Huawei Sets Modest Smartphone Goals In US
A week after declaring it was abandoning the US networking equipment market for now, Huawei is adding that it remains committed to the less controversial American smartphone market. At the same time, one of China’s biggest high-tech exporters is admitting it faces a long and difficult road in the highly competitive US smartphone market where global leaders Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930) dominate. This admission and newer low-profile approach look like a smart moves to me, since the chances of Huawei capturing more than 10 percent of the US smartphone market in the next 5 years are practically zero.
From an image perspective, this kind of strategy sends a clear message to the world. Huawei is saying it wants to pursue markets where its products can compete on a level playing field. That message is consistent with what the company said last week, when low-key founder Ren Zhengfei said Huawei won’t sell its networking gear in the US but remains committed to markets where its products are welcome. (previous post)
Significantly, the latest comments on its smartphone ambitions come from an interview with a foreigner closely associated with Nokia (Helsinki: NOK1V), once the world’s leading cellphone maker that has fallen on hard times and is now being purchased by Microsoft (Nasdaq: MSFT). The interviewee, Colin Giles, was one of the major drivers that helped Nokia to dominate the China cellphone market for years before he left the company over the summer for a high-profile position at Huawei. Giles is just the latest in a growing stable of recently hired foreign executives to speak for Huawei, as it tries to look more global and shed its image as a Chinese company.
In his usual low-key style, Giles says Huawei is already in the US through tie-ups with local carriers like T-Mobile and Leap. (Chinese article) He adds that the company would like to develop its own brand in the market, and has experimented with some sponsorships and advertisements in movie theaters. But he also acknowledges that strategy could take years to produce results due to stiff competition in the market. Huawei recently embarked on a similar but more aggressive advertising campaign for its smartphones in Italy (previous post), as it tries to build up that business to diversify beyond its more controversial core networking equipment products.
This more muted approach with low expectations looks like a smart one to me, as it will lower expectations for the company. Huawei posted strong growth for much of the last decade as it expanded to become the world’s second largest networking equipment seller. But that growth has slowed sharply in the last 2 years, partly due to Huawei’s large size but also because major markets like the US and Australia have limited the company’s sales over security concerns.
This new signal from Giles is the latest in Huawei’s new lower profile approach, which contrasts with some of its louder, angrier statements after its setbacks in the US and Europe. This new approach looks partly designed to lower expectations, but is also the company’s way of saying the national security controversy is an issue for Washington and Beijing to resolve and Huawei doesn’t want to take part in the debate.
I’ve previously said that I agree with this view, as the issue at the core of the security debate is one of trust between Washington and Beijing. Put simply, Washington doesn’t trust Beijing not to meddle in the affairs of private companies like Huawei. The company understands that nothing will change until Beijing can convince western leaders that it won’t interfere with the affairs of private companies. Until that happens, which could be a long time, Huawei may have to maintain a low profile and set more modest targets for both its telecoms equipment and newer smartphone businesses.
Bottom line: Huawei’s low-profile approach to the US smartphone market is part of a new broader global strategy of lowered expectations as it waits for trust to build between Beijing and the west.
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