SMARTPHONES: Lei Jun Focuses on Xiaomi, Huawei Likes India

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Bottom line: Lei Jun’s resignation as YY chairman to focus on his struggling Xiaomi reflects his own fading star power, while Huawei is unlikely to reach its goal of taking 10 percent of the India smartphone market by the end of next year. 

Lei Jun steps down as YY chairman

A couple of smartphone stories are in the headlines on this final day of the work week, capping a flurry of industry news that reflects the turmoil in China’s overheated market. Both items are relatively second-tier news, led by the resignation of Lei Jun from his position as chairman of social networking site YY (Nasdaq: YY) to focus on reviving his ailing Xiaomi smartphone empire. The other item has market leader Huawei hyping India, where it is getting set to launch a manufacturing facility and has ambitious plans for taking 10 percent of the market.

Both stories reflect the difficulties that all players, both foreign and domestic, are now facing in China, the world’s largest smartphone market but also a place plagued by intense competition from dozens of local players making very similar models.

Lei Jun rose to prominence as one of the earlier arrivals to the market with Xiaomi, but is also involved with a wide array of other tech companies like YY and software maker Kingsoft. That was fine when Lei enjoyed a reputation as a high-tech wunderkind and companies clamored for the right to include his name on their management rosters. But with Xiaomi now rapidly sinking, Lei’s name is less valuable and he also realizes he needs to focus his attention on his own company.

Huawei is a few steps behind Xiaomi, and is still China’s top smartphone brand, according to new second-quarter data released earlier this week. (previous post) But that same data showed the company’s growth is slowing sharply, and previous reports have indicated Huawei has cut its previous aggressive growth forecasts for this year. Like some other players, it is now looking at India, a market with many similar qualities to China, as an alternate growth source.

Let’s begin with the Lei Jun news, which came in an announcement from YY saying he was officially stepping down as the company’s chairman. (company announcement; Chinese article) The announcement says Lei resigned specifically to focus his attention on Xiaomi, and that he will still remain as a major investor and strategic partner of YY.

This move looks at least partly cosmetic, since YY’s use of Lei’s name as chairman was probably aimed at taking advantage of his superstar status back in Xiaomi’s heyday. But his star power has faded rapidly in proportion to Xiaomi’s own fading star, and I personally applaud Lei for making this highly symbolic move to show he will focus his attention on fixing his stumbling company.

Shifting Attention

Next there’s Huawei, whose India announcement also looks designed at least partly to deflect attention from its rapidly slowing growth in China. The company detailed its India plans at a local launch event for its high-end P9 model, saying it has already received necessary approvals and plans to start smartphone production in the country within a month. (Chinese article) Huawei’s India consumer products chief added he’s aiming to take 10 percent of the market by the end of next year.

Huawei has actually been active in India for quite a while now, first for its older networking equipment business and more recently for cellphones. But this latest move does look like a sharp ramp-up of its India smartphone campaign.

Huawei is hardly the first Chinese smartphone maker to discover the India market. Most of its China peers are already quite active there, including Xiaomi, and even Apple (Nasdaq: AAPL) said in May it wants to step up its efforts there. (previous post) With so much growing competition in the market, which also includes strong local players like Micromax, Huawei’s 10 percent market share target looks quite aggressive and probably unattainable despite the company’s big ambitions.

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