P20 launch: Will Huawei ever make it in the US? Credit: Kate Hoy
Mobile Communications

P20 launch: Will Huawei ever make it in the US?

In an interview with IDG Connect last year, Huawei's CEO of consumer business, Richard Yu said the company aimed to be “the number one vendor by 2021”. A year into that five-year goal, how are they doing?

According to Gartner, Huawei was one of only two smartphone vendors (the other being Xiaomi) to achieve year-on-year unit growth in the fourth quarter of 2017. However, “Future growth opportunities for Huawei will reside in winning market share in emerging APAC and the US,” Anshul Gupta, research director at Gartner, said in a press release last month. So it had to come as a pretty major blow when, just days before the company launched their latest flagship device in Paris, CNET broke the news that Best Buy, the largest consumer electronics retailer in the United States, would stop selling Huawei devices.

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The news was just one of many setbacks to Huawei’s US expansion plans this year:

  • In January, Texas Congressman, Mike Conaway, introduced the Defending U.S. Government Communications Act, which aims to “protect America from Chinese spyware” by banning US government agencies from using phones and equipment from the Huawei and ZTE
  • On 14 February, the heads of six major US intelligence agencies (including the CIA, FBI, NSA and the director of national intelligence) told the Senate Intelligence Committee that they would not recommend American citizens use products and services from Huawei
  • As a result of pressure from the government, major US carriers, including AT&T and Verizon, have refused to sell Huawei’s phones
  • Last week, President Donald Trump signed an order threatening tariffs on up to $60 billion worth of Chinese imports – primarily in the technology sector
  • A new proposal from the FCC will make it harder for small and rural mobile providers to buy from Huawei. The proposal, confirmed on the same day as Huawei’s latest flagship P20 launch, will prevent money from the FCC’s Universal Service Fund from being used "to purchase equipment or services from any communications equipment or service providers identified as posing a national security risk to communications networks or the communications supply chain."

 

Suspicious minds

The US concerns over Huawei’s ties to the Chinese government seem to stem from founder Ren Zhengfei’s 10-year career as a former soldier who worked in the People’s Liberation Army’s Engineering Corps. Founded as a reseller of telecommunications equipment in 1988, the company gained a key contract in 1994 to build the first national telecommunications network for the People's Liberation Army. Despite Huawei claiming it no longer has any ties to the Chinese Government, the US aren’t convinced.

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A US DoD report on China’s military power from 2008, mentioned Huawei’s “close ties to the PLA”. In 2010, four senators contacted the FCC with concerns over the alleged ties between Huawei and the Chinese government. In 2012, Huawei and ZTE were subjects of a report from the House of Representative’s Intelligence Committee, recommending that the US government be prohibited from buying the companies’ products, over concerns that “industry giants like Huawei and ZTE provide a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components and systems.” Huawei has repeatedly denied any such claims, but the report paints quite a different picture.

Unfortunately for Huawei however, the US isn’t the only country with concerns. In 2005, the UK’s Conservative Party asked the British government to consider the implications for Britain's defense industry if China’s Huawei were to buy Marconi. The same year, India's Bharat Sanchar Nigam Limited (BSNL) mobile service provider cancelled the 20 million line GSM network contract it had awarded to Huawei after the conditions imposed by the company were deemed unacceptable. In October 2012, Canadian Prime Minister Stephen Harper enacted a 'national security exception' to exclude Huawei from participating in building a new network for government data and communications. In 2013, the Australian government upheld a prohibition that barred Huawei from bidding on work on the country’s National Broadband Network. In 2015, German cybersecurity company G Data reported that it had found spy malware pre-installed on smartphones from Chinese companies including (but not limited to) Huawei. The malware could listen to calls, track users, and make online purchases; however, researchers were not able to discover at what point in the supply chain the malware was installed.

But while Huawei was being accused of being a threat to national security, documents leaked by Edward Snowden revealed that the US’s NSA was doing some spying of its own. The New York Times reported in 2014 that the NSA has been operating a covert program against Huawei since 2007. This reportedly involved breaking into Huawei's internal networks, monitoring communications of the company’s top executives, and exploiting Huawei technology to give the NSA access to conduct surveillance: “We want to make sure that we know how to exploit these products… [to] gain access to networks of interest” around the world.

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US-China trade war?

Huawei is the world’s third largest smartphone manufacturer, holding 10.7% of the worldwide market share (in unit shipments) for the fourth quarter of 2017. This is compared to 19.7% and 18.9% for Apple and Samsung respectively for the same period. The Chinese company is not shy about its aspirations to overtake Apple and Samsung as number one smartphone maker, but as IDC noted, “Entering the US through an official carrier remains critical for Huawei if it wishes to eventually dethrone market leaders Apple and Samsung.”

IDC: Smartphone Vendor Market Share Chart

According to data from IDC's Quarterly Mobile Phone Tracker, Huawei holds 20.4% of the smartphone market share in China, with 90.9 million units shipped in 2017. In fact, of the top five smartphone companies by sales in China, four were Chinese companies: second-placed Oppo had a market share of 18.1%; Vivo was third with a market share of 15.4%, and Xiaomi was fourth with 12.4%. Apple came in fifth – with a market share of 9.3%, and 41.1 million units shipped – less than 50% of the number shipped by Huawei.

So, with Huawei wanting to break into the US, and Apple wanting to expand its reach in China, are we going to see the two countries’ smartphone giants face off against each other? Or will the companies become political pawns in a US-Sino trade war? “Without carrier or even big-box retail distribution, it is basically impossible to sell premium smartphones in the US, and the political pressure to keep Huawei phones [out] is clearly rising as the US and China edge toward a trade war,” says Avi Greengart, an analyst at Global Data.

We’ve already seen political pressure complicate Huawei’s US expansion – could China retaliate by pulling America products from its own market? And what about those Apple devices manufactured in China?  The Chinese government could certainly make it a lot harder for Apple if it decides that its own companies aren’t being treated fairly in the US. And in an extreme hypothetical, could China use its position in the American electronics market to tap phones, or at worst, turn them all off?

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Of course, there’s an argument to be made that this could turn out to be an excellent marketing tool – after all, there’s no such thing as bad publicity. The use of controversy as a marketing tool is not a new phenomenon. For controversy to work, however, you have to be confident that the controversy is suitable for your targeted market – the aim after all is to gain customers, not to alienate those you already have. As Huawei devices become more difficult to get hold of, and as accusations swirl, Huawei could see a boost in interest. And this increased popularity would likely go on to boost sales in Europe as well.

But there are wider considerations to this issue. As tensions escalate between the US and China, how will other Chinese companies be affected? ZTE has already been included alongside Huawei in many of the US Government’s concerns - will Lenovo have issues? Tencent? Whether Huawei is a security threat or not, it’s not difficult to imagine the company’s difficulties expanding to the wider tech industry ahead.

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What does it mean for the P20?

Huawei unveiled its latest flagship phones, the P20 and P20 Pro, on Friday at a global launch event in Paris. For a company that makes frequent jabs at the latest iPhone’s functionality, Huawei spends a lot of time (and money) mimicking the Cupertino company’s flagship device launches. As with previous launches, Huawei’s Richard Yu focused on why this latest flagship is “better than the others”. While his keynote this year was peppered with fewer brand-specific barbs than usual, the accompanying visuals made it clear who the company is trying to beat – as did a video tweeted after the launch.

 

As with the company’s previous devices, the P20 and P20 Pro are all about the camera. Continuing its partnership with Leica, the P20 Pro now features a *triple* rear camera. The main sensor is a 40MP RGB one, but this is backed up by a second 20MP camera and a third 8MP sensor. Add to this a color temperature sensor, 5x hybrid zoom, Huawei’s own ‘Master Stabilization’, super-slow mode, and a long-exposure night mode (that doesn’t need a tripod), and you’ve got a seriously impressive collection of hardware and software that’s “designed for professional photography”. Not only that but, thanks to the AI scene-detection, if you’re not one to play around with the ‘pro’ features that allow you to manually adjust autofocus type, ISO sensitivity, shutter speed, and exposure compensation amongst others, the P20 Pro will automatically adjust to the most appropriate settings – point the camera at food and it will switch to ‘food’ mode for example.

The P20 Pro also boasts a larger battery than its Samsung rival with a 4,000mAh capacity cell, making it 14% larger than the S9+. Though, unlike the S9+, the P20 Pro has made room for this larger capacity battery by losing the headphone jack. The Pro version is also IP67-rated water-resistant – though for some reason the standard P20 is not. Another fun feature – thanks to a software setting you can get rid of the awful notch.

But features aside, how successful can Huawei be without capturing the US market? Last year’s P10 didn’t launch in the United States. With the company’s recent setbacks, it’s hard to imagine the P20 will launch there, either. “The problems that Huawei is having with the US government are unlikely to blow over anytime soon,” according to Greengart.

Jim Xu, Huawei's head of sales and marketing, told reporters in Shenzhen earlier this month that he was “confident” Huawei smartphone sales would triple this year in the US from last year. “I don't know why they're so nervous,” Xu said, referring to the U.S. “They’re too nervous.” But with Huawei now reliant on Amazon and other online outlets to sell its phones, is Best Buy's announcement just the latest hurdle the Chinese company needs to leap? Or is it end of the road for Huawei’s US ambitions?

When I asked Xu at the P20 launch if Huawei had any comment on Best Buy’s announcement, his immediate response was, “We don’t comment about that.” However, he went on to say, “We have a lot, a lot of business to do. Like the UK – we have a very rich market and we want to do a lot of things. So … why should we waste time somewhere instead of communicating with the people of the UK?”

 

Also read:
Huawei CEO: We’ll be number one smartphone vendor in five years
“No explosion”: Richard Yu announces Huawei Mate 9
A week with the Huawei P9: A camera with a phone
Huawei launch reactions: Will Huawei’s ‘full scale assault’ be enough?
Huawei Launch: #OO look, the new P9

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Kate Hoy

Kate Hoy is Editor of IDG Connect

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