SMARTPHONES: Huawei Passes 100 Mln Mark, Eyes Apple

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Huawei sells 100 mln smartphones

It’s official: the fast-rising Huawei has formally passed the 100 million mark for smartphone sales this year, cementing its place as the world’s undisputed third largest player behind only Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930). In a relatively unusual move for this low-profile company, Huawei is also trumpeting the milestone in a formal press release and forecasting more strong growth for next year.

Huawei has been China’s biggest success story to date in the young smartphone space, gaining rapid momentum over a crowded field of domestic rivals that includes Lenovo (HKEx: 992), ZTE (HKEx: 763; Shenzhen: 000063) and smaller names like Alibaba-backed Meizu. But the company should also carefully watch the case of the stumbling Xiaomi, which was being called a homegrown Chinese version of Apple before it began its recent rapid fall from grace.

I wouldn’t be bold enough to predict that Huawei will follow the same path as Xiaomi, but would also caution the company not to fall into the same trap of starting to believe its own hype too much. Such hubris was at least partly behind Xiaomi’s rapid slowdown, after the company created expectations that were far too aggressive for such a young brand.

It’s interesting to note that major media are focusing on different elements of the Huawei announcement, which itself hints at a nascent loss of focus by the company itself.  The major focus of most reports is the passing of the 100 million unit sales mark, which Huawei says equates to the shipment of 3 smartphones every second. (company announcement)

Huawei had previously said it expected to beat the 100 million mark, which was its previous target for the entire year. The fact that it’s just putting out the announcement now means it probably isn’t beating the target by very much, and that this year’s total represents about a 33 percent increase from last year’s 75 million units shipped. Huawei itself noted that this year’s 100 million units represents a 30-fold increase from 2010.

Moving Upscale

After the milestone figure, the reports diverge a bit. Some focus on Huawei’s stated aim to carve out a place as a mid- to high-end brand, abandoning the low-end that has become overheated with most of the Chinese players fighting for market share. Other reports focus on Huawei’s need to boost its overseas sales, which currently account for just 30 percent of its total for smartphones.

The company is aiming to raise its proportion of foreign smartphone sales to 40 percent of its total next year, and 60 percent over the longer term, according to various reports. (English article; Chinese article) All of those numbers hint that Huawei will be making a big push into the global market next year, since China’s smartphone market is showing rapid signs of saturation and is unlikely to grow much. Any gains that Huawei does make in China are likely to be small, and come at the expense of the stumbling Samsung.

But the same factors that have caused first Samsung and now Xiaomi to stumble could easily come to haunt Huawei if the company isn’t careful. The brief history of smartphones is actually filled with quite a few similar cases of companies that boomed but failed to hold on to their leads, including the likes of Motorola, HTC and Nokia, just to name a few. Longer term winners like Apple are really the exception, and probably owe their success to strong performance in both marketing and product development.

Product development is one of Huawei’s biggest strengths, and the company certainly has the necessary resources to keep developing a steady stream of unique, high quality new models. Huawei has also become adept more recently at marketing, which is one of the major factors behind its sudden rise over the past year.

The overall signs certainly look promising for Huawei next year, and I could even imagine it potentially passing Samsung by the fourth quarter of 2016 to become the world’s second biggest brand. But holding on to that title will be tough, as the company has yet to develop the same kind of customer loyalty cultivated by Apple over its much longer history.

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