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Samsung, LG May Benefit from U.S. Companies’ Breakup with Huawei
Growing Uncertainties Could Hamper 5G Growth
Samsung, LG May Benefit from U.S. Companies’ Breakup with Huawei
  • By Kim Eun-jin
  • May 21, 2019, 12:09
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U.S. companies' breakup with Huawei may benefit Korean companies such as Samsung Electronics and LG Electronics.

After the U.S. Commerce Department restricted Huawei’s access to American suppliers last week, U.S. companies such as Google, Intel, and Qualcomm have parted from Huawei. This development may benefit Korean companies such as Samsung Electronics and LG Electronics. However, analysts note that Huawei is both a competitor and a customer of Korean companies, meaning that the development has both favorable and unfavorable aspects for them.

The U.S. government’s action against Huawei is expected to spark off a big change in the global smartphone industry, which is divided into the Google Android and the Apple iOS platforms. Industry analysts say that the removal of Huawei from the U.S. market, high tariffs, and other U.S. policies will ultimately weaken the influence of Apple and Google as well as Huawei on the smartphone industry.

The U.S. action will deal a huge blow to Huawei, which is the world's second-largest smartphone maker that closely trails Samsung Electronics. Huawei originally planned to enter the 5G markets of China and Europe after launching a 5G phone in Switzerland early this month. However, Google’s breakup with Huawei is expected to significantly hinder Huawei’s 5G expansion strategy. Huawei set the goal of overtaking Samsung by the end of next year. But due to Google’s decision to sever ties with Huawei, attaining the goal has become a long shot for Huawei.

Experts say that Europe will be the first market to face a change from Google’s breakup with Huawei. Huawei smartphones will not be able to use typical Google applications such as Gmail and YouTube, and Google Play itself will disappear from Huawei smartphones. The Chinese government has put restrictions on Google services so its effects will be limited in China, but in Europe and other regions, it will be a different story. Consumers outside China will become reluctant to buy Huawei smartphones due to a lack of applications.

Currently, the European smartphone market is led by the two frontrunners -- Samsung Electronics and Apple with Huawei narrowing its gaps with them by reaching a market share of 20 percent. However, when the market share of Huawei smartphones declines, consumers are more likely to move to Samsung Galaxy series powered by the same Android OS than the Apple iPhone based on the Apple iOS. LG Electronics is also expected to enjoy benefits in launching 5G smartphones in Europe. It will introduce the 5G V50 ThinQ smartphone in Switzerland.

The disappearance of Google applications from Huawei smartphones will become a big negative factor for Google as we;;. This is because Google has to give up business with a major smartphone maker that sells more than 200 million units a year. In particular, Huawei is already developing its own smartphone OS.

Apple’s earnings are also forecast to be sluggish due to the U.S.-China trade dispute. It has already lost second place to Huawei in the smartphone market due to its sluggish business in China, and will highly likely to face anti-American and anti-Apple sentiments among consumers in China. In fact, since the U.S. administration’s decision to kick out Huawei, an Apple product boycott has been growing among Chinese consumers mainly via SNS. In Weibo, a Chinese version of Twitter, Chinese consumers are sharing an opinion that there is no reason to use the iPhone because Huawei smartphones are not inferior to the iPhone.

Apple already suffered the worst business performance in the first quarter of this year as sales in China plunged 21 percent. At the time of the earnings announcement, Apple CEO Tim Cook said that the company's earnings would recover beginning in the second quarter thanks to improved trade relations between the United States and China. But now, a bigger negative factor is facing Apple’s business in China.

In addition, Apple is forced to raise prices of its products made in China or lower its profits as the U.S. government will impose higher tariffs on products manufactured in China. Apple has relied on Foxconn and Pegatron in Taiwan for production of the iPhone in China but now has to consider moving production to third countries such as India and Indonesia. This means that cost and risk will grow for Apple.

These factors are expected to give Samsung Electronics and LG Electronics good opportunities to expand their presence in the smartphone market. In particular, the two companies will enjoy benefits in the Chinese and U.S. smartphone markets. However, the growing uncertainties in the relationship between the United States and China could eventually hamper the spread of 5G services and the growth of the ICT industry.

The implementation of the anti-Huawei policy is expected to hit Huawei hard in carrying out its 5G mobile business activities. In fact, many key components of Huawei's telecommunications equipment come from U.S. technology companies. "Huawei, the world's largest telecommunication equipment supplier and the world's second-largest smartphone maker, bought US$70 billion worth of parts and equipment from 13,000 suppliers last year," major U.S. media outlets said. "Of the amount, about US$11 billion was spent on buying products from dozens of companies in the United States including Microsoft's software and Google's Android as well as computer chips from Qualcomm and Broadcom."

As Intel and Qualcomm suspended transactions with Huawei, Samsung Electronics, Ericsson and Nokia will benefit, many experts believe. "It is not easy to change communication equipment suppliers but if this sanction undermines the stability and quality of Huawei's products, it can be an opportunity for Samsung Electronics and other competitors," said an industry analyst.

However, some experts say that Korean companies will face bad news too. If Huawei suffers damage, Korea’s exports of semiconductors and other parts will decrease, too. Huawei became one of the top five customers of Samsung Electronics last year.

LG U+ is also under the influence of the sanctions on Huawei. LG U+ has been the only Korean mobile carrier to use Huawei equipment for 5G services following LTE services. LG U+ has to use Huawei products in Seoul, the northern part of the Seoul metropolitan area, and Gangwon Province. If LG U+ suffer a problem in receiving equipment from Huawei in the future, it may be difficult for the mobile carrier to attain the goal of improving telecommunication service quality and building 80,000 5G base stations within this year.