Samsung Display (pvt) is the leader in the foldable smartphone display market, while they were not the first to release a foldable display, the competitor that beat them is no longer in business.  That said, the number of OLED display producers and phone brands that are producing displays or offering foldable smartphones has increased considerably since the initial releases back in 2019, at which point there were two brands Samsung Electronics (005930.KS) and Huawei (pvt).  While Motorola and others offer a number of models Samsung and Hiawei are still the volume (units) leaders and continue to battle to maintain (Samsun) or gain (Huawei) share in this relatively new market.

In September of 2024 Huawei released the Mate XT Ultimate, a tri-fold smartphone, that pushed the competitive envelope further.  Not to be outdone, it seems that Samsung has been discussing production plans with suppliers for its first tri-fold phone, which is expected to go into production in April.  While all components have not been finalized yet, scheduling is being discussed in order to make sure the components, a number of which are new, will be available to assemblers when necessary. It is expected that Samsung will produce `~200,000 units this year, an exceptionally small number compared to the 5m expected for this year’s Z Flip and Z Fold, which together represent less than 3% of Samsung’s smartphone shipments.  Samsung is also said to be developing a thinner version of the Z Flip 7 known as the Z Flip FE, a follow up to the Z Flip SE released this year, with total production, including previous models of ~7m units.
If Samsung is expecting to sell only 200,000 tri-fold smartphones this year, it indicates that Samsung is releasing the device in order to stay abreast of Huawei in terms of technology, but is less focused on generating sales, as both internal and external resources will be used  for the tri-fold device, potentially diluting the development of the higher volume Z Flip and Fold.  This comes at a time when the high price of foldable smartphones is slowing the segment’s growth and narrowing the customer base.  It is understandable that Samsung and others feel the need to complete by, at the least, matching existing technology, but the point of selling smartphones is to make money, which means the focus of any foldable device development program should be to bring down the price, rather than releasing a device to maintain bragging rights.
Samsung’s tri-fold device is expected to be just under 10” when open, while the Huawei device is 10.1” and the Z Fold FE is 10.6mm when folded while Chinese brands are between 9mm and 10mm when folded, so Samsung is not ‘breaking through’ specifications with its devices, it is just keeping pace.  With the relatively poor sales of the Z Fold SE (<100,000 units cumulative), this game is not bringing in new, high-volume customers, its saving face.  Instead of putting out a ‘me too’ product, we believe Samsung would be far better off skipping the tri-fold smartphone and working toward a 4-segment device, which would take a 6” (diagonal smartphone and create an unfolded display almost 6” high and 10.6” wide.  Yes, it would need four hinges and would be about 13mm thick, or slightly over ½ inch when folded, but it would open to the size of a medium to large size tablet.  Forget the copy and take a step ahead.

According to the Financial Times, the US Department of Commerce has told a number of companies that it will no longer issue US technology export licenses for equipment sold to China’s Huawei (pvt), further deepening the rift between the company and the US government, and escalating tensions between China and the US, likely of Taiwan.  The beleaguered company, once the largest global smartphone brand and largest telecom equipment supplier, has been on the receiving end of much anti-China sentiment and political rhetoric over the potential for the Chinese government’s rules that could allow it to force the company to use its equipment to monitor voice and data traffic, something all Chinese companies are subject to.  Huawei has been further accused of placing backdoors in its equipment just for that purpose, although there is little evidence that such software is more than just typical shortcuts or sloppy coding.
The focus of restrictions placed on Huawei, which was added to the US ‘entities’ list in 2019 by former President Trump, has seen a gradual tightening of trade restrictions, that began with a ban on the use of Huawei equipment in government organizations.  This grew to a ban on the use in all public networks, to that equipment’s physical removal, while restrictions on semiconductor equipment have also been escalating.  Tools needed for 5nm node processing were banned early on, keeping the company from producing its own smartphone processor silicon, and moved further to all tools needed for designing and processing less sophisticated chip designs.  That said, the US Department of Commerce still issued licenses to companies that could document that they were not supplying Huawei with technology related items that could be used to advance the country’s military efforts, such as AI or 5G (not sure how much 5G helps the military), at least until now.  It seems the US has taken an even harder line and is no longer issuing licenses for any technology to be sold to Huawei.
Details of the escalation are still unclear, but US Under Secretary of Commerce for Industry & Security, Alan Estavez, indicated a few month back that “The threat assessment is always changing,” and that, “We are appropriately doing everything in our power to protect our national security and prevent sensitive technologies with military applications from being acquired by the People's Republic of China's military, intelligence, and security services,” sort of a blanket statement that left open the door toward the increased trade regulations we are hearing of currently.
Earlier this month we noted Huawei’s push toward self-sufficiency, with the company’s recently released Mate 50 Pro smartphone containing ~90% locally sourced components, but also noted that a number of key components were produced and sourced by US companies, particularly the 4G processor, which is supplied by Qualcomm (QCOM) and a number of other components.  We point out that the phone is not equipped with the Android operating system, as Huawei’s ability to access the Google (GOOG) store for Android updates and applications, was taken away years ago, and the company has had to rely on its own OS, which has far less appeal to users.  While the list below is not conclusive, here are a few of the non-Chinese companies that provide other components for the Mate 50 Pro and have the potential to be unable to obtain export licenses to sell to Huawei going forward as an example of just one Huawei product.
 
Qualcomm  - 4G processor, power management, audio codec, RF transceiver, Wi-Fi, & power amplifier
SK Hynix (000660.KS) - Memory
Samsung (00930.KS) - Memory
Micron (MU) – Memory
HiSilicon (pvt) - Memory. 
Qorvo (QRVO) - RF front-end silicon,
ST Micro (STM) - encryption protection,
NXP (NXPI) - NFC, audio power amp, and battery charging management
Maxim (ADI) – Sensors, etc.
IDT (IDT) - Sensors, etc.
Skyworks (SWKS) - Sensors, etc.
Broadcom (AVGO) - Sensors, etc.
​

​Huawei (pvt) has been the target of anti-China sentiment in the US government going back to 2012 when government agencies were banned from using Huawei’s telecom equipment.  Things escalated further in 2019 when then President Trump added the company to the US Entities list, extending the ban to US commercial telecom networks, and eventually tightening the rules to force both US and foreign companies from supplying advanced semiconductor technology and components to the company.  As is well documented this caused Huawei, once the 2nd largest smartphone vendor behind Samsung (005930.KS)[1], to fall to a share 85% below its peak, while its global telecom business also declined significantly.
Huawei’s founder vowed that the company would survive the loss of US components and technology by building local sourcing with the help of the Chinese government.  Over the past few years Huawei itself, and many Chinese government sponsored programs and subsidy enticements have helped to build the infrastructure that Huawei, and other banned Chinese companies need to survive, but it is hard to gauge how much dependency Huawei still has on foreign components given the Chinese government’s positively biased propaganda extoling the virtues of locally produced components. A recent teardown of Huawei’s Mate 50 Pro, the company’s most popular smartphone (released in September of 2022) gives some indication as to the progress Huawei has made toward local sourcing.
According to the most recent teardown, ~90% of the components in the Huawei Mate 50 Pro smartphone are sourced from Chinese companies.  The display, which tends to be the most costly single component, is sourced from BOE (200725.CH) and Visionox (002387.CH), which is not surprising,, with the lens cover supplied by Lens Technology (300433.CH), with a long list of Chinese companies supplying everything from structural parts, analog chips, batteries, PCBs, and touch and fingerprint ID components, but there were still a variety of components produced outside of China, some of which are key components.
In particular Qualcomm (QCOM) provides the 4G processor, a number of power management chips, an audio codec, RF transceiver, Wi-Fi, and power amplifier, many of which operate under it’s Snapdragon 8+ Gen 1 processor that runs the phone.  SK Hynix (000660.KS), Samsung (00930.KS) , and Micron (MU) provide memory, along with HiSilicon (pvt), which is owned by Huawei.  Qorvo (QRVO) provides RF front-end silicon, ST Micro (STM) supplies encryption protection, NXP (NXPI) NFC, audio power amp, and battery charging management, while Maxim (ADI), IDT (IDT), Skyworks (SWKS) and Broadcom (AVGO) all supply various sensors and other silicon.
While Huawei has developed its own OS (Harmony 3.0) the company must still rely on outside companies for its main processor, the Qualcomm Snap 8+ which is produced using a 4nm process as China’s silicon fabs have been unable to develop the necessary technology to duplicate much silicon at these node levels.  Even more stringent limitations on EUV and potentially DUV tools from ASML (ASML) have made things even harder, forcing the Chinese semiconductor industry to try to develop such tools internally, a process that will take years.  The big issue that still remains however is the inability to access current versions of Android or access to the Google (GOOG) store applications, which continues to keep Huawei’s markets primarily in China.
That said, Huawei has certainly gone a long way from the over 70% non-local component content seen a few years back, and while there have been fits and starts as to negotiations between Huawei and the US government, we expect little will change unless the global (and US) semiconductor industry goes into a sustained downturn, at which point we would expect some of those restrictions to be eased, although that would likely not be this year.  In the interim, Huawei will have to try to eke out another percent or two of local sourcing to keep from inciting the US government to tighten sanctions further.


[1] Huawei – 19.4% Samsung 19.5% in 2Q ’20 according to our composite smartphone shipment database.

​Huawei (pvt), once the country’s leading smartphone and telecommunications brand, has won a court battle over the counterfeiting of one of its products.  We note that Huawei was some powerful back a few years ago that the Chairman said it did not have the time to sue others for copyright infringement, as it was far too busy producing and selling product.  It seems things have cooled enough that the company takes its IP a bit more seriously these days, and after documenting that two competitors were advertising their earbud products as “Huawei Universal” and “Official Original Authentic Product” on a number of retail sites, and were selling these knock-offs for $0.90 against the Huawei price of $1.81, Huawei took them to court.
All totaled, before the items were removed from store shelves, ~$584,000 worth of these counterfeit items were sold, with the court agreeing with Huawei that the use of the word “Huawei’ in the advertisements would be enough to make consumers think they were getting actual Huawei products, awarding the company $57,459 in compensation, paid by the defendants.  That said, after it was revealed that the defendants had been it court before for infringing Huawei’s logos and trademarks, the court ordered an additional $143,647 to be paid to Huawei, who seems to have the time to litigate such matters these days.

​Huawei (pvt) has been the recipient of all of the political muscle that the US has to bear, taking the company from the market-leading global; supplier to much of the world, a shell of its former self.  Whether justified or not, the pressure that has been placed on the company has limited its ability to compete in the global market as a telecom supplier, as a smartphone manufacturer, and as a developer of new product technology.  The company’s founder has tried to downplay the effects of the stringent trade bans placed on the company, which were based on the assumption that the country rules that Chinese companies have to allow the government access to data when the ‘national security’ of the country is under siege.  This produced the assumption that Huawei has put ‘backdoors’ in its equipment, allowing it to monitor the calls of US and other allies.
The damage to Huawei has been significant, and the company is no longer a global smartphone producer and faces the replacement of much of its equipment in the US telecom infrastructure, but one thing it does have is IP that it developed during its hay-day as the largest producer of mobile devices.  We noted on 9/24 that the company’s founder and CEO, Ren Zhengfei, indicated that he is moving the company toward a new direction, one that is better suited to the coming decade of weak consumer demand that he foresees.  We noted that Huawei is China’s largest privately owned patent holder, and as such has the ability to utilize those patents as a way to generate income, with many being basic telecom patents for mobile devices.  In the past Huawei has been lax about enforcing many of those patents, but that philosophy seems to be at an end, despite earlier statements to the contrary, as the company is pushed deeper into the trade abyss. 
Huawei recently filed a lawsuit against Amazon and Compal (2324.TT) In the People’s Court of Jiangsu Province, and while neither the plaintiff or the defendants have commented on the filing, it is expected it has to do with tablet IP owned by Huawei.  With the company owning more than 45,000 patent families and ranks #5 as to patents authorized by the US patent office, and generating between $1.2b and $1.3b in IP revenue during 2019 and 2021, they have the ability to leverage that IP further.  While the CEO has answered the question about ‘weaponizing’ the company’s vast IP by stating “We are too busy, we are developing too fast, and we have no time to collect patent fees…”, it would seem that they now have the free time needed to go after those fees.

​A seemingly kinder and gentler US Bureau of Industry & Security issued an ‘interim final rule’ that revised Export Administration Regulations concerning the release of certain technology and software in the context of standards setting and development in standards organizations.  The ruling is the result of considerable pushback from industry stakeholders concerning clarification of the government’s stance on what are called ‘low-level’ technology releases to those on the entities list, particularly Huawei and its affiliates. 
In June of last year the BIS called for public comments concerning the release of ‘certain items’ to ‘certain entities’ in a standards organizational environment, which has been a sore spot given Huawei’s vast collection of IP and hardware relating to wireless technology, leaving many to wonder whether they were or could be in the future, violating US trade restrictions with Huawei when participating in standards discussions.  The ruling is said to ensure that US stakeholders are fully engaged in international standards organizations and are not limited by a lack of clarification as to what technology might need a BIS license, while ‘preventing technology transfers that harm our national security.’  In other words, you can work with Huawei on standards because without them the standards are not real ‘standards’ because they would not necessarily include China, although this doesn’t include others on the entities list.  Or…rules are rules until they no longer serve our purpose…
 

​Crystal Clear Codec (pvt) a company licensed in Texas in 2019 and Warsaw, Poland is suing Chinese smartphone brands Xiaomi (1810.HK) and Oppo (pvt) for patent infringement after the companies challenged Crystal Clear’s patents under rules of the US National Intellectual Property Rights Coordination Center, a part of the US Homeland Security system and the US Immigration and Customs Enforcement (ICE) program.  The patents involved refer to EVS technology (Enhanced Voice Services) a codec that is used in packet-switched networks that improves quality, reduces error rates, and improves compression, which allows more efficiency and bandwidth across voice networks.
CCC has a portfolio of 12 patent families concerning EVS and licenses that IP to a variety of companies, with the IP EOL dates extending from 2026 to 2035.  CC charges a rate of $0.44 for cumulative units of 10m, with tiered levels up to $0.29 for 60m+ units, relatively standard rates, but what makes this a bit unusual is the fact that much of the IP is assigned to Huawei (pvt), formerly the largest smartphone producer in China.  Huawei has indicated tin the recent past that it was licensing its massive portfolio of broadband IP that it generated as a part of its smartphone and telecommunications product development over that last few years but with the demise of that business, the company has been looking to monetize those IP assets to make up lost revenue.
CCC is a licensing entity (NPE) that that has had a relationship with Huawei in the past, most likely as a patent representative that takes care of licensing details and more importantly protects the IP from those it believes are infringing.  Last year the company initiated a lawsuit against Xiaomi for other Huawei based IP and las also initiated IP claims against Apple (AAPL) and LG Electronics (066570.KS), some of which are based on the IP that Oppo was trying to get invalidated.  Huawei has also used other NPE’s to represent its IP interests in Wi-Fi, on occasion against Xiaomi and Oppo, which were settled, however while Huawei is certainly less a competitor in the smartphone business, they don’t seem to hesitate to make sure they are getting paid by other smartphone brands, regardless of where they are located.

The founder of China’s largest telecommunications company Huawei (pvt) is usually optimistic about the future of his company and the prospects for global technology, although having been in the sights of the US government’s trade war with China have made an impact on the founder’s positivity as those trade restrictions forced the company to move away from its more traditional products and find areas where it is not dependent on technology that is US based or US developed.  It seems that not only is Ren Zhengfei concerned about the company’s ability to navigate the enormous roadblocks the US has set up, but in an internal network staff meeting he indicated that it is time for the company to change direction from its previous growth mode to one of ‘survival’, emphasizing profit and cash flow.
He explains that the global economy is headed for a decade of weak demand, particularly during the 2023 – 2024 period, and is concerned that the company can survive in such an environment.  In order to stave off any possibility of such an occurrence, he wants to end all complex projects and abandon businesses that have little chance of becoming profitable, reduce R&D on projects, such as electric vehicles, that could take many years to develop, and refocus the company on IT infrastructure and customer service.  While he admitted that his pessimistic view was colored by the US sanctions, the war in Ukraine, inflation, and a post-COVID world, the company’s 1H results saw little growth and a large drop in profitability, with the slowdown in demand across the company’s device businesses taking a toll while the IT business remained a growth driver.
It was also mentioned that Huawei could abandon markets in certain countries and face the fact that survival is now the focus, which means trimming the 2023 budget, reducing ‘scientific research’ and emphasizing a few key areas where component and product development can be linked together, and above all, employees should not ‘tell stories’ about the potential for projects and present a realistic prediction of prospects as ‘company losses will be deducted from your food (pay) package”.  From an expense perspective he wants only two categories, paying stable wages to employees and paying back bank loans, while indicating that bonus assessment this year and next will be based more on operating profit as an encouragement to employees to drive profits and less on reducing the wage gap across the company
All in, this more focused and lean Huawei is long overdue, and while the company has taken measures to counteract the US trade sanctions, there was still a focus in the fact that Huawei is China’s largest privately-owned patent holder and that the company and China itself takes pride in the fact that the country’s R&D spending this year will be larger than that of the US for the first time.  For a company so enmeshed in global politics, such focus is a distraction and while naysayers will cite the necessity for deep scientific research to create long-term product strategies, cutting the budgets on all but those with the highest probability for profits is what will keep Huawei from drifting toward its own demise. 
When the initial sanctions were placed on the company in August 2018 there was a ‘doesn’t matter’ attitude from management, which became a ‘hunker down’ philosophy about a year later as the US tightened the trade noose, but there has been a lack of understanding by senior management as to the fact that despite its former size and stature, the company could implode or slowly drift into oblivion.  Hopefully these words from the company’s founder will have an impact on both management and rank-and-file workers and will snap them out of the ‘too big to fail’ mantra that can easily become a psychological barrier to preventing just such an occurrence.   If Mr. Zengfei is even half right about the prospects for the next few years Huawei needs to ‘get it’s mind right’ if it does not want to join the list of those companies that didn’t and no longer exist.

​Huawei’s (pvt) smartphone business has been severely disrupted by the US trade restriction placed on the company that do not allow US companies or foreign companies that use US products to sell to Huawei.  This has limited Huawei’s smartphone business to China and stifled its ability to produce 5G smartphones for its customers.  While Huawei has developed its own flavor of Android, its smartphone customers are also unable to access the Google (GOOG) Play Store, which means they are unable to access many Android applications and updates and without the advanced node 5G chips produced by Samsung and Taiwan Semi (TSM), their phones are limited to 4G..
As a result Huawei’s share of the smartphone market has declined from 19.36% in 2Q 2020 to 1.8% in 1Q this year, with little hope that such sanctions will be lifted in the near-term, and while local semiconductor fabs are able to produce more mature node chips, they are also prohibited from purchasing much of the advanced lithography tools needed for nodes below 28nm.  Huawei went as far as to sell its Honor (pvt) smartphone brand division to investors in order to separate it from the US restrictions although the company has no interest in Honor at this time.  Given the tight rein the US restrictions place on Huawei, the company has transitioned into businesses that are not based on advanced node semiconductors, but has not given up on the smartphone business despite the lack of consumer traction.
It seems that Huawei is able to provide 5G service for its customers if they purchase a mobile phone case that is made by a 3rd party that is not affiliated with Huawei and therefore is able to purchase 5G modem components.  While the case offers some protection for the phone, the real purpose is to give 5G service to Huawei smartphones.  But things go further as a company known as TD Technology (pvt), an affiliate of TD Tech Holdings (pvt) which is jointly owned by Huawei and Nokia (NOK), sells a smartphone known as the TD Tech M40, strangely similar to the Huawei Mate 40 series of 4G smartphones, but capable of 5G service, and we say strangely similar as TD Tech is a licensing partner of Huawei and has acknowledged that it purchases parts from the company.  The Huawei P50 series, released last year has the same lack of 5G service but it seems a company known as Soyea Technology (000909.CH) has developed a “5G Communication Case” that is suitable for the Huawei P50 Pro, and can be purchased for ~$120.
Huawei has recently removed the Mate 40 smartphone line from availability, which many believe is in anticipation of the release of the Mate 50 expected this summer, which is already said to possibly include a ‘mobile phone case’ similar to the one mentioned above, allowing the phone to provide 5G service and stimulating Huawei’s smartphone sales, and while much of the Mate 50 story is speculation, expectations are that there will be a number of ‘cases’ available for the new Huawei smartphones as accessories.  As TD Tech is a real company with over 1,800 employees they can obviously develop their own 5G smartphone line based on Huawei (licensed) technology, as they did with the Huawei clone mentioned above, but as it turns out, much of the TD Tech board is composed of Huawei executives and an undisclosed holding company beneficiary, which creates further suspicions that Huawei is even more closely tied to these ‘clone’ phones. 
We wonder if the US DOD is up on these connections, as a possible workaround for Huawei’s smartphone business and whether TD Tech and Soyea will be added to the US entities list or will be allowed to provide help to Huawei’s smartphone business?  We assume the answer depends on how stringent the DOD wants to be with Huawei and whether it is politically beneficial to tighten the screws on Chinese companies heading into the mid-term elections.  If we know, we have to assume someone at the DOD knows that the Huawei clones are already here…
 

Huawei (pvt), formerly the world’s leading telecom company and at one time the second largest smartphone brand, has enetered the E-Paper market with the release of the MatePad Paper, an e-paper based tablet, similar to the Amazon (AMZN) Kindle line.  The device has a 10.3” display, uses Wi-FGi 6+, and has a 3625 mAh battery that lasts 28 days in standby mode and charges in 1.5 hours (6 day charge).  As the e-paper display is only refreshed when the image or text changes, the system has the ability to recognize the type of content being viewed, which keeps power requirements to a minimum but also allows for smooth images when viewing GIFs or embedded documents.  The display itself is produced locally but the technology is licensed from E-Ink Holdings (8069.HK).
The device is based on Huawei’s internally developed Kirin 820E Chipset (7nm) and runs Huawei’s Hongmeng operatring system (Harmony OS2) which allows data to be transferred to any other Harmony device, which would include newer Huawei smartphones, and uses the M-pencil, also produced locally,, with up to 4,096 pressure sensitivity levels.  Unfortunately the local production capacity for the device is still small and the device was sold out on an e-mall site after 1,000 nits were pre-sold so it will take time for Huawei to gain traction in terms of volume numbers, however given the company’s size and brand recognition in China, this new product category for Huawei should have an impact on the global e-paper market eventually as the global unit volume for e-paper tablets is ~15m units.  The device sells for ~$471 US.  The Kindle Oasis (high-end) sells for ~$280 (ad-supported).
Given the pressure on Huawei’s business segments, a result of the US sanctions against the company, Huawei has been looking to develop new business segments of expand those that it is able to source on the Chinese Mainland.  While E-Ink is based in Taiwan, and should fall under the US trade restrictions, we expect that either a license has been granted by the US, given the low-tech nature of e-paper, or the details of the trade sanctions allow for pure technology licensing as it would be hard to prove that the license was based on technology developed using US produced tools.  Either way it seems that Huawei was able to get around the ban in this instance but has been severely limited in where it can source its components, which likely accounts for the lack of supply, especially given the 7nm node processor, which would have to be produced by SMIC (688981.CH), China’s only 7nm capable fab (just barely), and would be in completion for that capacity with both itself and other Chinese CE companies that are under the same restrictions.