Chinese smartphone companies like Huawei are making a comeback in their home market, giving a boost to domestic suppliers – and increasing pressure on Apple. It is a reflection of a geopolitically driven shift in the tech industry. One clear takeaway from last week’s meeting of the US and Chinese presidents is that America’s restrictions on high-tech sales to China will not go away. While the summit may reduce the risk of tensions escalating in the short term, Morgan Stanley analysts said “competitive rivalry” is likely to remain for now. That “does not mean a complete disengagement, but rather continued technical competition and a pull away from China,” the analysts said in a note on Thursday. Chinese President Xi Jinping called on the US to lift its sanctions and provide a non-discriminatory environment for Chinese companies, according to a reading. But the US said President Joe Biden stressed the need to prevent advanced US technology from undermining national security. In fact, Raymond James analysts said in a note on Thursday that their discussions with Washington, DC, contacts support expectations for more technical export controls. The Biden administration has also taken pains to emphasize that most trade with China is not affected by the restrictions, and does not target consumer-related claims. Huawei suppliers outperform But investors are already on the move. In a year when negative sentiment has sent the MSCI China index down nearly 11% in US dollar terms, the wind information index of Huawei’s corporate partners and suppliers is up 36%. That is more than double the increase of 15.5% so far this year for the wind index of Apple suppliers. Telecommunications giant Huawei was a relatively early target of US sanctions, reducing its revenue from consumer products such as smartphones. The restrictions, which were put in place in 2019, included restricted access to the latest versions of Google’s Android operating system. Instead Huawei has built its own operating system. Reviews also showed that the company’s new Mate 60 Pro smartphone offers download speeds related to 5G – thanks to an advanced chip, made by the Chinese semiconductor giant SMIC. Huawei smartphone sales were up 83% in October from a year ago, Counterpoint Research said in a note on Tuesday. Honor, another company from Huawei, saw sales by 10%, while Xiaomi’s smartphone sales increased by 33%, the report said. The report did not break down Apple’s sales, only saying that a broad category of “other” saw smartphone sales in October fall 12% from a year ago. Shenzhen-listed Lihexing sells smartphone testing equipment to Huawei and expects the company to ship at least 70 million phones next year, Nomura analysts said in a report on Tuesday, announced a meeting with Lihexing management earlier this week. The stock is up more than 80% so far this year. In the most optimistic scenario, Lihexing expects that Huawei could ship 90 million smartphones in 2024, the Nomura report said. “For the medium/long-term, management expects additional revenue streams from EVs and charging stations, thanks to its long-term relationship with Huawei,” the analysts said, note that Lihexing does not intend to increase market penetration in Xiaomi and other Android. brand phones “due to low profitability and more intense competition.” For context, CINNO Research that based in Shanghai expects a 2% decline in Apple iPhone sales in China this year to 45.5 million units. Huawei sells a range of large market phones as well as flagship models. In terms of electric vehicles, Huawei has to focus on providing technology in the car while partnering with manufacturers to make the vehicle. Sokon manufacturers in Shanghai list the hybrid and pure cars with battery power for Huawei under the Aito brand, which was officially launched at the end of 2021. In the last week, Huawei said that it had already delivered 120,000 units of the Aito M5 alone. Shares of Sokon are up more than 100% so far this year. Nomura analysts also said they met with Guangdong Topstar Technology, which became a supplier of Huawei, Xiaomi and others this year in the industrial robot space. The Shenzhen-listed stock is up about 10% so far this year. Nomura does not yet have a rating on the Lihexing or Topstar. But Chinese investment banking giant CICC has a better rating on both Sokon and Topstar. BYD shares are listed in Shenzhen and Foxconn Industrial Internet shares are listed in Wind’s Huawei and Apple indexes. — CNBC’s Michael Bloom contributed to this report.
