Huawei now has an unexpected China problem—the combination of over-exposure to its home market and opportunistic domestic competitors looks to be a running theme through 2020. When the tech giant issued its 2019 results last week, it was clear that a surge in smartphone sales in China has become the standout growth driver. The issue, of course, is that even Chinese consumers can only buy so many phones, and the hungry local competitors are not standing still.
Huawei and domestic competition
Huawei’s standout domestic competitor is Xiaomi, a smaller company but one that seems intent on riding Huawei’s international coattails, following the same strategy to drive smartphone sales both home and abroad. The key difference, of course, is that Xiaomi does not have the impediment of U.S. sanctions—for which you can read Google. And it has seems Xiaomi’s marketing machine has been tasked with pushing this message hard—“we still have easy access, while Huawei does not.”
Huawei’s loss of Google from its new phones has been the theme of its blacklisting by the U.S. over security concerns. Huawei described its 2019 performance as “solid,” reporting sales up 19% to $123 billion and net profits up a smidge to $9 billion. Driving that performance, though, was 36% sales growth in China to almost 60% of revenues, and consumer business growth of 34%. Other regions and units paled in comparison. China likes its Huawei smartphones—and it shows.
Cue Xiaomi. The upstart took Huawei’s coveted third place for global smartphone shipments in February, for the first time. That, though, is not the issue and can be explained away by the coronavirus impact on overall sales. What’s much more of an issue is Xiaomi’s pledge to take the fight to Huawei in higher-end phones, which the larger company has largely had to itself in China with an 80% market share.
Last month, Lei Jun, Xiaomi’s CEO announced on Weibo that “we will go all out in the high-end market.” Lauding the new Xiaomi 10 to the media as “the first product to carry the company into the high-end market—now we have to put effort into all aspects to get acceptance for Xiaomi from high-end smartphone users.”
That is a threat to Huawei, but there’s much worse beyond China’s borders. What Huawei has managed to do successfully in recent years is take high-quality Chinese smartphones under the global Android umbrella and challenge market-leaders Samsung and (with its own iOS) Apple. Prior to the blacklist slowing sales, Huawei had overtaken Apple to take the number-two slot and was charging down Samsung for the position of market-leader. Xiaomi wants to follow the recipe.
The same day Huawei announced its results, Xiaomi announced that its revenue from overseas markets was up 30.4%. “In the fourth quarter,” the company said, “overseas revenue grew 40.7%—accounting for 46.8% of total revenue.” Critically, this includes European growth of “115.4% year-over-year in the fourth quarter—smartphone shipments in Spain, France and Italy grew by 65.7%, 69.9% and 206.2% respectively.” Europe has been Huawei’s international priority.
So, why does Xiaomi think it has a chance of pulling off this kind of coup, taking the fight to Huawei across international markets? In a word—Google. The company knows that Huawei’s loss of the U.S. giant’s software and services has left a huge gap in the market. Imagine replicating Huawei’s approach to fast innovation with the full-fat Android experience. Seems unlikely now, but look how quickly Huawei managed to grow its own smartphone sales to dominate its overall growth.
All of which explains why Xiaomi is reportedly pushing the Google message so hard. The packaging for the company’s new Mi 10 Pro is adorned with a taunt aimed directly at Huawei: “With easy access to the Google apps you use most.”
For its part, Xiaomi has denied it is doing this to taunt Huawei, saying on Weibo that is a promotional push requested by a partner—one assumes Google, if that’s right. Xiaomi says it is first to push the particular message—an interesting coincidence under very specific circumstances, if that’s correct.
As for the broader picture—because Xiaomi is certainly pushing non-China sales hard, Huawei has no real answer save for Google securing a Commerce Department license to supply Huawei or a softening of the blacklist. Huawei’s App Gallery, its Play Store alternative, is unlikely to plug the gap, even if it is successful in adding some of Google’s apps to its offering, as the company’s smartphone boss told CNBC he wants to do, “like how Google services are available through Apple’s App Store.”