A chip-related international trade sanction has revealed the weaknesses of ZTE, and allowed Huawei to enjoy an advantageous position. For a time, public opinion in China called for Huawei to knock out Samsung and Apple.
In 2015, Apple held US$178 billion in cash, equivalent to 2% of China's GDP, while Huawei's market value was about US$100 billion. In other words, Apple could purchase almost equivalent to two Huaweis with cashes in the year of 2016. Should Huawei surpass Apple, unless the scenarios as below were the truth. Apple would misplace its assets for many years continuously, see iPhone's product line with strategic faults over years and huge losses. Along with technology upgrading, Apple would be not ready, only then could Huawei dominate new technology market (i.e. VR and AR). In addition, Huawei would ensure investment sustainable for many years with correct usage of R&D funds. Huawei overtaking Cisco and Ericsson's market share that would be near to the threshold of anti-monopoly. All these are impossible, actually.
Here is the comparison. Huawei supports the development of mobile phones and other services through the telecom equipment business. Samsung does the same. In terms of volume, Samsung is over times than that of Huawei. Samsung Electronics, one member of Samsung Group, said that in 2017, its revenue was US$224 billion (approximately RMB 1.4 trillion), and its net profit of US$50.1 billion (RMB 310 billion). Huawei's revenue was RMB 603.6 billion at the same time, net profit at RMB 47.5 billion (the statistical sources varied but the figures are roughly the same).
Huawei's successful experience in operation has changes itself, from a catch-up to overunner. It is a remarkable achievement, no much meaningfulness though. China is now the most active market with huge consumptions, but this market would also eventually go to be saturated. Compared with Apple, Huawei has no advantages other than its price. Huawei and Samsung are both vertically integrated. Yet, Samsung's integration is even stronger with the series of products, and controls the core components in hand. If Huawei were to eliminate Apple and Samsung, it will wish a luck.
Observing the real market, Samsung's performance is actually worth to be paid attention. The incident of Note 7's explosion in 2016 caused a downfall of Samsung. Now it hs returned to the top share with 7.82 million units among global markets in 2017.
When people mentioned the brand of Samsung, the first thing comes to mind that is smart phones, home appliances and other consumer products. Compared to CE and IM business groups that are composed of consumer products, it is easy to overlook the operating profits of Samsung's semiconductors and mass produced DS chip products in the first quarter of 2018 will expect up to KRW 11 trillion, nearly 70% of Samsung's total profit for the same quarter.
In 2017, Samsung ended Intel's 25-years dominance, and became the world's largest semiconductor maker. The semiconductor industry is known for highly-added value and a wide range of products, which can be divided into integrated circuits, discrete devices, optoelectronic devices, and microsensors. Integrated circuit (IC) is the core on industry chain.
According to Gartner, the world's leading research and advisory company, the global semiconductor industry gained US$419.7 billion in 2017, which was a 22% increase from 2016. Samsung Electronics with a market share of 14.6% is over Intel's 13.8%, and be a dominant semiconductor chip in the world. In contrast, Chinese companies are content with the current status, and appeared to be successful until the ZTE incident gave a warning. Others are making progress, while these Chinese companies just stay there not to move on. They are not only facing real markets, but also the reality market.
Started from a small trading company, Samsung's first businesses were selling dried fish, vegetables, and fruits. In the 1960s, the company turned to get involved in sugar, textiles, and fertilizers. Samsung Electronics set up in 1969 and began the production of black-and-white TVs. This was also the same time when the Chinese companies started up, but the paths were quite different.
Samsung strives to obtain foreign technology through various channels, fully absorbing key technologies internally and carrying out technological improvements based on the characteristics of Korean consumers. During the 1960s and 1970s, the semiconductor technology revolution had been leading the rapid development in global electronics industry. Samsung then went to engage in semiconductor industry, under the suggestion of Lee Kun-hee, the younger son of the Group's chairman Lee Byung-chul. When the group's senior managers opposed to this suggestion and Lee Byung-chul was ever hesitant. Lee Kun-hee, a graduate from the United States, believed South Korea lack of resources and that the future would belong to information technology, therefore high-value-added cutting-edge industries should be encouraged.
In order to succeed, Lee Kun-hee went to Silicon Valley more than 50 times, introduced technology and talents back into Korea. He devoted great efforts and investment for this purpose. After years of hard work, in 1983, Samsung's first chip factory was completed in the Giheung-gu of Gyeonggi-do, and production of 64-bit chips sooner after it was put into operation. Soon, Samsung had developed 256-bit chips and 486-bit chips, and officially entered the global chip market competition. Within a decade, Samsung's mass production chip market share was almost close to that of Japan's.
Today, Samsung Electronics handles a market share of more than 50% in the global mass production chip market, surpassed competitors such as Intel in terms of both sales and operating profit, and ranking the leading position in the chip industry.
What will Huawei think of its matter then?
Do not talk more technology. The Dutch company ASML has a kind of lithography device; the price of a single extreme ultraviolet (EUV) lithography alone costs more than US$100 million. Together with turbofan engine, it is known to be the crown jewel in industrial manufacturing, and Samsung is one of the shareholders of ASML. Each year hundreds of millions of dollars are invested for R&D. Taiwan Semiconductor Manufacturing Company (TSMC) and Intel, the two companies specializing in semiconductor chips, are also its shareholders. The CPU industry is featured with low design thresholds and high manufacturing thresholds. China's industrial experience proves that superficial involvement will not help work well.
For Huawei, the biggest problem is not an enterprise at all, and may never be one. Enterprise is a kind of social organization, the most obvious symbol of growing up and being successful is its positive social influence. The commitment to social ethical responsibilities and obligations, not just makes money and doing business. Another is Huawei not as the mainstream in global markets, bound by the Wassenaar Agreement signed by 33 countries, and the contents mainly about the control of sensitive high-tech products and technologies exported to countries like North Korea and Iraq. China has the opportunity to be part of it, but not actually done to be a contracting party, Now subject to examine and with restrictions of the Wassenaar Agreement.
Final Analysis Conclusion:
Still, China shall improve the policies, and facing challenges in thereform. For Huawei, it remins a long way to go; not care about how big could be but rather, whether the company is able to effectively cope with the future risks.
