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Can Huawei's Harmony Match Up to Android?

Zacks Equity Research

In May 2019, the U.S. government blacklisted Huawei Technologies Co., Ltd. and put a ban on its trade in the country. The authorities imposed a ban on American firms from selling technology and software to Huawei unless they get a license to do so. The United States claims that the company is a national security concern, as it engages in activities that defy the country’s foreign policy interests.

The news of the ban sent shockwaves across the tech sector, leading to declines of 1.4% and 2.5% in share prices of major firms like Alphabet Inc. GOOGL and Intel Corporation INTC, respectively, on Aug 9. Chipmakers that depend on Huawei for a bulk of their sales like Qualcomm QCOM and Advanced Micro Devices AMD witnessed their shares falling, even after reporting better-than-expected second-quarter earnings.

Further, news of Google barring Huawei smartphones from receiving updates floated in, resulting in new Huawei smartphones not getting access to several Google applications. As a result of the ban, Google cannot sell its newer versions of Android to Huawei, incapacitating users to install or update many new applications.

However, Huawei will be using Android for the time being and will continue to do so till Google itself terminates the existing deal. The president of Huawei consumer cloud service, Zhang Ping’an, announced that the company will spend $1 billion to support developers, and 80% of that would be allocated to developers beyond the country’s boundary.

Unveiling Harmony Operating System

To overcome current problems, on Aug 9, Huawei unveiled its proprietary operating system (OS), Harmony or Hongmeng (in Chinese) for smartphones and other devices. The world's No. 2 smartphone maker is at the mercy of Google to provide an operating system for the thousands of smartphones it sells every year.

The operating system is being developed to replace the existing Android system that is being used in Huawei’s smartphones. Harmony OS will support smartwatches, speakers and Internet-of-things gadgets, initially.

Deployment of the new operating system will be an easy task for Huawei with its more than 180,000 employees, who have resources and infrastructure to build applications for it. But the company plans to use Harmony OS in all devices only by 2022.

Huawei is constantly trying to attract application developers to its operating system. The company’s head of consumer business group Richard Yu said that Harmony is an open-source and has been developed to be safer and more efficient than the existing ones.

Harmony, a New Competitor?

On Aug 16, as per Forbes report, the CEO of Huawei, Ren Zhengfei warned the U.S. government that if Huawei is not allowed to have full access to Google’s Android, “then the world may have a third operating system.”

After being blacklisted by the United States, Huawei has not only created its own operating system, it is also attempting to create an intuitive interface that will help in the transition between different pieces of hardware to reduce fragmentation.

Even though it looks like Harmony is a competitor to Google’s Android and Apple’s AAPL iOS, president Yu clarified that Harmony is not a rival to Android, but will be more like Google’s Fuchsia. To attract developers, Yu disclosed that application developers may have to pay 10-15% lesser in fee cut compared with the 30% cut that Apple or Google takes for revenues generated through app stores.
 
Google and Apple shares have gained 14.9% and 33.4%, respectively, on a year-to-date basis.  Google carries a Zacks Rank #2 (Buy) and Apple has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Recently, Huawei has also taken up the challenge of creating its own mapping technology; a territory predominated by Google since 2005. Huawei’s Map Kit will be connected to local mapping services and cover a territory of 150 countries and regions. It will be available in 40 languages and will use augmented-reality mapping.

Moreover, Huawei’s sophisticated navigation system will be designed to recognize a car changing lanes and offer real-time traffic conditions.

Conclusion

Even though officials from Huawei constantly press that Harmony is not being developed to compete with Android, all the steps being taken clearly indicate that the company is determined to dominate the smartphone market. Huawei has also made it clear that if the United States stops it from purchasing Android, the company will continue manufacturing its gadgets.

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