Huawei Plays Catch-Up In Global Phone Race -- WSJ

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (July 28, 2017).

SHENZHEN -- Chinese telecommunications giant Huawei Technologies Co. has reclaimed the top spot in China's fiercely competitive smartphone market, but it still faces a tough fight in its goal to become the world's top seller of phones.

Huawei said it shipped 73 million smartphones during the first six months of the year, an increase of 21% from the same period last year. It said strong sales growth in China and Europe powered that increase, and that it sold more high-end phones.

Though Huawei is narrowing the gap with Apple Inc. and South Korea's Samsung Electronics, it still has some catching up to do with its rivals in the competitive and slowing smartphone market, especially overseas. It had 9.9% of global market share in the first quarter, up a percentage point from a year ago but behind rivals Apple and Samsung, according to analytics firm Canalys. The company has been in third place for two years.

Huawei is already a major player in the sale of networking gear and telecommunications equipment, along with Sweden's Ericsson AB.

Last year, the company's top consumer executive, Richard Yu, set a target of becoming the No. 1 smartphone vendor within five years.

At the company's Shenzhen headquarters Thursday, Mr. Yu said Huawei is sticking by its goal. A major priority is boosting its sales and brand image in the more profitable high-end phone market, he said.

"We are trying to build up a high-end and premium brand image," Mr. Yu said.

Huawei launched a new flagship model, the P10, earlier this year. Meant to challenge Samsung and Apple, the phone featured improvements on the dual-lens camera on the back of the phone and the selfie camera on the front, developed in conjunction with Germany's Leica Camera AG.

Mr. Yu said the company has shipped more than six million P10 phones since its launch. He said the company plans to release another high-end phone, the Mate 10, around the time of Apple's iPhone 8 release later this year.

Overseas, Huawei has invested heavily in marketing and last year spent spending more than $11 billion on research and development across the entire company, including on patents to build its brand portfolio. The company has also expanded its gadget offerings beyond just handsets, pushing into wearables with a smartwatch and earlier this year unveiling a laptop version of its MateBook tablet.

While Huawei is a household name in its home market -- where Chinese consumers are increasingly eschewing foreign phone companies in favor of local marques -- its phone brand still isn't as well known in Europe, said Tim Coulling, senior analyst at Canalys.

"Our product competitiveness is stronger than our brand competitiveness, " Mr. Yu said. "We need to further improve our brand awareness."

Huawei said smartphone shipments in Europe rose 18% in the first half of the year, but didn't break out actual sales for the region. That suggests the company's sales accelerated during the second quarter, since the company had a market share of 10% in Europe in the first quarter, virtually unchanged from a year ago, according to data from Canalys.

Huawei has struggled to crack Asian markets outside of China, where regulatory hurdles and a marketplace favoring low-cost models have presented challenges. In Southeast Asia and India, Canalys data show Huawei had a 3% share of the market in the first quarter, putting it in eighth place.

The challenges facing Huawei are compounded by a broader slowdown in the global handset business and a slate of new models from rivals. Apple is set to release its iPhone 8 later this year, while Samsung launched a new flagship phone in May, the Galaxy S8, hoping to move past the massive Galaxy Note 7 recall last year.

Among Huawei's biggest challenges: its small presence in the U.S., the world's largest market for high-end smartphones. The company's telecom equipment has been effectively banned in the U.S. since a 2012 Congressional report that recommended U.S. carriers avoid Huawei's gear. Huawei has repeatedly denied allegations in the report that the company could use its gear to spy on Americans, but it still lacks a major carrier partner in the U.S.

Another challenge: getting Huawei's customers to pay more for its smartphones. A Huawei phone in Europe, for example, fetched $312 on average last year -- less than half the average price of an Apple smartphone, and below the $414 for an average Samsung phone, according to Canalys.

Huawei's overall consumer business generated 105.4 billion yuan ($15.6 billion) in revenue, up 36% from a year ago. The company isn't publicly traded and only reports selective financial metrics. It didn't report net income.

Revenue across the entire corporation -- which includes its equipment business and an enterprise business in addition to its consumer line -- rose 15% to 283.1 billion yuan during the first half of the year. The company reported an operating margin of 11%.

Write to Dan Strumpf at

(END) Dow Jones Newswires

July 28, 2017 02:47 ET (06:47 GMT)