SMARTPHONES: Huawei Unseats Apple, Eyes the Cloud

Bottom line: Huawei could overtake Apple as the world’s second largest smartphone seller in the next 1-2 years, while it could also pose a challenge in global cloud services over the next 5 years.

Huawei takes a shot at the cloud

We’ll begin the new week with a couple of items from Huawei that show how the company that began as a telecoms network builder looks set to unseat fading PC giant Lenovo (HKEx: 992) as China’s global leader in consumer tech. The first of those has one research house releasing data that show Huawei’s smartphones surpassed Apple (Nasdaq: AAPL) for two consecutive months in June and July to become the world’s second largest brand. The second has a Huawei executive discussing his plans for the company’s cloud computing services, saying he wants to become a global top 5 player.

The first headline shows that Huawei is not a company to be taken lightly, which means that people should pay close attention to the second headline. In my years of covering Huawei, the company has proven to be quite focused and determined, and pours large amounts of money into product development to make sure it can meet its goals. It focused its early efforts on building traditional telecoms networks, but more recently has moved to enterprise networks and consumer devices like smartphones and notebook computer.

Let’s begin with the smartphone headline, which is the more eye-catching of the pair and quotes research house Counterpoint with the Apple-passing data. The data show that Huawei first jumped past Apple in June, a weak month for the US giant, and then managed to maintain its lead by a slight margin as Apple bounced back somewhat in July. (English article) The Counterpoint researcher points out that Huawei could well maintain its lead in August, giving it three consecutive months leading Apple.

The unspoken theme is that Huawei could theoretically take the spot as the world’s second largest smartphone brand in the third quarter that runs from July to September, since most people follow this data on a quarterly basis. But the Counterpoint researcher is quick to point out that Apple will release its next iPhone in September, meaning its likely to see a huge spike in sales that month. That should help it retake the number-two spot back from Huawei, and probably also retain the number-two spot for the third quarter.

But big-picture observers will note that for Huawei to even pose this kind of challenge to Apple is no small feat, even if it comes up short this time around. The fact of the matter is that Huawei puts out fairly good products, with many more models and price ranges than Apple’s one or two new iPhones each year. I personally bought a mid-range Huawei a few months back and have been quite satisfied with its performance so far. With that kind of momentum and customer satisfaction, it could be only a matter of a year or two before Huawei makes another serious challenge for the number-two global smartphone spot.

Head in the Cloud

Next there’s the cloud headline, which is relatively straightforward but mostly jut talk at the moment. The story I read quotes a Huawei executive at a recent event saying the company is aiming to become a top 5 player in the cloud services space. (Chinese article) The talk is quite vague, as the company is currently not a major player in cloud, where global leaders Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT) dominate, and local player Alibaba (NYSE: BABA) is aggressively building up a global network.

What’s more, Huawei is somewhat stigmatized as a company with potential links to Beijing due to its founder’s position as a former army engineer, even though the company frequently denies such ties. To deflect such concerns, Huawei is taking an approach of teaming with local players in the cloud markets it’s eying, including Europe, Latin America and its home China market. That looks aimed at reducing security concerns, and also at helping it play catch-up to its more advanced rivals in terms of infrastructure.

Partners mentioned in the report include Germany’s Deutsche Telekom (Frankfurt: DTE), France Telecom and Spain’s Telefonica (Madrid: TLF). That does look like a relatively smart business strategy due to the trust and infrastructure issues, and also Huawei’s relatively late arrival to the game.

It’s somewhat interesting but not surprising to note that Huawei is staying away from the US and Australia, which are two markets that have given it trouble in the past. That’s probably a smart move, as it should have plenty of work to keep it busy in those 3 major markets, where its name is already relatively well known due to its more established networking equipment and consumer products businesses.


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