Huawei’s next big step
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Huawei’s next big step

Huawei’s next big step

Chinese technology firm Huawei believes its latest device can set it on the path to smartphone domination


If you mentioned the name Huawei five or 10 years ago, few smartphone users would know what you were talking about.

The Shenzhen-based company’s rise since then has been unprecedented, doing in a relatively short amount of time what has taken other firms more than a decade to achieve.

Today the firm is jostling with Apple for second place by shipments in the global smartphone market and even overtook it in June and July with around 12 per cent market share, according to Counterpoint Research.

A key orchestrator of this rise has been Consumer Business Group CEO Richard Yu, the man responsible for making sure the brand has become known for more than just the telecoms equipment and enterprise hardware that had previously made its name. And Yu insists the company is only just getting started.

“[We can maintain it] for the long-term for sure, because to be honest we are now a leader for growing marker share. If we want to do that we can grow much quicker,” he says.

On stage at the launch of the company’s latest device line – the Mate 10 –in Munich, Yu’s aim to get one up on his rivals was clear with comparisons of battery life, photography and other features between the device and those of Apple and Samsung.

But his main point of pride was the device’s key differentiator, a new Kirin 970 artificial intelligence chipset that is claimed to make the Mate 10 smartphones more powerful and efficient than their peers.

The use of the technology following its unveiling at the IFA conference in Berlin in September is the company’s next big step as it seeks to both grow its position among the top three manufacturers and increase its share of devices in the higher margin premium device segment.

Indeed, while Huawei has made significant progress in terms of volumes sold it still has a long way to go to match the profitability of its peers in the smartphone space.

A study released by Strategy Analytics in March showed Apple accounted for 79.2 per cent ($44.9bn) of the $53.7bn in global smartphone profit last year, followed by Samsung with 14.6 per cent ($8.3bn) and Huawei with 1.6 per cent ($929m).

To pursue a greater share of this profit, Yu suggests says the firm will reduce its presence in the lower tier of the smartphone market where competition is fierce.

“Now we want to do more stable growth to build our brand as a high-end premium brand and we want to go to more premium segmentation,” he says.

“So we have given up some of the low end products because the low end has no margin, cannot survive and cannot guarantee performance. We have moved to the middle tier and higher tier, so that’s why we do not care about market share, we care more about reputation, customer satisfaction is key.”

This process will see the company focus on the quality of its share of the market rather than just the volume of shipments, which rose 20.6 per cent in the first half of the year to 73.01 million. To do so the firm will need to increase the market share of individual devices, with Counterpoint noting in its September report that no Huawei model was in the top 10 smartphones by sales for July despite the manufacturer ranking second in the overall market.

“While having a diverse portfolio allows Huawei to fight on multiple fronts, it does little to build overall brand recognition; something Huawei badly needs if it is continue to gain share,” notes senior analyst Pavel Naiya.

Yu has previously stated he expects the firm to ship 140-150 million devices this year, compared to 139 million last year, suggesting an annual growth rate of less than the 29 per cent seen in 2016. But at the same time the company has increased the average selling price of its phones by 28 per cent in the first six months of the year and will be hoping to make further progress with the release of the Mate 10 in the second half.

The new device line comes in normal, pro and Porsche Design variants priced at around $824, $942 and $1,648 respectively and will compete directly with Samsung’s Note8 and Apple’s iPhone 8, 8 Plus and X devices at the top end of the market.

Read: Smartphone review: Huawei Mate 10 Pro

And it is clear that Yu believes the on-device AI chipset has given Huawei an edge in this year’s market in comparison to new features like facial recognition introduced by competitors.

“For example the face ID, we figured that is not so good,” he says of the production process for the device. Other technologies like an under display fingerprint sensor were also deemed not mature enough this year.

The new chip technology can be used for functions as varied as recognising objects in camera mode to take the optimal shot to providing a more personalised and efficient experience in day to day use and perhaps most crucially will offer this offline unlike cloud-based AI solutions like Google and Apple’s virtual assistants. When asked, Yu suggests the Mate 10 will only be the start, with use cases for the chip also being explored for tablets and other connected devices.

At the same time as its push into the premium segment, the company is also looking to break into new markets where its presence was previously limited including parts of Southeast Asia and perhaps most crucially the US.

The North American market remains arguably the most important globally when it comes to premium device usage but has not been kind to the Chinese company in other areas like telecoms equipment and enterprise hardware, where its offerings have been met with suspicion or even an outright ban due to concerns of government espionage.

Yu describes the US as “the next step” for the company, which has been more focussed on its home market where it is the market leader as well as Europe and Japan to date. “I think maybe next year we will change that,” he says.

The company is also pushing in other markets including Southeast Asia where it plans to continue to expand its efforts and market share in key countries. The same is also true of the Middle East and Africa where it is ranked second in terms of smartphone market share with 13.8 per cent of shipments, according to first half figures from research firm GFK.

In November, the company opened its first flagship store in the region in Dubai Mall as part of efforts to improve its brand recognition and get closer to consumers and a further five or more are planned in the UAE in the coming years.

The Dubai Mall opening is part of plans to establish a presence in 56,000 retail stores worldwide in partnership with carriers and electronics companies by the end of the year, from 35,000 in 2016, and is deemed crucial for increasing the company’s brand perception.

Read: China’s Huawei opens first Middle East store in Dubai

Yu says the experience stores, which are being rolled out in China and other key markets, will be similar to Apple’s iconic retail offering but the company will also introduce some of its own innovations due to a “different design philosophy”.

Through these efforts, the Consumer Business Group is expecting significant revenue growth in the years to come after posting a 36.2 per cent increase year-on-year in the first half to CNY105.4bn ($15.9bn) – representing more than a third of the overall company’s CNY283.1bn ($42.04bn) in revenue.

“We can keep this kind of speed in the next year or maybe the next two or three years. We are still capable of strong growth. Now we are getting bigger we cannot double, in the past we were doubling every year, but we still have over 20 per cent to 30 per cent growth.”

For the year as a whole, Yu stated in July that he was expecting CBG revenue to reach around $33bn in 2017 from $26.7bn in 2016.

Alongside this growth, the company as a whole plans to continue increasing spending on R&D from around $11bn last year, to produce more innovations like the Kirin 970.

“This year we will spend more, every year we are increasing,” Yu says. I think we may acquire some companies to get technology solutions we need but we are also doing a lot by ourselves,” he says.

So how long will it take for Huawei to earn its crown as the world’s number one smartphone vendor?
Yu says “it has a chance to do that if we want to do that” by 2020, but is in “no hurry”.

“I think what’s most important is that we grow our brand and product,” he concludes.


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