It is more than a year since the United States first announced serious sanctions against Huawei. How much has this hit the world’s number two Android phone maker - Huawei - and where in the world has the impact been the most severe?
Following the U.S. actions in May 2019 Huawei sales growth slowed. But then the company seemed to regain some momentum, which has only been ebbing in the last two quarters.
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At the global level, Huawei’s smartphone unit shipments in the first quarter of this year were just shy of 49 million, the lowest figure for eight quarters, and down from a peak of 66 million two quarters before, according to IDC data. Unit share is currently around a fifth of the worldwide Android market.
Underneath, it is clear that the company is losing its competitiveness in many markets – sales are often slipping to older and cheaper models as access to Google Mobile Services apps is no longer available on new models.
A closer look shows how the home market of China is taking up the slack. Whereas Huawei was exporting more than half of its phones in the second half of 2018, in this last quarter the percentage was down to 42%. In value terms the transition is more stark, with a boost from more expensive 5G models pushing up Huawei average sales prices in China.
To what extent does the export retreat reflect Huawei’s political challenges?
Huawei actually has an unusual footprint for a Chinese company in the phone business. As a global player it was a latecomer, starting off in making phones mainly supplying telecom operators; Huawei executives recount how the company only got into the phone business because its operator clients wanted it to.
Because Huawei was already an infrastructure company on a global level, it had links to mobile operators all around the world. Huawei decided to leverage this and sell mainly where the operators had the biggest control of phone retail, which is predominantly in richer countries.
The other big expanding Chinese brands – including vivo, OPPO, and then Xiaomi - preferred to go for big emerging markets in Asia as a first priority, key among them India, where operator retail was less important.
Huawei has a very low share in India, and neither is it strong in another very big Asian market, Indonesia, and it scores badly in Vietnam and Taiwan. On the other hand, it is doing well in the Philippines, Malaysia, Thailand and Sri Lanka.
This patchy performance in Southeast Asia is mirrored at a global level. Huawei became a player with worldwide reach, yet it is hardly represented in the world’s number two and three markets, India and the U.S.
The security service objections to Huawei as a 5G infrastructure provider have been instigated by the "Five Eyes" nations (the grouping of Anglo-Saxon nations of the U.S., Canada, Australia, New Zealand and the UK with a common security treaty). It was Australia that raised a flag first, and then the U.S., which launched the ongoing onslaught against the company.
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Huawei has little share to lose in three of the five eyes, the U.S., Canada and Australia, but it has substantial phone sales in Britain. It is vulnerable in Europe in general, and Europe is a key market, as it accounts for a quarter of the global premium Android smartphone market above $600 retail before tax. And Europe is where Huawei made some of its biggest gains in the two years before the U.S. sanctions, with unit share peaking at nearly 30% of the Android market last year.
Europe as always presents a complex picture in its politics. Some countries within the European Union are enthusiastic about Huawei and quite happy about letting it have a role in 5G infrastructure. Others, such as increasingly Britain, are not.
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Huawei has continued to do comparatively well in Central and especially Eastern Europe, but it has ebbed in Western Europe, where there is more political opposition to its 5G infrastructure role.
Russia and Latin America
There are one or two positive spots for Huawei. In one key Eastern European market, Russia, Huawei does very well through its second smartphone brand, Honor, and this says something about the options open to Huawei as it looks to stabilize its phone-making operations and find new direction in the face of the continuing and increasing U.S. sanctions.
Another relative strength is Latin America, where Huawei had been relatively slow to move, but in the last year or so has cemented its position.
The shift in export strengths reflects a commercial reality as much as a political one: from richer markets to mid-range ones. The change will demand competitive portfolios in the middle of the market. It may challenge the commercial emphasis on flagship models, in favor of a more mass market approach perhaps along the lines of the very successful Samsung A series. Huawei will have to meet the challenge of a gap between its premium 5G portfolio sold in China and the mid-market demands of principal export markets.
The U.S. is now in the process of upping the ante on Huawei. The first sanctions last year forced the company to think about self reliance in technology, and to redouble its focus on home ground in China.
The latest salvo in the American assault, targeting use of U.S.-made software and manufacturing equipment for chips, seems mainly aimed at the infrastructure business. The moves may crimp the development of the design capabilities of the Huawei chip-design house HiSilicon, responsible for the company’s Kirin processors. But for its smartphones, Huawei may still be able to buy generic chips, which weren’t made to its own designs.
This may compromise the company’s ability to stay at the forefront of smartphone design. But Huawei is a remarkable firm, with a very dynamic corporate culture, which makes a mockery of the disdain that the Anglo-Saxon world often holds for state-controlled companies. It is very determined, and very unlikely to accept a smaller role in the global smartphone business without a fight.
Simon Baker is program director for mobile phones and consumer devices at IDC EMEA and a coordinator of IDC global forecasting for the 5G smartphone market. He is a long-time analyst in the mobile phone arena. Please contact him at [email protected]
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.