Should Apple and Samsung Fear Huawei?

By Jamal

Source: Huawei.

It's been a good year for Huawei's smartphone business. After a change in strategy, cutting back on low-end smartphone production to focus on higher-end units, the company is now experiencing success. Earlier this month, research firm Canalys, by way of The Wall Street Journal, found Huawei increased its year-on-year smartphone shipments a massive 81% in China during the recently completed third calendar quarter, pushing past oft-discussed Xiaomi.

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In the U.S., the company is looking to compete in the high-end markets, as the company is the OEM for the larger variant of Google's current-gen Nexus model: the Nexus 6P. This high-end unit aims to compete against Apple's iPhone and Samsung's Galaxy line of phones. The question is: Should these other manufacturers be fearful in regard to this growing competitor?

For Apple, probably notAs far as Cupertino is concerned, Huawei's rise is probably not a reason to be worried in its now second-largest market. Although Huawei grew shipments 81% in China during the third calendar quarter, Apple CEO Tim Cook reported that total iPhone unit sales increased 87% in its Greater China region on a year-on-year basis, driven by a huge 120% increase in Mainland China -- an area excluding developed markets Hong Kong and Macau. Therefore, it's hard to assume this will reverse in the immediate future.

As for Apple's largest market, I doubt it has much to fear either. In the Americas, which obviously includes Apple's home country, Huawei's best chance to steal market share from Apple lies in its partnership with Google for the Nexus 6P. And although the Nexus unit has always been highly rated, it hasn't been the game changer that fans have envisioned.

In addition, Apple's been successful in converting Android-based users, with Tim Cook boasting that 30% of new users are coming from Android. For Huawei and Google, it may be possible to consolidate Android-based market share, but I doubt the company will reverse Apple's domestic growth.

For Samsung, this is a bad omenOn the other hand, Samsung should be wary of Huawei's moves. Its well-reported bifurcated strategy, in which it focuses on lower-range units in developing markets and sell its Galaxy line in the high-end markets, has a lot to lose from Huawei. For China, a maturing smartphone market appears to be trading up, with average selling prices for smartphones in China on the rise.

This trade-up has already hurt Samsung -- first with fans buying Apple clone Xiaomi's Mi line -- and now Huawei is growing faster than Xiaomi. And while these two continue to grow market share amid intense competition, Samsung stands to lose out in an increasingly crowded Chinese smartphone market.

Of course, Samsung still has its high-end Galaxy line in the developed markets, but unit sales appear to have peaked with the Galaxy S4. Going back to the aforementioned Android-switcher commentary from Tim Cook, it is widely considered that Samsung bears the brunt of this phenomenon, from both users directly making the switch from its Galaxy line and by missing out on low-end Android upgraders who cross ecosystems to go to Apple's iOS. If Huawei's partnership with Google bears fruit, this could further hurt the South Korean electronics conglomerate.

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Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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