Looking at Huawei in the 5G era, which of the 149 suppliers can achieve success?

The past of Apple’s industrial chain may very well become the future of Huawei’s industrial chain.

The newly released iPhone 11 series is unlikely to save Apple from its declining share in the domestic smartphone market. According to foreign media reports, the first batch of orders for the iPhone 11 series is expected to be around 8 million units, at least 10% less than when the new model was launched last year.

Things change over time. Apple was the winner in the 4G era, and Huawei is the winner in the 5G era. The domestic independent brand supply chain, led by Huawei, may usher in a "golden" investment period of the same size.

The past of Apple’s industrial chain may very well become the future of Huawei’s industrial chain.

Huawei's supplier market is approximately RMB 500 billion in size, and the revenue from Huawei for 27 A-share listed companies accounts for more than 10% of the company's total operating revenue.

So, how do we determine who will get a piece of the pie in such a huge market with so many participants?

According to Huawei's main business segment, it can be divided into three parts (data from Huawei's 2018 financial report):

Consumer business, revenue of 348.9 billion yuan, accounting for 48%; consumer business is a very important business of Huawei at present, with a compound growth rate of 35%;

Carrier business, with revenue of RMB 294 billion, accounting for 41%; carrier business is Huawei's basic business, with a compound growth rate of 9% from 2011 to 2018;

Enterprise business, with revenue of RMB 74.4 billion, accounted for 10%. Enterprise business is Huawei's fastest growing business, with a compound growth rate of 37%.

92 core suppliers

Data from Huawei and Guotai Junan Securities Research

Beneficiaries of 5G mobile phone industry chain

Data from Guotai Junan Securities Research

Beneficiaries of the communications industry chain

Data from Huawei official website, Guotai Junan Securities Research

Previously, Huawei was highly dependent on foreign suppliers in its mobile phone production supply chain, but the Sino-US turmoil in 2018 made Huawei more deeply aware that supporting domestic suppliers has become a necessary path to ensure the security of the supply chain.

So far, four US chip designers and suppliers, including Intel, Qualcomm, Xilinx and Broadcom, have cut off transactions with Huawei. At the same time, Google also announced that it has suspended some business dealings with Huawei.

Since May, many industry insiders have speculated that Huawei's supply chain will gradually de-Americanize in the future.

In response to US trade restrictions, Huawei's supply chain security strategy has been adjusted to high-end chips based on HiSilicon's independent research and development, while cooperating with foreign manufacturers to ensure product competitiveness. Domestic manufacturers are mostly focused on low-end components.

For suppliers of RF devices such as filters, Huawei is responsible for product design. The suppliers only serve as Huawei's OEM factories, and the antennas are mainly produced by Huawei itself.

We believe that just as the Apple industry chain has created countless ten-fold stocks in the past, in the future, under the catalysis of domestic substitution and the 5G wave, Huawei's industry chain will usher in golden investment opportunities of the same size.

If you missed Apple in the past decade, don’t miss Huawei in the next decade.