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2019-05-25 02:01:36

Google's decision to cut off China's Huawei could cost it as much as $425 million in lost annual revenue.

That's the estimate from equity research firm Nomura Instinet, which crunched the numbers in response to the news that Google will no longer license its Android smartphone software to Huawei.

Google doesn't have much choice in the matter. The Trump administration placed Huawei on a blacklist this month, making it almost impossible for US companies to do business with the Chinese smartphone and telecom equipment maker.

That means new Huawei devices in markets around the world will no longer be able to run the version of Android that comes with all the latest security patches, access cutting-edge Google services like Assistant, or download apps from the Google Play store.

Huawei's breakup with the Google Play store, in which Google typically takes a 30% cut of every transaction, is where Google stands to lose the most. Instinet pegs the general range in potential lost Play Store sales for Google between $375 million to $425 million.

The biggest impact will be in Europe

Instinet estimated that Huawei currently has around 500 million smartphone users worldwide.

InstinetBut 52% of Huawei phone owners are in China, where Google Play is not available, according to Instinet's estimates. So Google would only feel an impact in markets — like Europe and Asia (excluding China) — where it profits from app sales today.

Google generated $7 billion in global Play Store sales in 2018, Instinet estimates. The portion of that $7 billion that comes from Huawei phones is likely around $388 million, according to Instinet's calculations. The biggest driver of that revenue is in Europe, where Google generated $190 million from Play Store sales on Huawei devices last year, Instinet reckons. Huawei users in Asia (excluding China) contributed about $137 million in Play Store sales, according the report.

Huawei switchers will make a difference

That blow would likely be softened, they wrote, because some users will switch to phones from another manufacturer to be able to access a fully-loaded Android experience. Huawei has announced it was developing its own operating system to replace Android on its devices, but experts are highly skeptical that consumers will react positively to the switch.

Shona Ghosh/Business Insider

You can build a different OS... but what are consumers going to do for search, for maps, for YouTube? Carolina Milanesi, Principal Analyst at Creative Strategies, told Business Insider in a recent interview. All of these things have alternatives, but why would I do that? It's not like Huawei's phones are that amazing that I would forego all the services I've been using for years.

Read more: Google has more control over Android than we realize, and right now, companies like Huawei have no other choice but to accept that

Colin Sebastian, Senior Equity Research Analyst at Baird & Co., told Business Insider that he thinks most impacted [Huawei] users will start looking to switch to devices made by other companies.

My general assumption is that since there aren't really viable alternatives to Android/Google apps (except for Apple), then most impacted users would migrate to other Android devices, Sebastian said. Obviously there could be a transition period, but my guess is it would happen pretty quickly.

Others, like Managing Director at Wedbush Securities Dan Ives, think Huawei will some lose market share in places like Europe, but that it won't be a doomsday scenario for the world's second-largest smartphone manufacturer.

In terms of revenue losses for Google, Ives estimates that it will be closer to $150 million to $200 million per year. And for a company that brought in over $130 billion in revenue in 2018, Ives said these upcoming losses are a rounding error for the tech giant and that ultimately the bark may be a lot worse than the bite.

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