Huawei – the world’s third largest smartphone maker behind Samsung and Apple – remains virtually ignored by Verizon, AT&T, T-Mobile and the rest of the top wireless carriers in the United States.
U.S. wireless operators’ complete disregard for Huawei was on display once again this week as Huawei held a major press event in San Francisco to unveil its new Honor 8 Android smartphone – a device that will not be sold by any major U.S. wireless carrier. Instead, Huawei will continue to employ the strategy it has used for its other U.S. flagship smartphone offerings by selling the Honor 8 unlocked on the internet.
“Early on, Huawei realized that the market was shifting away from carriers and locked contracts. Today the availability of no-contract plans, and well-priced, quality devices play a critical role in consumers’ purchase decisions,” Huawei spokesperson Raphel Finelli told me. “Huawei and Honor focus on different consumer segments and have a different operating model. Globally, Honor is an online-first brand. Huawei on the other hand, has a broader scope, focusing on carrier as well as open market channels.”
But let’s be clear: Any smartphone vendor would be pleased to get U.S. carriers to sell its smartphones. According to BayStreet Research, wireless carriers control roughly 85 percent of smartphone sales in the United States, and Apple accounts for a good portion of the remaining unlocked, non-carrier smartphone market. “We doubt the unlocked market is poised for much growth outside of Apple,” BayStreet’s Cliff Maldonado told me. “The carriers offer too much value in their ‘showroom’ stores.”
Huawei’s Finelli essentially acknowledged as much: “Huawei is proud of the strong relationships we have with carriers in the US and around the world. They continue to be core to our businesses,” he said. “We are in regular contact with carriers and look forward to working with them to bring Huawei products to US consumers.”
BayStreet said that Sprint today is the only major U.S. carrier that sells any Huawei phones; the firm said Sprint’s Boost Mobile and Virgin brands offer the mid-range Huawei Union Android smartphone. “It sells in relatively low volumes,” BayStreet’s Maldonado told me of the Union, estimating Boost and Virgin combined sell around 30,000 Unions per month for between $25-$50.
(Oh, and AT&T sells eight different Huawei phones – in Mexico.)
So why have U.S. carriers virtually ignored Huawei’s smartphones? After all, the Honor 8 sports solid specs – a 12-megapixel camera, 4 GB of RAM, a 5.2-inch HD screen and a dual-camera system – and it sells for just $400. Further, the gadget earned positive reviews including Wired’s “The Huawei Honor 8 Is Proof You’re Paying too Much For Phones” and Ars Technica’s “Hands-on with Huawei’s Honor 8—$400 for flagship-class specs.”
“There are a lot of reasons why some smartphones do not make it onto Verizon’s device portfolio, including — and not specific to the Honor 8 — projected lifespan, quantity of similar phones already on market, level of customer interest and a device’s ability to pass Verizon’s rigorous testing process,” a Verizon spokesman told me. Other carriers offered similar explanations or did not respond to questions.
Current Analysis analyst Avi Greengart speculated that U.S. carriers aren’t necessarily interested in expanding their smartphone options. “Huawei's higher end phones (the P series and Mate series) are sold through carrier channels outside the U.S., but have not made it to carrier shelves here for a simple reason: Huawei lacks brand recognition, and carriers are cutting back on premium phones not made by Apple or Samsung – this is impacting HTC and Sony as well as Huawei, ZTE, and everyone else,” he told me.
BayStreet’s Maldonado said Huawei’s flimsy position in the U.S. smartphone market may also stem from ongoing security concerns about the company by the U.S. government. In 2011, the House Permanent Select Committee on Intelligence recommended U.S. companies avoid using equipment from Chinese vendors Huawei and ZTE due to national security concerns – the two companies have vehemently denied all of the allegations against them. But those security concerns have largely prevented Huawei and ZTE from selling wireless network equipment to any major U.S. wireless network operator.
To be clear, those security and brand-recognition concerns aren’t stalling Huawei’s momentum in the global smartphone market (or, for that matter, the global wireless network equipment market). According to IDC, Huawei’s share of the global smartphone market grew 8.4 percent year over year to a 9.4 percent share in the second quarter on shipments of 32.1 million phones. IDC said Huawei’s performance was due to “strong domestic sales and even stronger European sales. … Huawei's premium lineup of phones, like the new P9 and Mate 8 handsets, also pushed 25% of the quarter's volume to the high-end (priced $500-$600).”
Added IDC: “With Huawei number one in China at the moment, Huawei's remaining challenge will once again be penetrating the U.S. market at the high-end to compete with both Samsung and Apple.”
So will Huawei’s new Honor 8 move the needle on the company’s U.S. smartphone ambitions? Analysts aren’t very positive. “Huawei still primarily rely on open channel to sell smartphones in US, where carriers still dominate the market with 60% share at this moment,” Strategy Analytics’ Linda Sui wrote on the company’s site. “Unlocked segment is rising quickly in US market over the past two years thanks to subsidy shift and removal, but we don't expect it will outweigh carrier channel anytime soon. Huawei posted tiny market share (lower than 1%) in US smartphone market during Q2 2016, lagging far behind Samsung and Apple, also trailing after ZTE, TCL-Alcatel and Lenovo-Motorola etc. Channel bottleneck without operators endorsement is one of key issues behind the lackluster performance. We don't expect Honor 8 would turn around quickly as channel bottleneck still remains.”
Others agreed. “None [of Huawei’s smartphone sales efforts in the United States] has exactly led to high volumes, and that results in a downward spiral of low brand recognition, low device demand, and relying on word of mouth which can only get so far,” IDC’s Ramon Llamas told me. “Add to that is the Android conundrum: how do you stand out among a sea of Android smartphones? Not an easy task if your name isn’t Samsung, LG, or Motorola. The Honor 8 looks like a strong contender, but without broad distribution, a strong marketing campaign, and a list of features (not just one, like a dual camera on the back) that show pointed differentiation, Huawei could still end up like a market follower instead of a market leader.”
There are clear signs the global smartphone market is cooling off after a handful of years of frenzied growth. And in the U.S. market, there are also indications that carriers’ grip on the distribution of smartphones could loosen. That said, it will take a major effort for a largely unknown brand to make a dent in Apple and Samsung’s U.S. smartphone business. – Mike | @mikeddano