Huawei, Lenovo Smartphones Surge, ZTE Fades

Huawei soars in smartphones

The aggressive duo of Huawei and Lenovo (HKEx: 992) may be consolidating their spots on the global smartphone stage, as domestic rival ZTE (HKEx: 763; Shenzhen: 00063) shows signs of stumbling. Those are my major takeaways from the latest quarterly smartphone results released from industry research firm IDC, which show big sales and market share gains for Huawei and Lenovo in the second quarter of this year. ZTE, meantime, appeared to be moving in the opposite direction, falling further in the ratings after briefly surging last year.

There’s no breakdown of individual country sales in these latest figures; but Huawei and Lenovo are probably getting much of their new growth from global markets, even though China still probably accounts for more than half of their smartphone sales. The massive surge for Huawei, which I’ll describe shortly, shows the company may be making rapid inroads to lucrative western markets like Italy, as it leverages connections from its core networking equipment business to promote its newer smartphone brand. Lenovo’s rise is most likely tied to developing markets like the BRICS, which are its traditional strength.

According to the new data from IDC, longtime industry leaders Samsung (Seoul: 005930) and Apple (Nasdaq: AAPL) continued to lead the global smartphone market in the second quarter, taking 25.2 percent and 11.9 percent share, respectively. (IDC announcement; English article) Notably, Samsung’s overall share plunged 7 percentage points from a year earlier, with about half of its losses going to Huawei and Lenovo. Apple also lost half a percentage point of market share, as its sales rose about half as much as the broader market’s 23 percent growth rate for the quarter.

While Samsung and Apple continued to lead the pack, Huawei began to consolidate the third-place position that has been highly contested for much of the last year. Its global market share for the quarter rose to 6.9 percent, up more than 2 percentage points from a year earlier, as its unit sales nearly doubled. Its new position put it well ahead of Lenovo, whose sales rose by a more modest 38.7 percent as its market share rose by more than a percentage point to 5.4 percent. Korea’s LG (Seoul: 066570) rounded out the top 5, with sales up nearly 20 percent as it took 4.9 percent of the market.

Among the Huawei and Lenovo growth stories, I personally like Huawei’s better. The Shenzhen-based company is slowly positioning itself as a solid mid-tier player with a good reputation for quality. The latest growth figures show it is executing well in its plan to take its show to more lucrative western markets where margins are typically higher and competition less intense.

By comparison, Lenovo seems to be aiming squarely at the bottom of the market, despite the recent refrain from CEO Yang Yuanqing that he sees Apple and Samsung as his 2 main rivals. That end of the market is extremely competitive and has zero customer loyalty, meaning buyers will quickly abandon Lenovo’s cheap and often unreliable smartphones as soon as something cheaper comes along.

Meantime, the big unspoken story in these latest IDC figures is the continuing decline at ZTE. The company, a smaller version of Huawei also based in Shenzhen, appeared to be making steady progress in the space and jumped into the top 5 players last year in the big China market. But then it began to slip in the second half and fell from the top 5 in China by the end of the year as competition in the domestic market intensified.

The latest IDC figures are for global sales and not just China, so it’s unclear just how much ZTE has continued to slide in the first half of this year. But another report indicates that ZTE didn’t even make the top 10 global players in the second quarter, losing out to domestic players Coolpad and Xiaomi alongside global brands Nokia, Motorola and HTC (Taipei: 2498). If ZTE really has slipped behind such second-tier names, it would certainly mark an ominous sign for the company as it tries to compete for a place in the global smartphone market.

Bottom line: New data show Huawei is consolidating its position as the world’s third biggest smartphone brand, while ZTE’s campaign in the space may be rapidly losing steam.

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