SMARTPHONES: Huawei Slips in Q3, Meizu Gets New Investors

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Huawei slips in Q3

The first third-quarter smartphone sales data are out, revealing that Huawei retained its leading position in the fiercely competitive Chinese market. But the high flying Huawei also saw its share drop by more than one percentage point, indicating its momentum may be slowing. At the same time, other reports are saying that Meizu, the Alibaba-backed (NYSE: BABA) smartphone brand that isn’t in the China top 5, has signed on a small group of new investors in a deal that hints at a possible upcoming IPO.

Let’s jump right in with the big-picture numbers, which are coming in new quarterly data from TrendForce. According to that data, Huawei controlled 19.1 percent of the Chinese smartphone market in the third quarter, down from 20.4 percent in the previous quarter. (Chinese article) Total smartphone sales in China reached 168 million for the quarter.

Huawei was also the world’s third largest smartphone brand for the quarter with 9.1 percent of the global market, also down more modestly from 9.2 percent in the second quarter. The data also show that the overwhelming share of Huawei’s sales are still in China, reflecting its dependence on its home market.

There wasn’t any clear beneficiary of Huawei’s drop in China, and instead it appears that several small challengers took share away from the company. Oppo, Vivo and Lenovo (HKEx: 992), the second, third and fourth largest players, all notched gains of 0.2 to 0.5 percentage points. Meantime, the struggling Xiaomi was the biggest loser, with its share dropping to 8.7 percent from 11 percent.

More recent buzz from Huawei itself suggests that the company is seeing a sales surge this month, after an executive said last week it produced its 100 millionth smartphone in October. (previous post) But that pronouncement also looked slightly suspicious, since the Huawei executive used the word “produced” rather than “shipped” or “sold”, suggesting that many of those phones may still be sitting in warehouses.

Reports emerged earlier in the year that Huawei was running into difficulties after surging last year to take China’s smartphone crown. It was a bit unclear if those difficulties were due to competition or production bottlenecks or both, and the company appears to want us to believe it was probably the latter.

Huawei has said it’s still aiming to ship 140 million smartphones this year, which indicates it should ship well over 40 million in the current quarter alone. If that’s really the case, we should expect to see the company’s China market share surge in the fourth quarter to back above the 20 percent level. So we’ll have to wait another 3 months to see what happens.

Meizu Raises Money

Meantime, the smaller but well-respected Meizu is also in headlines after receiving a new investment of 200 million yuan ($30 million) from Telling Communication (Shenzhen: 000829). In this case Telling will only get about 0.655 percent of Meizu for its investment, and the latest reports say the deal values the company at about 30 billion yuan, or $4.4 billion.

That leads me to believe that Meizu may be selling the stake not because it needs the money, since it already has a very wealthy backer in Alibaba. Instead, Meizu may simply be raising the money to get a valuation on itself, which could be a first step before a much larger fund raising.

Such a fund raising might normally come from private investors, though I doubt Meizu would be attractive to many of those due to the overheated state of China’s smartphone market. Instead, this kind of fund-raising could hint at plans for an IPO, perhaps in Hong Kong or New York. Such an offering normally wouldn’t get too much buzz due to the tough market for smartphone makers, though the Alibaba connection could help to generate a little more excitement.

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