Google will stop providing Huawei with support for Android and Google services. The move was made in response to a U.S. order restricting companies’ ability to trade with Huawei due to security concerns. Read our comment on how it likely will affect the company.
However, the U.S. government on Monday temporarily eased some trade restrictions imposed last week on China’s Huawei, a move that sought to minimize disruption for the telecom company’s customers around the world. The U.S. Commerce Department will allow Huawei Technologies to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets.
The authorization, which is in effect for 90 days, suggests changes to Huawei’s supply chain may have immediate, far-reaching and unintended consequences for its customers. “The goal seems to be to prevent internet, computer and cell phone systems from crashing,” said Washington lawyer Kevin Wolf, a former Commerce Department official. “This is not a capitulation. This is housekeeping.”
Redeye’s comment:
In the short-term, the news will have no impact on the current business for Flexion. Currently, Flexion has no contract with Huawei’s AppGallery.
The long-term impact will benefit Flexion, as the market becomes more fragmented and Android devices will have less dependence on Google and its app store Google Play.
As we wrote in our initial coverage report Google have also been under regulatory pressure. As part of an antitrust settlement in Europe, device manufacturers now must pay a license fee of up to EUR 50 per device to enable access to Google Play for end consumers. This will erode their margins even further for device manufacturers and is spurring them into getting their own app stores into the market.
Currently, Huawei is the second largest smartphone maker in the world (after Samsung). But Huawei has much higher growth than Samsung (growth of 30% last year) despite the fact that Huawei’s smartphones are not officially available to purchase in the US.
Huawei AppGallery is China’s third-largest Android app store, with an estimated revenue of USD 1.9 billion in 2018. Huawei launched its app store globally in April 2018. We, however, estimate Huawei’s App Gallery current market position in the western markets to minimal. But now the circumstances have changed.
Android is a so-called open-source operating system, which means Huawei will likely start building its own version of Android for international markets, similar to what Amazon ships with its Fire tablets. This means a logical strategic decision is that Huawei will make its own app store the default option on Huawei devices.
Huawei is now forced to intensify the commercialization of its app store in the western markets, which ultimately means they have to invest in more and better content. Flexion and Huawei already have a collaboration, which means new strategic discussions adding the Flexion games portfolio to Huawei AppGallery is likely.
It will be interesting to follow what other Chinese smartphone makers (Xiaomi, Oppo etcetera) will do next. Google will, of course, try to maintain its control over Android and Google Play.
We will not change our estimates after the news, but this market change strengthens the Flexion case.
Original Post: Redeye