A possible semiconductor shortage looms over Huawei’s new smartphone launch

Chinese telecommunications giant Huawei Technologies released its new Mate 40 smartphone series on Thursday in a live-streamed global launch.

The Mate 40 is the latest in Huawei’s Mate series of smartphones, which come equipped with Leica camera lenses. The new series includes the Mate 40, Mate 40 Pro, Mate 40 Pro+, and Mate 40 RS Porsche. The phones feature numerous camera upgrades, better graphics, faster processing speeds, a longer battery life, and faster charging speeds. The Pro and Pro+ feature a hands-free device control that lets users swipe through their phone without touching it, by hovering in the air over the phone.

The Mate 40 is the first smartphone Huawei has launched since the U.S. government imposed new rules in August that banned semiconductor makers who rely on U.S. technology from selling chips to Huawei. And the uncertainty imposed by the U.S. restrictions loomed over the Mate 40 debut.

Semiconductor chips are an essential component of smartphones. Huawei has a stockpile of chips, but that stockpile will eventually run out—possibly by March or April 2021, according to a Counterpoint Research analysis. The Mate 40 will be Huawei’s last phone to use Kirin chipsets, produced before the U.S. restrictions came into effect.

It’s not clear if Huawei will be able to obtain the chips it needs to produce phones in the future, and that unknown could hurt the company’s market share in and outside China, its largest market, said Neil Shah, analyst at Counterpoint. Huawei declined to comment.

Shah expects the Mate 40 to sell well in China, where Huawei has a nearly 50% share of the smartphone market. Huawei’s strong performance in China “has offset the decline in shipments outside of China,” where Huawei sales have slumped because its phones no longer support Google apps—including Google Maps, Gmail, and the Play Store. A 2019 U.S. government rule largely banned U.S. companies like Google from working with Huawei; Huawei has been unable to secure the license needed for its phones to use Google services.

In the longer term, domestic rivals in China could benefit from Huawei’s dwindling chip supply, as consumers grow wary of buying a phone from a brand with an uncertain future. They may start to wonder, for example, if they will be able to procure a replacement part if their Huawei phone breaks, Shah said.

In China, domestic competitors like Oppo and Vivo could vie for some of Huawei’s smartphone market share when it comes to higher-end devices. On the lower end of the price range, Huawei-owned brand Honor could face competition from Xiaomi.

After Huawei exhausts its stockpile of chips, said Shah, “it’s going to be very difficult for Huawei to have components inventory in house to manufacture phones unless the [U.S.] ban and restrictions ease.”

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