Source: Bohu Finance (bohuFN)

Huawei has finally "stood up straight" in the operating system market.

At the recent Huawei Developer Conference, HarmonyOS NEXT (Native HarmonyOS) was officially announced, and its independence from traditional Unix and Linux kernels, relying solely on its own HarmonyOS kernel, means that Huawei has finally owned its "pure-blooded HarmonyOS." The commercialization of this system is also about to enter the sprint stage, expected to enter the general consumer market in the fourth quarter.

Not only that, but Huawei also released Pangu Large Model 5.0, a brand-new HarmonyOS native intelligent framework, and other innovative technologies at the conference. The emergence of these technologies also marks the deep integration of operating systems (OS) with AI, and a new AI era is about to arrive in China. Meanwhile, it is reported that TOP 5000 applications have fully initiated development and joined the HarmonyOS ecosystem, which can satisfy users' usage time by 99.9%, and over 1500 applications have been listed. There are also rumors on social platforms that several Tencent products are undergoing development adaptation and technical communication work with Huawei's native HarmonyOS.

For Huawei, the significance of HarmonyOS goes beyond just an independent operating system. The original intention of HarmonyOS was to better realize the interconnection of all things, rather than replace Android.

To understand the significance of HarmonyOS for Huawei, it is necessary to base oneself on Huawei itself and also stand on the stage of the times.

01 The Opportunity of AI

Five years ago, if you were told that there was a domestic smartphone operating system that could compete with Android and iOS, you might not have believed it. After all, as one of the two core competitiveness of smartphones, the core meaning of an operating system is its ecosystem. When Android had already accumulated a sufficient ecosystem, developing a new operating system was akin to reinventing the wheel. And relying solely on the market share of a single manufacturer made it difficult to attract developers to put in effort for adaptation.

HarmonyOS was launched at that time, but it was only Huawei's "backup" plan, and it was even mocked as a "shell" of Android. Its goal was to integrate intelligent tools such as phones, computers, tablets, TVs, cars, watches, refrigerators, fire protection equipment, etc., into a unified IoT operating system to achieve "interconnection of all things."

But things are different now, as AI may become the deciding factor in the competition among mobile terminals in the next stage.

Some major manufacturers' leaders have placed high hopes on AI phones. For example, Zhao Ming, CEO of Honor, believes that traditional smartphones can no longer meet users' demand for intelligent experiences. Chen Mingyong, the founder of OPPO, also stated that the group will fully concentrate its R&D focus and resources on AI.

Manufacturers with their own research and development operating systems can naturally better and more deeply integrate the capabilities of large models into various application operations. At this level, Apple has already set an example.

The same is true for Huawei.

HarmonyOS NEXT embeds Pangu Large Model 5.0 and simultaneously launches the AI service "HarmonyOS Intelligence."

HarmonyOS NEXT not only stabilizes the foundation but also has ample room for imagination in the future. It is worth noting that unlike the Pangu Large Model 4.0 version, which was only used in the industrial field, the upgraded 5.0 version includes three major features: multimodal, strong thinking, and a full series. The technology, thinking, and functionality have all been comprehensively upgraded, expanding the application range of large models to the consumer sector.

For example, HarmonyOS Intelligence's original "Xiao Yi" voice assistant has been upgraded to "Xiao Yi Intelligence" with the support of large models. It can directly recognize tables in pictures and generate Excel tables, features that Apple's AI service "Apple Intelligence" cannot currently provide.

Of course, it cannot be ignored that Huawei's R&D strength and experiences over the past few years have given it a brand appeal and support rate in China that far surpasses its peers.

The latest Research data shows that HarmonyOS's market share in China has increased from 8% in the first quarter of 2023 to 17% in the first quarter of 2024. iOS has declined from 20% to 16%, and HarmonyOS has become the second-largest mobile operating system in the Chinese market.

Industry insiders analyze that "the trend of Android, HarmonyOS, and iOS dividing the world into three parts is gradually emerging." Huawei has estimated based on the development history of the PC and mobile industries that "16% of the operating system market share is a watershed, and exceeding this line can lead to success without being eliminated by the market."

In addition, HarmonyOS NEXT also brings performance improvements. HarmonyOS NEXT's development language abandons Android's Java language and focuses on the ArkTS development language. It is well known that the biggest pain point of Android phones is "lag," as they must use the Java virtual machine, which results in low frontend application performance even with strong CPUs and computing power.

HarmonyOS NEXT avoids this issue, as its ArkTS supports multiple languages such as Java and C++, allowing developers to use different programming languages in the same project to write code, thereby greatly improving performance.

Gong Ti, President of Huawei's Terminal BG Software Department, stated, "The HarmonyOS kernel surpasses the Linux kernel, offering smoother, safer performance with a 10.7% performance improvement. HarmonyOS NEXT's overall device performance is 30% higher compared to HarmonyOS 4."

Not only that, but security is also more assured.

Through a brand-new self-developed Xingdun security architecture, HarmonyOS NEXT has become the first operating system in the industry to obtain both international CC EAL6+ and Chinese CCRC EAL5+ dual security certifications. At the same time, it has also eliminated rules such as Android and iOS that access user privacy data, reducing the risk of user privacy leaks.

These are just optimizations brought about by the operating system itself. What about business operations?

02 A "Sharp Tool" to Surpass Apple

In recent years, everyone has witnessed Huawei's declining sales and status due to chip shortages. However, even if we only look at the consumer business, Huawei has never been just a phone manufacturer. From mobile phones to operating systems, Huawei aims to become a global technology enterprise and has always been benchmarked against Apple.

In 2020, Huawei's global mobile phone sales surpassed Apple and Samsung for the first time, becoming the world's largest mobile phone manufacturer.

In 2024, in the domestic mobile operating system market, HarmonyOS has also surpassed Apple but has not yet surpassed Android.

But what significance does HarmonyOS NEXT hold for Huawei to achieve these ambitions?

First, HarmonyOS NEXT actually proves Huawei's strength and completely sheds the label of HarmonyOS being a "shell of Android."

Second, the launch of HarmonyOS NEXT is helping Huawei form its own software ecosystem, which brings about an increase in competitive barriers and the expansion of revenue channels.

In the mobile phone segment, after the full return of Huawei's two high-end phones, the Mate 60 and Pura 70, Huawei is slowly reclaiming lost ground. According to Counterpoint statistics, Huawei's sales in the first quarter of this year increased by 69.7% year-on-year, with a market share of 15.5%, ranking first among the top 6 mobile phone manufacturers in terms of growth rate.

The launch of HarmonyOS NEXT, after breaking Huawei's operating system shortcomings, is bound to further boost the company's hardware device sales. According to Canalys data, in the first quarter of 2024, Huawei surpassed Apple to become the first in terms of tablet shipments in the mainland market, with a total of 7.345 million units shipped.

At the Developer Conference, Huawei also plans to commercialize HarmonyOS NEXT during the launch of the Huawei Mate 70, and the results brought about by this marketing wave are also highly anticipated.

HarmonyOS NEXT can also open a second growth point for Huawei, namely revenue from the channel end.

As everyone knows, as a traffic interface, manufacturers do not worry about not making money from operating systems.

Relying on the "Apple tax," where Apple takes a 30% cut from all paid apps on the App Store, Apple earns a thousand billion yuan every year.

According to Huawei, "The company plans to reduce game commissions to 20% to attract developers to settle in, representing a 60% decrease compared to the 50% split with the hardcore alliance."

A lower commission ratio is obviously more conducive to attracting developers and beneficial to the development of the HarmonyOS ecosystem. If a stable system ecosystem is formed, future channel revenue is bound to become a new growth point for Huawei and can also serve as a financial reserve for Huawei's upcoming battle for mobile phone status.

Nowadays, the smartphone race is no longer limited to hardware upgrades, and everyone is competing in areas such as chips, systems, and ecosystems. Apple can rely on iOS to have over 1 billion active users, and Huawei also has the opportunity to leverage HarmonyOS NEXT to tap into a larger market, which is also its core area of competition with Apple in the next decade or two.

03 The Biggest Challenge is the System Ecosystem

However, for HarmonyOS NEXT to take the lead, there are many challenges behind it.

The first is application compatibility. Currently, the number of compatible software for the HarmonyOS system is far less than iOS and Android.

According to observations, the total number of existing apps on the App Store exceeds 1.7 million, and Huawei plans to migrate the Top 5000 apps on smartphones to the HarmonyOS native operating system this year.

But the biggest challenge lies in the system ecosystem.

In 2019, Huawei's founder Ren Zhengfei pointed out, "The technical difficulty of developing an operating system is not great, but the difficulty lies in the ecosystem." A stable and healthy system ecosystem requires sufficient developers, user volume, and commercial value.

Huawei, whether in terms of the number of developers or users, is undoubtedly inferior to iOS and Android, which have been developed for many years.

It is understood that there are currently about 20 million Android developers and 24 million iOS developers, while HarmonyOS has only 2.54 million developers, a significant gap. However, with the global smartphone market entering a stock competition, it is foreseeable that the growth rate of developers will definitely be slower than the peak period or may even show a slowdown trend.

HarmonyOS's way out is to create a new developer market. After all, the ArkTS development language offers diversity and does not overly limit developers to a particular programming language skill, making the entry barrier lower for everyone.

Moreover, Huawei has the advantage of being a "host" when developing operating systems in China, as the country has been vigorously supporting technological domestic enterprises in recent years.

Yu Chengdong, Chairman of Huawei's Terminal BG, stated, "So far, over 1500 HarmonyOS native apps have been listed, including domestic apps such as Alipay, Xiaohongshu, Meituan, and MiHoYo."

However, to retain developers or users, it still relies on commercial value, namely the system ecosystem.

Apple is now being mocked for its high "Apple tax," but the annual revenue of over a hundred billion yuan from this part still keeps developers within the Apple ecosystem.

The current drawback of HarmonyOS NEXT is that it has not yet built a perfect system ecosystem, whether it is in terms of software compatibility, the number of developers, or user volume, it is still in its infancy.

However, Huawei envisions a more imaginative and closed future.

At a previous HarmonyOS ecosystem launch conference, Huawei stated that after the official commercialization of HarmonyOS Next, the Open Harmony (open-source HarmonyOS) system used by cars and IoT devices in the past will also be replaced by the former, potentially realizing a complete system-level integration with mobile phones, thereby forming an ecological closed loop.

Once this closed loop is formed, there is a trillion-level market behind it, and Huawei will be completely on a different level from other Android manufacturers. It also means that Huawei will have stronger user stickiness and more say in channel revenue splits, which can determine Huawei's truly unshakeable dominant position.

In the end, it must be reiterated that whether it is the initial HarmonyOS or the current HarmonyOS NEXT, they are still in the initial stages from start to first steps. Subsequent development still needs to be tested by time.

Reference Materials:

1. All-Weather Finance: Huawei Is Finally Going to "Divide the World into Three Parts"

2. Pacific Technology: "Pure-blooded" HarmonyOS Battles Apple AI, Huawei's Success or Failure Hinges on This Move

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