Apparently, Apple is arguing in Washington that they can be the US champion for 5G, running against the juggernaut that is Huawei.
Before I get into why this is a bad idea, a little backstory: One of the more interesting jobs I’ve held was as a competitive analyst and, apparently, I was good at it…because I not only received a ton of recognition for my work, it formed the foundation for creating a successful analyst practice. One of the biggest problems with this job is that the executives that have power generally fall in love with their own strategies and tend not to be too fond of folks who point out they are idiots based on real market data.
So, the job also resulted in an impressive number of folks trying to get me fired, which got really old after a while. But that experience came to the fore when I heard what Apple was doing, as I feel there should be an alternative voice to Apple’s ill-conceived argument.
On the surface, their case is compelling. Like Huawei, they are a “hero” brand that – while weakened since Steve Jobs’ passing due to lack of funding – is still arguably the most powerful in the smartphone segment (everyplace but China). In most of the world, the strongest challenger to Apple is Samsung, who currently leads the smartphone market in volume.
In China, however, Huawei has become the hero brand and the US trade war with China has significantly benefited that company to the detriment of Apple. But Huawei is a very different kind of company, more like the original AT&T than Apple which, under Steve Jobs’ direction, was fashioned after Sony.
Against the threat that Huawei represents, Apple is massively overmatched both in terms of available resources and market influence.
Let me explain.
It’s been several decades since the original AT&T went under. We tend to forget that today’s AT&T was built years later from the ashes that were left behind (what used to call the Baby Bells). AT&T was dominant because they controlled telephony end to end, they had the phones, they had the network and they had the switches.
This end to end control effectively locked out competition, but it also slowed advancement and reduced AT&T’s R&D. When the government forced AT&T to allow competitors they not only rolled over AT&T, the resulting rapid advancement in alternative forms of communication (email, web, ethernet, etc.) that AT&T wasn’t set up to compete in made them redundant and they failed. But while they maintained dominance, they were unbeatable.
Huawei’s strategy appears to be to recreate AT&T but without the limitations on networking and by creating vertical integration between the switches and handsets they sell. Huawei provides acceptable quality and aggressively low prices and has been penetrating both sides of this market quite impressively. They’re almost unbeatable on price and are already passing Apple for the No. 2 spot in the smartphone market. The only thing holding them back right now is US sanctions. But the US is in a bruising trade war with China and it’s very likely that China will negotiate an end to the US sanctions against Huawei as part of their conditions for ending it. (They are currently arguing that Huawei phones are more secure than iPhones thanks to Apple’s security by obscurity approach.)
Huawei is a 5G powerhouse, but their path to standards is through their dominance because competitors rarely accept leadership from a similar firm. What I mean is that one smartphone or switch maker won’t accept a proposed standard from a competitor for fear it would give them a competitive advantage (which it generally would).
This could be offset by the Chinese government which certainly could, by fiat, assure Huawei’s dominance in China. Given the China market is expected to grow at multiples of the US market over the next decade, that could effectively turn Huawei into the next AT&T, giving China segment dominance by the time we’re ready to move to 6G.
Apple doesn’t enjoy the support with the US government that Huawei enjoys. They currently aren’t really in the race for 5G, because they rely on Intel who, in turn, required allegedly illegal help from Apple to get there. And they not only don’t have an interest in switches, they partner really badly making them even less likely to be able to drive standards in the US (let alone in the rest of the world).
Apple has had great difficulty executing of late, too. Their smartwatch effort, while the most successful in the segment, lags massively behind what they did with the iPod. Their Homepod was late and not competitive. And their recent revenue gains are largely the result of increasing prices, not sales volume.
They use a lock-in model which has proven untenable in long term in the US because the FTC and DOJ both take exception to it once a company becomes dominant (because it restricts competition). They’ve had several attempts at enterprise products – starting with the Lisa and ending with the Apple server – which failed horribly, and they’ve had a number of high-profile partnerships that also failed (they truly suck at partnering).
Apple lacks both the leadership and the corporate structure to take on Huawei. A better path might be to go to the US carriers, encourage global mergers with incentives and use them as a hedge against Huawei…while assuring competition between them, so you didn’t replace one growing monopoly with another.
Competing with Huawei
Huawei is more like the old AT&T and Apple is more like the old Sony, both by design. Sony, even on their best day, couldn’t compete with AT&T in their market any more than AT&T could compete with Sony on consumer hardware. But the battle for the lead in telephony isn’t a consumer electronics battle, it’s a telephony battle, placing it more in Huawei’s true market than in Apple’s.
To effectively compete, Apple would need to merge with someone like Cisco [Disclosure: Cisco is a client of the author], which would not only be difficult to get through regulatory approval, but would create massive leadership stress, given the two companies have been extremely ineffective in each other’s markets. (Cisco had consumer products years ago and exited that market after failing with all of them.) So, even if you forced a merger, it likely wouldn’t assure US dominance, it would more likely kill both Apple and Cisco, because neither management team has the skills to run both companies.
Huawei will likely be the pivot point that will eventually move tech market dominance from the US to China. Currently, the US lacks a company like Huawei to counter and Apple is badly positioned to be that champion because they neither partner well nor have they been successful in the back end of anything. (Even their cloud efforts aren’t competitive outside of the Apple ecosystem.)
The US needs another plan, probably one that looks at why the US is dominant and strengthen that…not trying to emulate late (and poorly) what China is doing. We tried that with solar panels and currently China, not the US, owns that market.
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