Back in February, during Mobile World Congress 2012, Huawei Technologies – which now looks to have become the world's sixth-largest maker of mobile phones – announced what was at the time supposedly the world’s fasted Android-based tablet: Huawei’s 10-inch MediaPad 10 FHD, sporting a Huawei 1.5GHz quad-core processor, Google Android 4.0 operating system and a 10-inch IPS high definition display screen.
At the time, the company also announced its first real line of higher end smartphones – by which we mean smartphones that delivered a fit and finish that is a cut above the usual cheap plastic and typically poorly finished feature phone.
In the few short months since then, the company – which has had a relatively rapid rise up the ranks of becoming a major telecommunications equipment vendor – is now looking to its smartphones to outpace global growth rates and to drive a consumer gadgets business that it believes will eventually rival its flagship telecommunications gear in revenue.
The Shenzhen-based Huawei was founded 25 years ago by a former People's Liberation Army soldier, Ren Zhengfei, and is currently the number-two player in global communication networks, a business that last year brought in close to 75 percent of the company’s total revenue. Huawei is a fixture at all of the major telecommunications shows, such as Interop, and is often in the middle of most major bids – even in the United States.
Interestingly – though hardly mysteriously, considering the company’s founder and country – the United States does not fully trust Huawei and has been known to kill deals involving the company on national security grounds. Australia also has security issues, but Europe appears to be a brighter spot, and Huawei recently outlined plans to invest $2 billion to expand its operations in Britain, creating about 700 new jobs over five years.
None of the security issues (which Huawei claims are nothing more than baseless allegations) has stopped Huawei from achieving significant growth. And now the company is setting its aggressive eye to creating the next major global smartphones brand. This means of course that Samsung and Apple will become its new direct rivals. Both vendors anticipate China quickly becoming their key market.
This is of particular interest since China will become the world's single largest smartphone market within a year.
Since Huawei is a Chinese company – and one with substantial internal resources (in addition to having its own government at its back) – it stands to reason that it will, purely based on logistics and company size, become a formidable force for both Samsung and Apple to reckon with.
Huawei Needs to Generate Stellar Top Line Growth
We will expect Huawei to push its already existing Android-focused product range, but we also anticipate that Huawei will look to extend its reach with Microsoft Windows 8 smartphones and tablets. To date, the company has focused on acquiring market share, meaning that it has tended to keep the prices for its devices low enough to allow consumers to be willing to give its hardware a try. The strategy has worked but at the expense of undermining profit. Owning market share isn’t enough however – the company must also make progress on increasing both top and bottom line numbers – it needs enough strategic revenue growth to allow the bottom line to shine.
Huawei expects consumer device revenue to grow steadily at around 30 percent next year, though sales from smartphones will grow faster, at around 40 percent. The company has said it expects the business to grow revenue by around a third this year to $9 billion, and could reach $30 billion in five years, which would match the current telecommunications equipment business as a revenue driver.
"We're investing actively for the next 1-2 years, so it will be a big challenge to achieve high profitability," Wan Biao, CEO of Huawei Device, says. In July the company posted a 22 percent drop in first-half operating profit, citing as a significant ongoing challenge the weak global economy and tighter spending by the telecommunications vendors. Huawei is therefore banking on its ability to generate new revenue from the mobile device side.
The company believes the time to make the strong leap to generate serious mobile device revenue is now at hand, meaning that we can anticipate Huawei will likely begin to market higher end mobile devices to compete with the likes of the Lumia 920, iPhone 5 and the Galaxy S III. It is a tall order, but Huawei has the manufacturing capabilities to pull it off.
To begin with, we’ll likely see a greater effort from the company to market its higher end Vision and Ascend models, though these do not bring with them enough cachet to compete with the competitions’ best products. At least not yet.
The company is also considering developing its own smartphone operating system to distance itself from Android. Wan Biao, CEO at Huawei Device, confirms that this is the case; "We're devoting resources into coming up with a mobile operating system based on our current platform in case other companies won't let us use their system one day."
That is an interesting turn of phrase – Huawei is preparing for the case that it will be prevented from actually using Android itself and possibly Windows Phone 8.
How the Company Will be Perceived Matters
A key problem for Huawei to overcome is the fact that it has long been a behind the scenes OEM player, providing a lot of generic devices that a variety of wireless carriers then sell under their own labels. Can the company find success marketing its own higher end smartphones given its industry reputation for providing white label – if never the less reliable – mobile devices?
It is of course always possible to look to building out a separate brand for its new lines of mobile hardware. But building out a new brand, establishing it and then investing the resources necessary to see it grow, will likely be much more difficult for Huawei to pull off than to simply move ahead under its own brand – and this is what we anticipate it will do.
It should be an interesting battle. Huawei believes it is well-positioned to become the third largest global provider of mobile devices. That may or may not come to pass, but Huawei is certainly well positioned to at least battle for supremacy within its homeland. It won’t happen overnight, and the company must demonstrate it can, at the very least, deliver a product that can rival the Samsung Galaxy S III directly – not only in terms of hardware, but on the software front as well.
IT may find the latter a much harder task than it believes it to be.
Meantime, we have noted elsewhere that China will be huge for Apple. And the Chinese market itself is particularly keen to own real Apple devices – that Apple cachet for iPhones and iPads goes a long way!
Want to learn more about today’s powerful mobile ecosystem? Don't miss the Mobility Tech Conference & Expo, collocated with ITEXPO West 2012 taking place Oct. 2-5 2012, in Austin, TX. Stay in touch with everything happening at Mobility Tech Conference & Expo. Follow us on Twitter.
Edited by
Braden Becker 
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