The last few months have been tumultuous for Huawei. The company is the world’s third largest smartphone vendor, but it has negligible presence in the US smartphone market. The Huawei Mate 10 Pro was supposed to launch on AT&T as part of Huawei’s entry into the US carrier space, but plans to release the smartphone on AT&T’s network were abruptly cancelled at the last moment. The reason was said to be political pressure being piled on AT&T. Huawei’s smartphones were alleged to be a “security risk'” through “spying”, but as no proof was provided for these allegations, they must be assumed to be baseless (more on this below).
The Mate 10 Pro did launch as an unlocked smartphone in the US, but that doesn’t mean much in a market where most consumers prefer to buy smartphones from carriers. Huawei’s chances in the US smartphone market were already crippled with AT&T’s dramatic U-turn (and Verizon reportedly following soon after AT&T). They were downgraded even more last week when news reports stated that Best Buy would stop stocking Huawei phones.
Huawei CEO Richard Yu personally decried the state of the US smartphone market in a speech at CES. This week, the company launched the P20 and P20 Pro, two flagship smartphones that are credible challengers to the Samsung Galaxy S9 as well as the Google Pixel 2. The phones will be shortly available in Europe (the P20 is already available) and are even said to arrive soon in India. But they won’t make their way to the US.
Despite these series of setbacks, the CEO of Huawei’s consumer business group, Richard Yu, told CNET that Huawei isn’t pulling out of the US. “We are committed to the US market and to earning the trust of US consumers by staying focused on delivering world-class products and innovation,” Mr. Yu told CNET. “We would never compromise that trust.”
CNET notes that Huawei has increasingly come under fire from the US government.
At this point, we should press the pause button and ask if any evidence exists for Huawei’s alleged spying for its home country’s government. If so, why has it not been released? Unless and until we see credible proof, we have to make it clear that the reasons for the allegations are protectionism, nothing more.
Mr. Yu has strongly denied allegations of ‘security risks”. “The security risk concerns are based on groundless suspicions and are quite frankly unfair,” he said. “We welcome an open and transparent discussion if it is based on facts.” The company works with 46 of the top 50 global operators, according to him, and the company has maintained a strong security record because security is one of its top priorities. He added that the company also employs more than 1000 people in 13 US offices.
Mr. Yu stated that even without the US market, Huawei would be the world’s largest smartphone vendor. Financially, it’s doing well, with net profit rising by 28.1 percent in 2017 compared to 2016. Phone shipments reached 153 million last year, with revenue rising 32 percent from 2016.
However, entering the US market does undeniably help the brand image. The US also remains the second largest smartphone market by some metrics. “We recognize we are not a known brand in the US and we need to build our brand here,” Mr. Yu said. “Our first step is to win the trust of consumers.”
Let’s take a look at the US smartphone market in brief. At this point, the US smartphone market is effectively a duopoly, with Apple and Samsung dominating smartphone shipments, market share, brand loyalty, and more. There is no third alternative to Apple and Samsung, as LG and Motorola continue to languish, while Google’s Pixel phones are slowly climbing. Unlocked phones like OnePlus devices are a small niche in the market, and the vast majority of smartphone purchases are made via carriers, not by purchasing unlocked phones at the full retail price.
This is in stark contrast to other smartphone markets. To give an example, the Indian smartphone market is essentially the opposite of the US market. Phones are purchased at the full retail price either online or through offline retailers or the OEM’s own stores, with carriers not being involved in the purchase process. This also means that the market is competitive, with Xiaomi managing to overtake Samsung in shipments in just three years. Oppo and Vivo being the third and fourth largest smartphone vendors in India.
Now, Huawei’s troubles may affect the ambitions of another Chinese smartphone vendor. Oppo is in the world’s top five list of smartphone vendors, but it’s officially available only in 31 markets, not including Europe or North America. The reason why it hasn’t entered the US market yet? That’s because of the ongoing saga between Huawei and the US government. Oppo told AndroidHeadlines that it likely won’t be coming to the US while the current US administration is running things.
AndroidHeadlines stated that it’s not just Huawei’s troubles that are affecting Oppo’s ambitions. Broadcom’s hostile proposed deal to acquire Qualcomm was blocked by the White House. The decision sets a precedent and creates ramifications for expansions of Chinese companies in the future.
The report notes that the current US administration has also taken a hard line on China in recent months. In addition to the aforementioned decisions, the administration has imposed tariffs on China, making the US a hostile place for Chinese companies like Oppo to expand to. This doesn’t affect only Oppo, but also a vast majority of other Chinese smartphone vendors. It’s worth noting that Xiaomi has been biding its time when it comes to entering the US market. AndroidHeadlines also noted that despite multiple investigations, no proof has ever been found that Huawei spies on its users.
There is also the second reason why Chinese phones have a stigma in the US of being cheap, poorly made “iPhone knockoffs.” Some US consumers now believe that every Chinese smartphone spies on them (which is decidedly false), and this has affected China-based smartphone brands on a global level. It’s almost needless to note at this point that the stigma which US consumers have about Chinese smartphones is false. Many Chinese phones do take inspiration from the iPhone, but that trend is only true to a certain extent. Android phones made by Chinese smartphone vendors generally have a better price-to-performance ratio, and many (such as Xiaomi devices) are renowned for having great performance and long battery life. But the stigma acts as a barrier for Oppo in the context of a potential US expansion, according to AndroidHeadlines.
Finally, Oppo confirmed to the publication that the company was still planning to expand this year, as it will arrive back in Europe in 2018. Specific countries were not mentioned, though.
Our view: It’s hard to read the above stories without responding with the word: “protectionism.” Chinese smartphones are being blocked in the US smartphone market without any good reasons. In our view, US consumers are the worst-hit in the ongoing saga. The US smartphone market is now effectively a duopoly instead of being a competitive market.
This means that Chinese smartphone vendors don’t have a motivation to enter the country with phones that have a great price-to-performance ratio. It also implies that flagship smartphone prices may continue to increase in the near future as Apple and Samsung continue to face no competition. The budget US smartphone market is already inferior to the Indian smartphone market, for example. If such events continue, the effects may start being felt in the flagship smartphone market as well, which would be a hard loss to swallow.
Source 1: CNETSource 2: AndroidHeadlines
