEI/ PALO ALTO, U.S. -- Huawei Technologies has released its latest 5G smartphone lineup, the Mate 40 series, setting up a head-to-head battle with the long-awaited 5G iPhone range. But while the Chinese company's latest handsets boast an impressive battery of hardware, the U.S. crackdown and dwindling chip supplies have left Huawei's smartphone operations fighting for survival.

China remains a key battle ground for both companies. Analysts estimate that between one-quarter and one-third of all new iPhone sales in 2020 will be in China, while Huawei has relied on its home market to offset wilting global demand for its smartphones.

The heart of the Mate 40 range is Huawei's in-house designed flagship Kirin 9000 5G mobile system-on-chip, or SOC, which combines the core processor and 5G modem. These 5G chipsets are built with Taiwan Semiconductor Manufacturing Co.'s latest 5 nanometer production technology, the most advanced in the industry. Combining the processor and modem onto one system chip can save on power and space, leaving more room for other components such as batteries. Such chips are generally seen as more difficult to develop.

It is here, some industry experts say, that Huawei leads its American rival, as Apple used its own standalone core processor -- the A14 -- and a separate 5G modem provided by Qualcomm for its first 5G handsets. And while the California company has only just introduced its first 5G iPhones, its Chinese counterpart has rolled out several such smartphones since 2019.

Richard Yu, Huawei's Consumer Electronics Group CEO, highlighted the Kirin 9000's capability at the online launch event on Thursday. The chip boasts 15.3 billion transistors, which is "30% more than Apple's A14 processors and is the most sophisticated and most powerful processor in the world," he said.

Yu added that the company's Balong 5G modem chips can support faster data transfer speeds than industry leaders like Qualcomm, the world's biggest mobile chipmaker, while the artificial intelligence processing and graphic processing power on the Mate 40 lineup also outperform Qualcomm's latest premium offering, the Snapdragon 865.

But Huawei's latest launch comes as Washington sanctions have severed the company's connections to key global chip suppliers, including TSMC.

Huawei has less than 20 million units of the Kirin 9000 5G chipset in stock, sources with knowledge told Nikkei Asia. Yu warned in August that the latest edition of the signature chipset -- which have powered all the company's premium handsets over the past few years -- will likely be its last. The company spent the last 10 years building its semiconductor design team, HiSilicon Technologies, into China's top chip developer by revenue. HiSilicon, in turn, has helped Huawei devices stand out from those of its rivals. The Chinese company even briefly became the world's top smartphone maker when it surpassed Samsung and Apple in shipments in the April-June period this year.

Yu addressed Washington's latest restrictions during Thursday's event.

"We are suffering from the U.S. government's third-round ban. This unfair ban makes it extremely difficult for us," he said. "No matter how difficult, our commitment is to continue to innovate, to prove [we have] the best technology and best innovation for human beings, and to make your life better and make your work more efficient."

Guo Ping, Huawei's rotating chairman, said in September that his company is still looking for solutions to find enough chips and components for its smartphone business.

Despite the pressure from the U.S., Huawei has said the Mate 40 Pro model will be available for the international market, as well as the domestic one.

The Pro will come with three rear camera systems: ultra-wide angle, telephoto and super sensing, for shooting in extremely low-light conditions, the company said.

The higher-end iPhone 12 Pro and Pro Max have similar triple rear cameras, and both the new iPhones and the latest Huawei devices have 3D-sensing front cameras for facial recognition.

For screens, both companies have adopted OLED displays, which provide better color contrast, can be made curved or foldable, and are now a must-have feature for premium smartphones. All 5G iPhone 12 models use OLED displays, the first full Apple range to do so. Huawei has been using OLED screens for all of its premium phones since the P30 range, released in the first half of 2019. It also used such advanced displays in earlier Mate 30 models, introduced late last year. The screen size of the new Mate 40 Pro is 6.76 inches, slightly bigger than the largest in the iPhone 12 range, the 6.7-inch iPhone Pro max.

Huawei's Mate 40 range also offers gesture controls, which allow users to operate the phone without touching the screen, as well as in-screen fingerprint sensors, something the iPhone 12 range does not offer. Both Apple and Huawei have wireless charging features.

Huawei's Mate 40, with a 6.5-inch OLED screen, comes at a starting price of 899 euros ($1,065), similar to the $1,099 price tag of the most expensive iPhone 12, the Pro Max. The most affordable of Apple's latest lineup, the iPhone 12 mini, starts at $699. The Mate 40 Pro is priced at 1199 euros, while and the starting price of Mate 40 Pro+, which boasts a more advanced camera and ceramic back, will sell at 1,399 euros. Huawei did not address the availability of its latest handsets, beyond confirming that the Mate 40 Pro model will be available for international users.

Consumer excitement for both companies' latest offerings is running high.

Sales of the new iPhones got off to a strong start, even in the Chinese market, where Huawei is the undisputed leader. Preorders for two of the four 5G iPhones opened on Oct. 16, and more than 152,000 orders had been placed in China as of 9:30 a.m. on Tuesday, according to data provided by Fenqile, a Chinese e-commerce site and authorized Apple reseller.

Several models of the iPhone 12 and iPhone 12 Pro have sold out on major Chinese e-commerce site, while customers are limited to two handsets each on Alibaba's Tmall shopping platform. The waiting time for some orders to ship is over three weeks.

"Almost half of the smartphones sold in July 2020 in China were 5G capable. So there is a pent-up demand for a huge installed base of iPhone users waiting for a 5G iPhone," said Neil Shah, vice president at market intelligence firm Counterpoint.

Another bit of good news for Apple is that its sales have been relatively unaffected by the "patriotic spending" trend of Chinese consumers switching to domestic brands amid rising China-U.S. tensions.

"Those who wanted to switch from an iPhone to Chinese brands, especially the older generations, I think they might have already moved on since the trade war last year," Shah said. "But as you can see the new iPhone SE released earlier this year did quite well in China."

Apple sold 7.4 million iPhones in China in the April to June quarter, a 32% growth year-on-year, according to Counterpoint data.

Huawei fans, meanwhile, are keen to snag a Kirin-powered smartphone. Demand for second-hand smartphones powered by Huawei's high-end, in-house chipsets has surged since the company confirmed that they "cannot be manufactured" after the U.S. blacklist took effect on Sept. 15.

Prices of several models of the Mate 30 and Mate 30 Pro -- the Mate 40 predecessors released last year -- jumped more than 10% on average in the secondary market from June to September, according to the latest report published by Zhuanzhuan, one of the largest online secondhand marketplaces in China, which is a rare trend for any electronic device.

Joey Yen, an analyst with IDC, said the price bump likely came from consumers viewing these phones more as collectors items, given the widespread expectation that no more of them will be made. "However, that would be a short-term boost and phenomenon for Huawei. In the long run, Huawei still needs vital electronics components to sustain its business."

Demand for the new Mate 40 series will likewise be very high, according to Jeff Pu, a veteran analyst with GF Securities. Any problem, he said, would come from the supply side.

"Huawei's phone features are very competitive against the new iPhones and it surely will be having good demand and could be out of stock. But the key issue is that Huawei does not have the chip resources to build that many devices," Pu told Nikkei Asia. According to Pu's estimate, Huawei would build less than 10 million units of the Mate 40 range versus 80 million units of the iPhone 12 range.

Huawei's overseas business, Pu added, will continue to tumble as many mobile carriers are extremely concerned about its business continuity issues and reluctant to sell and promote such devices. For next year, Huawei's smartphone shipment could be down to 50 million units, from 180 million units this year if the U.S. export control rules do not change. Apple, on the other hand, could resume growth to ship some 220 million iPhones in 2021 compared with 191 million this year.

"Huawei has become much more conservative in selling its smartphones aggressively because it wants to save resources, hoping to live a bit longer."

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