CELLPHONES: Google Eyes Nexus Tie-Up with Huawei

Bottom line: Google is likely to soon announce that Huawei will make its next generation of Nexus smartphones, in an alliance that looks savvy for both companies for political and practical reasons.

Google, Huawei preparing Nexus partnership?

Global search giant Google (Nasdaq: GOOG) is continuing its low-key drive back to China, with word the next model from its Nexus line of smartphones will be produced by fast-rising domestic brand Huawei. The move is unconfirmed and sourcing in the reports comes from an unnamed Huawei employee.

But such a move would certainly be consistent with Google’s other recent actions, which have seen it moving quietly behind the scenes for a more active role in China’s smartphone market, the world’s largest. Despite its lack of formal presence, Google already enjoys a huge passive role in the market due to the huge popularity of its Android operating system, which is used by nearly all of China’s homegrown smartphone makers.

Google has a stormy history in China dating back about a decade. It was once the country’s leading search engine, but later got overtaken by homegrown rival Baidu (Nasdaq: BIDU). As its prospects were fading, it made the high-profile decision to pull out of the market in 2010 after a spat with Beijing over the country’s strict self-censorship policies.

Since then periodic reports have appeared saying Google was offering some of its smaller services in China, and to date its Google.cn site remains active as a placeholder link to the company’s main Chinese language site in Hong Kong. But like many other major foreign tech companies, Google is quickly learning that China is too big a market to ignore.

Earlier this month media reported that Google was offering Chinese smartphone makers subsidies to pre-install a Chinese version of its Google Play app store on their models. (previous post) That hinted that the company believed it was close to getting approval from Beijing to open such a store in China, and followed earlier reports that Google was eying such a move.

All that brings us to the latest reports, that simply say that Google has selected Huawei as one of two partners to manufacture its upcoming newest generation Nexus smartphone models. (Chinese article) The reports add that Korea’s LG (Seoul: 066570) will also produce the new Nexus smartphones, which could hit the market late this year.

Google has gone through a long string of manufacturing partners for Nexus, a brand that has a spotty record and has remained largely a niche player in the global smartphone market. Its earliest manufacturing partner was Taiwan’s HTC (Taipei: 2498), and other partners since then have included Korea’s Samsung (Seoul: 005930), LG and most recently Taiwan’s Asus (Taipei: 2357).

So the addition of Huawei to that list of manufacturers wouldn’t come as a big surprise, even though it would be Google’s first time working with a Chinese partner. Huawei’s star has rapidly risen over the last year in the hotly contested smartphone space, as it draws on its years of expertise making telecoms equipment to develop handsets that are considered higher quality and generally more distinctive than the many Android clones now flooding the market.

This kind of a tie-up would certainly make sense for Huawei and Google, both from a practical and strategic perspective. Google is eager to improve its relations with Beijing, and a partnership with one of China’s leading high-tech companies would certainly represent a big goodwill gesture in that direction. Huawei is also eager to win goodwill with Washington, which has banned the sale of all Chinese networking equipment in the US over national security concerns.

Huawei would not only provide Google with quality products, but also valuable sales channels if and when Google decides to launch its Nexus phones in China — a logical next step if it gets permission for a Chinese Google Play store. All that said, this latest China-related Google rumor certainly seems logical, meaning we could quite possibly see a formal announcement of a Google-Huawei alliance in the next month or two.

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