The Zhitong Finance App learned that Huajin Securities released a research report saying that Huawei announced that it will reveal a new chapter in the advancement of HarmonyOS NEXT on January 18. The bank believes that, on the one hand, a good market base and positive response from partners, native Hongmeng is expected to achieve a breakthrough this year. On the other hand, as open source Hongmeng begins to adapt to the PC side, the future Hongmeng system is expected to enter the PC operating system market with huge space, focusing on targets related to the Hongmeng industry chain: 1) Hongmeng core partners; 2) Hongmeng applications; 3) Hongmeng smart terminals.

The views of Huajin Securities are as follows:

The native Hongmeng HarmonyOS NEXT is about to be fully opened, and Huawei is committed to building an independent ecosystem of the Hongmeng system.

On August 4, 2023, Huawei released the HarmonyOS NEXT developer preview at the developer conference. It will be open to developers from partner companies, and will be open to all developers in the first quarter of 2024. On January 3 of this year, Huawei announced that it will unveil a new advanced chapter of HarmonyOS NEXT on January 18. As the native Hongmeng, HarmonyOS NEXT is a full-stack self-developed system base. The traditional AOSP code has been removed. It only supports the Hongmeng kernel and Hongmeng system applications, and will no longer be compatible with Android apps. After reducing redundant code by 40%, HarmonyOS NEXT's system fluency, energy efficiency, and pure security features have improved significantly. We believe that the native HarmonyOS NEXT system has gotten rid of its dependency on Android, and by attracting developers to develop applications specifically running on the Hongmeng system, Huawei will gradually establish an independent ecosystem of the Hongmeng system.

With a good market base and positive response from partners, Native Hongmeng is expected to achieve a breakthrough in a critical year.

On the one hand, the Hongmeng system has built up a good ecological foundation. At the Open Source Industry Ecology Conference on December 19, 2023, Huawei announced that the total number of Hongmeng ecological devices has exceeded 700 million, including more than 300 million devices owned by Huawei. It is expected that from the end of 2023 to next year, the total amount of Hongmeng ecological equipment will gradually reach 800 million to 1 billion units. On the key mobile phone side, phones currently equipped with the Hongmeng system are mainly some models of Huawei and Honor. The rapid recovery in Huawei Hongmeng phone shipments will lay the foundation for the development of native Hongmeng phones. Take the Huawei Mate 60 series, the first model equipped with Hongmeng 4.0. According to Canalys data, as of the end of September 2023, shipments of the entire Mate 60 series reached 2.4 million units, which also led to an increase in the share of the Hongmeng system in the Chinese smartphone operating system market. According to Counterpoint data, the 2023 Q3 Hongmeng system increased its share of the smartphone operating system market in China to 13%, ranking third, while the market share of the second-ranked iOS system fell to 14%, according to TechInsights predicts that the Hongmeng system is expected to surpass iOS to become the second largest mobile operating system in China in 2024; on the other hand, as of December 2023, more than 400 partners have launched the development of Hongmeng's native applications, covering 18 fields such as games, social communications, travel navigation, business office, travel and accommodation. Specific partners include Alipay, NetEase Gaming, Meituan, DingTalk, Bilibili, JD and other Internet giants as well as China Mobile, UnionPay, Bank of Communications, China Construction Bank, McDonald's, Tongcheng Travel, Leading companies in the fields of finance, lifestyle services, hotels, telecom operators, etc., such as Air China.

As of December 2023, nearly half of the top 20 mobile internet apps have started the development of native Hongmeng apps.

OpenHarmony starts adapting to PC and lays out the PC market. On October 25, 2023, Orange Pi officially announced that Orange Pi OS (OH) has completed the initial adaptation of Orange Pi OS (OH) to a PC on the RK3566 development board. This is the first time in China that an open source Hongmeng operating system has been run on a PC device. Specifically, Orange Pi OS (OH) has completed HDMI adaptation, 5-inch LCD screen adaptation, touch function adaptation, customized system application, boot animation, file manager, etc., supporting more than a dozen HAP applications. As can be seen from related demonstrations, this adaptation already supports the normal switching of the device, as well as original applications such as taskbars, settings, input methods, browsers, and application stores, which can meet basic office and entertainment needs.

Orange Pi OS (OH) is expected to launch this year. According to data from the Yiou think tank, China's PC market shipped 72.5 million units in 2022, and is expected to reach 85.28 million units in 2025. Hongmeng's entry into the PC market will bring huge room for imagination.

With the three technical advantages of microkernel, distributed, and meta-service, Hongmeng System is expected to continue to expand its market share in the future. 1) Unlike Android's Linux-based macrokernel design, the Hongmeng system uses a micro-kernel architecture, which retains only the most basic and core services at the kernel level, reduces the impact of errors in a single module in the kernel on the overall system, is superior to the Android system in terms of stability, and is easier to expand modularly; 2) The Hongmeng system uses distributed technology, has cross-platform and cross-device capabilities, and can be connected not only to personal terminals such as mobile phones, but also to various smart terminal devices such as smart homes and autonomous driving; 3) The Hongmeng system supports efficient collaborative operation between multiple devices; Service development. Developers can independently develop applications into multiple meta-services and combine them into complex applications according to scenarios, greatly improving application development and deployment efficiency.

Furthermore, compared to Android, the Hongmeng system is more secure, and Android permission management is relatively scattered, causing some apps to collect user information excessively. The Hongmeng system greatly enhances user data security by prohibiting direct access to sensitive resources and independently locking all functions. Furthermore, the Hongmeng system does not have root rights in the traditional sense, further reducing the risk of malware.

Investment advice: On the one hand, with a good market base and positive response from partners, native Hongmeng is expected to achieve a breakthrough this year. On the other hand, as open source Hongmeng begins to adapt to the PC side, the Hongmeng system is expected to enter the PC operating system market with huge space in the future. Focus on targets related to Hongmeng's industrial chain:

1) Hongmeng core partners: Softcom Power (301236.SZ), Runhe Software (300339.SZ), Topway Information (002261.SZ), etc.;

2) Hongmeng applications: Zentong Electronics (002197.SZ), Chengmai Technology (300598.SZ), Hanyi Co., Ltd. (301270.SZ), etc.;

3) Hongmeng smart terminals: Xinhai Technology (688595.SH), Zhiwei Intelligence (001339.SZ), Sichuan Changhong (600839.SH), Chuangshi Technology (300941.SZ).

Risk warning: Hongmeng ecological construction falls short of expectations; technological iteration falls short of expectations; industry competition intensifies.