As far as is known, Samsung Electronics’ chief Lee Jae-yong has not raised his glass to US President Donald Trump, but as the offensive against Huawei intensifies, the South Korean electronics colossus is perfectly placed to derive collateral benefits from the Chinese behemoth’s woes.

With Washington deploying boot and fist against Huawei – the world’s leading supplier of telco equipment and 5G networks, and the number two player in smartphones – over alleged security black holes, major disruptions loom over global supply chains.

With the situation currently fluid, it is unclear how far – or even whether – US allies in Europe and East Asia will follow Washington’s lead on Huawei, although both Japan and the UK have ordered bans on new Huawei phones. Nor is it known how long US sanctions will last.

Two reports recently distributed by global credit ratings agency Fitch explored the future landscape of the sector in light of Huawei’s troubles. Fitch suggested that in Europe, Ericsson and Nokia were well positioned to grab market share in network equipment, while in Asia, Samsung was perfectly placed to re-accelerate what had been a flagging lead in handset sales.

Yet the outlook is far from completely rosy for Samsung.

Even if the company gains increased market share in the smartphone sector – as looks likely, given present conditions – if Seoul caves in to Washington’s diplomatic pressure and imposes sanctions on exports to Huawei, Samsung could lose lucrative component supply contracts.

Loser and winners

In its first report, released on May 23 and called “Scope of Huawei Ban to Dictate Global Supplier, Rival Impact,” Fitch noted that Sweden’s Ericsson and Finland’s Nokia compete with Huawei in network equipment, and the security concerns surrounding the Chinese firm will improve the strategic standing of both in regional markets, particularly as the adoption of 5G rises.

“European network suppliers may not necessarily experience immediate market share or pricing gains as a result of sanctions on Huawei, but they are likely to be winners in the long-run as telecom operators will likely consider long-term cooperation implications when assessing vendor options,” Fitch suggested.

In Asia, Fitch remarked upon the outlook for two iconic Asian blue chips, Japan’s Sony and South Korea’s Samsung.

“Sony supplies image sensors to Huawei and has a near monopoly position in the high-end image sensor market, Fitch noted. Still, the “loss of sales to Huawei could be offset by supplying other major brands.”

“Samsung Electronics may benefit in terms of smartphone sales, as it may have an opportunity to increase market share in Europe and the rest of the world, excluding China, which represents around 49% of Huawei’s smartphone sales,” Fitch added. “However, restrictions would only apply to new models, so the actual benefit will depend on how long sanctions last.”

Reinvigorating Samsung

The potential impact on the Korean company is so significant that Fitch devoted a separate report to the issue, on May 26, entitled  “Samsung to Gain from Huawei’s Difficulties.”

“The loss of access to Google’s Android operating system could significantly hurt Huawei smartphone sales outside China, which could help Samsung improve its market share,” Fitch noted.

This could prove a gift from the gods for market leader Samsung, which has, over the last year, been watching Huawei steadily catching up.

The Korea firm’s smartphone arm is, like other handset companies, beset by commodification, market saturation and a lengthening of the replacement cycle, as well as by price competition from Chinese players. Amid this situation, overall smartphone shipments have been falling for six straight quarters, Fitch noted.

In the first quarter of 2019, Huawei was the world’s second-largest smartphone maker, with a market share of 19% compared with Samsung’s 23%, Fitch reported. Given that Huawei had only a 12% market share the year prior, the Chinese firm was the only major company to show on-year volume growth. Samsung, meanwhile, had suffered from a falling sales volume of over 8%, year-on-year, in Q1 2019.

That poor performance was recorded despite the launch of Samsung’s latest flagship smartphone range, the Galaxy 10, which also benefitted from a publicity boost, given its status as the only 5G smartphone on the market when South Korea launched the world’s first nationwide 5G network last month.

With US sanctions restricting US companies from providing hardware, software and components to Huawei, ripple effects are likely to be felt across the sector globally. This is particularly so given that Huawei uses Google’s Android OS.

“Consumers used to the Android operating system are likely to consider buying other smartphone brands than Huawei,” Fitch stated. “Samsung could restore market share, especially in regions such as Europe, Asia ex-China and South America, where Huawei achieved most of its growth in recent quarters.”

Looking ahead, Huawei is Samsung’s top competitor in new-generation smartphones such as 5G models. Both companies are also competing in foldable smartphones, which the industry anticipates could become a major trend.

“US-Huawei trade issues may give Samsung an opportunity to acquire an early lead in these markets, although this will depend on how long the sanctions will last,” Fitch said. “UK and Japanese companies have followed suit in delaying the launch of Huawei’s 5G smartphones, which could help boost the sales of Samsung and LG Electronics, two of a few 5G handset makers with ready-to-market products – at least in the short term.”

A Samsung spokesperson in Seoul confirmed to Asia Times that the company was familiar with Fitch’s recent reports, but declined to comment on them.

The component question mark

However, and despite the Fitch report which focused on smartphones, Samsung’s overall relationship with Huawei is not confined to competition in smartphones. The Korean company, which manufactures components as well as finished products, supplies Huawei with memory chips and displays.

So significant is that portion of Samsung’s business that a person familiar with the situation told Asia Times that it was unclear whether Samsung may benefit financially, overall, from the anticipated rise in smartphone market share.

That is because the South Korean government is reportedly coming under pressure from the US government to join its stand against Huawei. Such heavy-handed tactics are not new: Seoul has already faced similar American pressure to halt Iranian oil imports. If Seoul acquiesces to the demands of its powerful ally, Samsung’s lucrative component supply chain to its Chinese customer could be severed.

That would hurt not only Samsung, but South Korea. Last year, Huawei acquired  $10.7 billion worth of Korean products, some 17% of the country’s electronics component exports to China, South Korea’s largest trade partner, Reuters reported.

Amid these political-diplomatic black swans, the person said Samsung is in a “wait and see” mode.