China Post Securities: Pure Blood Harmony will begin commercial use, and Xinchuang enters an acceleration phase

According to the Zhitong Finance APP, China Post Securities released a research report stating that Huawei officially launched HarmonyOS NEXT, which is China's first domestically produced mobile operating system, becoming the world's third-largest mobile operating system after Apple's iOS and Android, showcasing strong competitiveness. The release of the Huawei Mate70 series marks the commercial launch of the pure-blood HarmonyOS, with PCs equipped with Harmony desktop OS expected to arrive soon. The Xinchuang initiative is entering a new acceleration phase, Huawei's database is entering national testing, and Shenzhen has introduced special support policies to accelerate the construction of the Harmony ecosystem.

Key points from China Post Securities:

China's first domestically produced OS - Pure-blood HarmonyOS released

On October 22, Huawei officially released HarmonyOS NEXT, which is China's first domestically produced mobile operating system, becoming the world's third-largest mobile operating system after Apple's iOS and Android, showcasing strong competitiveness. It has been fully self-developed in aspects such as kernel, database, programming language, and AI large models, breaking through core technologies of operating systems and achieving independent control of domestic operating systems. According to Huawei's official introduction, pure-blood HarmonyOS has significantly improved performance, saving 1.5G of running memory, enhancing overall performance by 30%, and extending battery life by nearly an hour. In terms of security, the native HarmonyOS is equipped with a new self-developed Star Shield security architecture, prohibiting the opening of nine types of unreasonable permissions, thereby reducing the risk of privacy leakage from the source. It supports multi-end deployment, achieving ecological connectivity.

According to the latest data released by research firm Counterpoint Research, Huawei's HarmonyOS market share in China rose from 8% in Q1 2023 to 17% in Q1 2024, while iOS's share dropped from 20% to 16%. This means that Huawei's HarmonyOS has surpassed Apple's iOS in the Chinese market for the first time, becoming the second-largest operating system in China.

Mate70 to be released, pure-blood HarmonyOS opens for commercial use

The Huawei Mate70 series is an important step for Huawei in independent innovation, achieving self-research and development from chips to operating systems. The Mate70 series will be the first to feature the "pure-blood HarmonyOS" (HarmonyOS NEXT), officially launching on November 26. Due to the incomplete native Harmony ecosystem, the Mate70 series will likely adopt a dual-framework system, supporting both the native HarmonyOS and the previous HarmonyOS compatible with Android, allowing users to switch after backing up their data. The timeline for ending the dual-system mode will depend on the development speed of the Harmony ecosystem.

Currently, over 2.04 million users have made reservations for the Mate70 series on Huawei's official website, and the number of reservations in offline physical stores is expected to increase further. PCs equipped with Harmony desktop OS are expected to arrive soon. Richard Yu stated in a live broadcast on CCTV on September 20 that the current Huawei PCs may be the last batch of laptops equipped with Windows, and Huawei will soon release PC products equipped with HarmonyOS.

Xinchuang enters a new acceleration phase, Huawei's database enters national testing In May 2024, the Central Cyberspace Administration and several other departments jointly issued the "Action Plan for the Construction of Information Technology Standards (2024-2027)", emphasizing the key timeline of 2027: by 2027, the coordination mechanism for information technology standards will be more robust, the layout of the information technology standards system will be more complete, and the foundational capabilities for standard formulation and services will be further strengthened. From the perspective of the "2+8" development stage of Xinchuang, 2024 marks a critical period for the replacement of Xinchuang, and relevant policies are expected to be introduced successively to ensure the timeline for completion of the replacement.

On November 2, the Ministry of Industry and Information Technology mentioned that it will comprehensively and accurately carry out key core technology breakthroughs and accelerate the realization of high-level technological self-reliance and strength. Huawei is an important force in domestic production, with the HarmonyOS system being fully self-developed and a localization rate of 100%, expected to deeply participate in this round of Xinchuang, ushering in the HarmonyOS era. On September 30, the China Information Security Evaluation Center announced the second security and reliability evaluation results for 2024, where GaussDB V2.0 (centralized version) from Huawei Cloud Computing Technology Co., Ltd. received recognition with a Level II security rating.

Accelerating HarmonyOS Ecosystem Construction, Launching Special Support Policies

Shenzhen is taking the lead in building the "Harmony City." In March 2024, Shenzhen released the "2024 Action Plan to Support the Development of Open Source HarmonyOS Native Applications"; on November 1, the Nanshan District government’s official website published the "Special Support Measures for Promoting the Development of the Harmony Industry in Nanshan District (Draft for Comments)" and policy drafting explanations. Specifically, the "Draft for Comments" clarifies that HarmonyOS native applications will be included in the funding scope for the first version of software in Nanshan District. For key service industry enterprises that meet the criteria, if their cumulative sales revenue reaches no less than 500,000 yuan within one year from obtaining the software copyright for the "first version" software product, they plan to provide funding of up to 30% of the amount of any three sales contracts for the product, with a maximum of 1.5 million yuan per enterprise per year.

At the same time, for internet or software enterprises participating in major open-source projects such as HarmonyOS and Euler, and obtaining support from higher-level relevant departments for related cooperation, they plan to provide funding of up to 200,000 yuan, not exceeding 30% of the support amount from higher-level relevant departments. To encourage enterprises to develop HarmonyOS native applications, the "Draft for Comments" also mentions that enterprises that pass HarmonyOS native application certification and achieve a certain number of downloads in the application store will be eligible for rewards of up to 2 million yuan based on certain conditions.

Investment Recommendations

1. System Development Service Providers:

Runtong Power (301236.SZ), Runhe Software (300339.SZ), Changshan Beiming (000158.SZ), Jiulian Technology (688609.SH), Tuo Wei Information (002261.SZ), China Software International (00354), Chengmai Technology (300598.SZ)

2. HarmonyOS Ecosystem Construction Service Providers:

(1) Hospitals: Yahua Electronics (301337.SZ), Dineike (300884.SZ)

(2) Mining: Yundian Technology (000409.SZ)

(3) Intelligent Driving: Zhongke Chuangda (300496.SZ), Fabien Information (300925.SZ), Siwei Map (002405.SZ) (4) Finance: Boyan Technology (002649.SZ), Kela Software (300663.SZ), Changliang Technology (300348.SZ)

(5) Power: Zhiyang Innovation (688191.SH)

(6) Security: Digital Video (300079.SZ), Yaxin Security (688225.SH), Qi An Xin-U (688561.SH), Dongfang Zhongke (002819.SZ), Guohua Network Security (000004.SZ)

(7) Urban Governance: SuperMap Software (300036.SZ), Digital Zhengtong (300075.SZ)

(8) Office: Foxit Software (688095.SH), Caixun Co., Ltd. (300634.SZ), Wanxing Technology (300624.SZ)

(9) Payment: Newland (000997.SZ), New Guodu (300130.SZ)

Risk Warning: Subsequent policies may be lower than expected; technological iterations may not meet expectations; downstream demand may be lower than expected, etc