TF Securities: Huawei's Pure HarmonyOS is about to be released, and ecosystem partners will embrace multiple growth opportunities

According to the Zhitong Finance and Economics APP, TF Securities released a research report stating that in 2024, Huawei's "Project One" will see the emergence of the pure-blooded Hongmeng OS; Hongmeng Pangu will make its first appearance, driving the integration of AI+OS; as the second largest operating system in China, the ecosystem partners of Hongmeng will embrace multiple growth opportunities. Recommendations include: 1) Software development/services: Pactera Edge (301236.SZ), Ninelead Technology (688609.SH), Chinasoft International (00354), Zhongke Chuangda (300496.SZ), and Runhe Software (300339.SZ); 2) Hardware: Digital China (000034.SZ), Fiberhome Telecommunication (600498.SH), Chipsea Technologies (688595.SH), and Topview Information (002261.SZ). Huawei's "Project One" in 2024, the pure-blooded Hongmeng is about to emerge According to Shuzhi Frontline, Huawei is expected to launch the HarmonyOSNEXT Beta version system at the Developer Conference (HDC2024, June 21st to 23rd), with the official version set to be released in 2024Q4 along with the Mate70 series, no longer compatible with Android. Against this backdrop, the development of the native application ecosystem of Hongmeng has become Huawei's "Project One" for 2024. Huawei has invested heavily in accelerating the development of native apps for Hongmeng through activities such as on-site support from major factories, resource exchange, and training (source: Shuzhi Frontline). As of May 2024, over 4,000 native Hongmeng apps have been launched, with an expected increase to 5,000+ by the end of the year and ultimately reaching over 500,000 Hongmeng native applications. Hongmeng Pangu to make its first appearance, driving the integration of AI+OS Since 2024Q2, Microsoft has accelerated the integration of Copilot into Win11, and Apple has released the personal intelligent system AppleIntelligence. Mainstream operating system manufacturers are accelerating the layout of AI and launching models for the implementation of AI+OS integration. At this HDC conference, the Pangguo 5.0 large model and the HarmonyOSNEXT Hongmeng Galaxy Edition will make their first joint appearance, building a native intelligent foundation by sinking Huawei's AI capabilities to the operating system level. TF Securities believes that AI+OS integration may drive the development of the Hongmeng ecosystem in two aspects: (1) AI can enhance app retention and activity, potentially forming a closed loop of "AI empowerment - native app development - Hongmeng ecosystem prosperity," such as cross-application operations and user customization; (2) realizing the interaction between large models, mobile phones, PCs, and edge devices, which may drive consumer demand for device upgrades and sales of related IoT devices. Hongmeng: China's second largest operating system, ecosystem partners will embrace multiple growth opportunities According to the latest data from Counterpoint, in 2024Q1, Hongmeng's global market share was 4% (up 2pct year-on-year), with a market share in China of 17% (up 9pct year-on-year and up 1pct month-on-month), surpassing iOS to become the second largest operating system in China Harmony OS: With the construction of the native ecosystem, the demand for Harmony OS app developers has surged. Ultimately, aiming to achieve 500,000+ Harmony native applications, combined with IoT applications, is expected to drive demand for Harmony app development and application migration. Open Source Harmony OS: The commercial distribution version of the open-source Harmony OS ecosystem partners is mainly targeted at the industry field, realizing commercial distribution version monetization through licensing, integrated software and hardware products, etc