WSJ - Aaron Tilley
Sep 8, 2023
“A phone like Huawei that’s sufficiently good enough and is now being supported and encouraged by the leadership of China will certainly have an impact on Apple,” said Alan Yeung...
Apple is facing a new competitive threat in China after the country ordered some officials not to use iPhones: Hardware giant Huawei Technologies is selling a smartphone capable of ultrafast data connectivity.
The new Huawei phone, coupled with the ban, has the potential to make a significant dent in Apple’s sales and once again underscores the risks global companies face as geopolitical tensions between the U.S. and China spill over into many industries.
Apple is particularly vulnerable, as most of its products are assembled in China. Chief Executive Tim Cook for years has engaged in a delicate dance to keep his company from being ensnared as the two countries have disagreed over trade and technology.
The U.S. tech company’s shares fell 3.2% Thursday, adding to the stock’s declines since The Wall Street Journal reported Wednesday that China ordered officials at central government agencies not to use Apple’s iPhones or bring them into the office.
The iPhone maker has dominated China’s high-end phone market in recent years after tough U.S. sanctions limited chip supplies, and Huawei earlier abandoned plans to make phones with 5G, a cellular standard that enables far-speedier connections. Millions of smartphone users around the world have upgraded their devices as so-called fifth-generation cellular technology held the promise of faster and better connections and other new potential uses.
Now Huawei is fighting back, releasing a new phone in China with 5G-like speeds and capabilities. The initial batch of the phone—the Mate 60 Pro, priced at $960 for presale—sold out within hours, making a splash on Chinese social media. Other buyers have placed orders for delivery later. The early fervor suggests Huawei could reclaim buyers it lost in China to Apple, which is due to unveil its latest iPhone next week.
“The government ban and the new Huawei phone will be material events for the iPhone,” said Martin Yang, an analyst at investment firm Oppenheimer. “The two combined will drive more Android users to upgrade to the Huawei, or iPhone users going back to Huawei.”
Yang says Apple could lose 10 million iPhone shipments in 2024 because of the new Huawei phone. The company shipped 224.7 million iPhones in 2022, according to Counterpoint Research, so that figure would amount to about 4.5% of total iPhone shipments.
Apple is expected to release the iPhone 15 next week, and the company in recent years has relied on high-end device sales for outsize growth and profitability.
It remained unclear Wednesday exactly what prompted China to restrict iPhone use, but some analysts suggested that a similar action in Russia might have helped prompt Beijing.
While the order hasn’t been publicly announced, it could pose reputational risks to Apple in China. Individual users beyond central government employees, such as local government officials or those who work with the government in China, could be prompted to avoid Apple products, said Xiaomeng Lu, a director at risk consulting firm Eurasia Group focusing on geopolitics and technology.
While Huawei isn’t calling its new device a 5G phone, tests by Chinese consumers and domestic testing agencies show it could reach a maximum download speed of 500 to 800 megabits a second. Such a speed would allow consumers to download a movie in high definition within a minute and far surpasses the speed limit of about 300 megabits a second for 4G networks.
Huawei has also highlighted features such as satellite communications that allow users to connect in areas without traditional mobile coverage, a capability that is supported for calls—unlike Apple, which can only support messaging. The product’s boxes say “satellite mobile terminal,” instead of “digital mobile device,” the phrase that was used for earlier phone products.
Industry watchers are debating how the Chinese telecom giant pulled off such a technological feat despite facing sanctions that restrict its access to U.S. chips and related technologies. The privately held Chinese company has stayed silent on the biggest source of conjecture: the phone’s core processor and other key mobile chips, which power critical functions such as wireless communications and general computing.
A state-owned newspaper affiliated with China’s technology regulator touted the coming phone as the company’s successful return to the 5G smartphone market, citing anonymous industry experts. The paper called the Mate 60 Pro the product of Huawei’s two trump cards: its advanced semiconductor chip and 5G, adding that “Huawei has persevered and today delivered an impressive counterpunch.”
TechInsights, a Canadian semiconductor-information platform, published a report Tuesday saying it found that China’s biggest contract chip maker, Semiconductor Manufacturing International Corp., manufactured the core chip inside the Huawei Mate 60 Pro. Bloomberg earlier reported that finding.
It said China had made technical breakthroughs without using the most advanced chipmaking tools restricted by the U.S., but this could potentially lead to tighter restrictions from Washington.
The Journal reported in February that the Biden administration was considering revoking export licenses issued to U.S. suppliers for sales of products that went into Huawei goods using technology older than 5G.
Huawei said the Mate 60 Pro features a new design and comprehensive improvements in communications, without elaborating.
Washington has progressively cut off Huawei from U.S. technology and components since it was placed on the Commerce Department’s trade blacklist in 2019. American officials and members of Congress have said Huawei’s products posed a national-security threat, claims that Huawei has denied.
The U.S.’s actions led Huawei to sell off its budget-phone unit and hurt international sales. Huawei executives often referred to the setback as a battle for survival.
China became the world’s largest iPhone market in the second quarter, overtaking the U.S. and the entire North American region for the first time, according to Abhilash Kumar, an analyst at TechInsights. Mainland China accounted for 24% of all iPhone shipments in the period, compared with 21% for the U.S., according to estimates from TechInsights.
Apple doesn’t break out iPhone sales from China and didn’t respond to requests for comment. Cook, the company’s CEO, said on a call with investors last month that Chinese consumers switching to the iPhone from a rival smartphone platform were “at the heart of our results there.”
The iPhone maker had a 65% share of China’s smartphones priced over $600 in the second quarter, while Huawei counted for 18%, according to research firm IDC. Before the full impact of the U.S. sanctions, Huawei’s premium market share ran close to that of Apple in the first half of 2020.
“A phone like Huawei that’s sufficiently good enough and is now being supported and encouraged by the leadership of China will certainly have an impact on Apple,” said Alan Yeung, a former U.S. executive for iPhone assembler Foxconn. “But it’s difficult to say by how much.”
Millions of internet users in China have viewed a Huawei video of its new flagship device that is circulating on a YouTube-like platform, generating more than 370,000 likes.
Jenny Chen, a 28-year-old primary-school teacher, lined up in a Huawei store in central Shenzhen on Saturday as consumers behind her jostled to see and test the phone’s functions and capabilities.
Chen, currently an iPhone 12 user, put down her name on the reservation list for a Mate 60 Pro.
“I want to show my support for domestic products,” Chen said, adding that she was attracted by the value-for-money proposition that Huawei’s smartphone offered.
Qianwei Zhang contributed to this article.