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A 'New' Player in the Smartphone Wars

Jan 14, 2016
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SMITH BRAIN TRUST — Just when it looked like the smartphone world had been winnowed down to two heavyweights, Apple and Samsung — with the also-rans fighting over the scraps — a Chinese company that's basically unknown in the United States is elbowing its way into the fray.

Huawei's consumer sales income jumped about 70 percent last year, largely thanks to sales in Asia, Europe, and Latin America, and its consumer business group had about $20 billion in revenue for 2015. With 7.5 percent of the global smartphone market, it's now the industry's No. 3 player, and it has its sights set on the U.S, showing off new models at this month's Consumer Electronics Show.  

In a move that helped to introduce the company in the U.S., Google tapped it to make its Nexus 6P, a high-end phone that Google uses to showcase the pure form of its operating system.

In phones sold under its own name, Huawei — which also does a robust business selling telecommunications networking equipment — has so far targeted people who want a phone that can do a significant proportion of what the iPhone 6s or Galaxy S6 can do but can't pay the prices Apple and Samsung charge. ("Cheaper and good enough" is how the electronics site CNET.com recently described Huawei's approach.). "The key thing that's driving this is demographics," says Dave Kressler, Ph.D., a lecturer in strategy and entrepreneurship in the Robert H. Smith School of Business, at the University of Maryland, and a portfolio manager with the Principal Financial Group, in Bethesda, Md., who has used Huawei as a case study in his courses. "These guys are marketing directly to millennials and they are going around brick-and-mortar stores."

So far, the company is doing a good job of capturing the aspirational (or merely cost-conscious) consumer. "They are beginning to commoditize the smartphone world," Kressler says. "Of course, they can't commoditize Apple out of business, given Apple's strong ecosystem and brand loyalty of Apple users. But they can commoditize a lot of other companies out of business." The Chinese company Xiaomi, he notes, is taking a similar approach, with similarly profitable results.

As it builds market share, Huawei is expanding its range: Its Mate S and Mate 8 models, not yet available in the U.S., attempt to take on the leading phones of Apple and Samsung, with correspondingly higher prices than typical Huawei products.

The smartphone world is a ruthless one. Nokia held 45 percent of mobile revenue share in 2008 and last year had about 2 percent. Motorola has shrunk from more than 30 percent to about 4 percent. In a letter to employees obtained by The Wall Street Journal, Huawei's CEO predicted that several of its competitors would leave the sector in the next three to five years, adding that "Huawei will definitely become number one in the industry." Hyperbole aside, the company is showing that you don't have to take on Apple directly to carve out a niche in the smartphone business.

Photo credit: Huawei.

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About the University of Maryland's Robert H. Smith School of Business 

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty masters, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.