2019 could be the beginning of the end for Huawei

Over the years we've seen quite a few smartphone markers quickly rise into the spotlight and then fade away. Palm, Nokia, RIM, Motorola, HTC and others all enjoyed tremendous success, followed by a dramatic fall. The interesting thing is that the stories behind the successes and failures of these companies are all different. They bet on the wrong platform, moved too slowly, got lost in the shuffle or simply lost their identity. 

But since each company faced unique difficulties, it's been hard for other companies to learn from their mistakes. While it's easy to spot a company that's a few years into a decline, it's harder to predict which company will be the next to fall from grace. Because of that, you likely wouldn't believe us if we told you that #2 smartphone maker on the globe will be the one facing an uncertain future. 

Huawei surpassed Apple on the charts back in 2017, moving from being the #3 smartphone maker to the #2 spot, positioning itself nicely behind Samsung. The company is expected to ship more than 200 million devices in 2018, up from 153 million units in 2017. Huawei has been on an unprecedented growth spurt, overtaking its competitors one by one by delivering cutting-edge smartphone like the Huawei Mate 20 Pro and budget-friendly devices with competitive specs with its Honor brand. 

The most surprising aspect of Huawie's growth has been that it's managed to capture 15% of the global smartphone market share without breaking into the North American market. That point was to be Huawei's main focus for 2018, but it's also where things started to go wrong as well.

Back in January of this year, Huawei's CES press conference was where the company was planning to announce its official entry into the US market. Huawei had worked out deals to bring the Huawei Mate 10 Pro to AT&T and Verizon, putting its best phone on thousands of stores across the US. But those deals fell through at the last minute. According to the rumors, AT&T and Verizon backed out at the last minute due to pressure from the US Senate and House committees which insisted that Huawei would be "a security threat" if it managed to secure a firm foothold in the US market. 

Huawei pushed forward with the Mate 10 Pro announcement, choosing to sell the device unlocked through Best Buy and its own website. In February, the US' offensive went one step further with the heads of multiple US intelligence agencies warning Congress about the threat posed by Huawei's close ties with the Chinese government. 

"We're deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don't share our values to gain positions of power inside our telecommunications networks,"

While no specific threats of espionage were shared, the US government's anti-Huawei stance was enough for Best Buy to rethink it's relationship with Huawei, announcing that it would phase out sales of unlocked Huawei devices. 

Since then, the US government has been putting pressure on its allies across the globe to limit their use of Huawei networking equipment. So far, New Zealand, the UK, Canada and Australia appear to have taken a stance against Huawei as well, citing security concerns with Huawei's equipment. 

Just this week, we learned that the Sprint and T-Mobile merger in the US was given a security approval based on the agreement from Deutsche Telekom (T-Mobile's parent company) and SoftBank Group (Sprint's parent company) to not use Huawei network equipment to build out their 5G networks. This is a huge blow for Hauwei as SoftBank Group and Deutsche Telekom operate the largest networks in Japan and Germany. 

On top of that, Huawei CFO Wanzhou Meng was arrested in Vancouver on December 1st. The arrest is related to Huawei's supposed violation of international sanctions on Iran. While the exact details of the violation are still being kept under wraps, the US is hoping to have Meng extradited to the US to face trial. Making matters worse, Wanzhou Meng also serves as vice-chair of Huawei's board and is the daughter of the company's founder.

So where does all this leave Huawei?

While Huawei's smartphone business is bigger than ever, its network infrastructure business will be facing tough times in 2019 and beyond. For those who don't know, Huawei's network equipment business if far bigger and dramatically more lucrative for Huawei than its smartphone business. It's also the reason why the company's smartphones have become so popular across Asia and Europe.

Huawei has used sales of its network equipment to service providers across the globe as a bargaining chip to get them to also sell its smartphones to their customers. That's one of the reasons why Huawei's smartphones hadn't yet established a foothold in the US. Huawei has been banned from bidding on US network builds in the US since 2011, essentially freezing out any relationships between Huawei and US service providers. 

If more countries ban Hauwei equipment from their 5G network build outs, the relationship that Huawei has with service provider around the globe will suffer. There's a very good chance that customers will start seeing fewer Hauwei devices in carrier shops in Europe, forcing the company to retreat to Asia and more friendly markets. This would inevitably lead to a dramatic decline in the sales of Huawei smartphones, resulting in a drop in market share. 

The good news is that none of this is set in stone. Huawei is currently trying to work with the UK to address the security concerns they have. The company could also make significant changes to distance itself from the Chinese government, adding independent oversight of certain portions of its business. At this point, Huawei's fate is still in its own hands. They can choose to play defense and try to fend off the attacks on its businesses or go on the offensive and present a plan which will change the narrative in 2019. 

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