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Absent a U.S. backtrack, a huge Huawei-shaped hole will open up in next year’s global smartphone sector, a sales game-changer for the industry. A blacklist-induced shortage of chipsets looks set to send Huawei sales plummeting when current stockpiles run down. While this appears to be a stunning opportunity for Apple and Samsung, that’s under threat. China inc. is confident that Huawei’s recipe for success can be replicated and is moving quickly to do so.
First out of the blocks to rinse and repeat Huawei’s “premium smartphones for less” strategy has been the much smaller Xiaomi, which beat Huawei in Europe for the first time in the second quarter this year, its revenues soared 65% as Huawei shrunk. Xiaomi moved into third place, behind Samsung and Apple. More notably, Xiaomi saw exports of premium devices (€300 plus) up more than 99% year-on-year.
Xiaomi has positioned itself as Huawei’s likely Chinese export successor, but that’s about to change. China’s Oppo is only just behind Xiaomi for overall global sales, but much larger in China itself. Counterpoint highlights Oppo as the other Chinese brand to watch. “Geopolitical policies and political affairs among nations are affecting the smartphone market in many ways—we see players like Samsung, Apple, Xiaomi and Oppo benefiting the most.” Oppo is part of BBK, which also has Vivo in its stable, and is a serious competitor to Apple and Samsung globally.
Back home in China, where Huawei has surged as patriotic consumers have responded to America’s blacklist, Xiaomi, Oppo and Vivo, have chased Huawei’s unstoppable growth. During that second quarter, Huawei overtook Samsung globally—an anomaly prompted by China’s market recovering ahead of others. But Huawei secured a staggering 46% market share in China itself—and that was no anomaly. Unsurprisingly, Samsung is now back on top globally. According to Counterpoint, Samsung secured 22% of the global market in August to Huawei’s 16%.
Analysts have suggested that—absent a U.S. backtrack—Huawei could shift as few as 50 million smartphones in 2021. Even with its loss of Google, the company would otherwise expect to sell 180-200 million units. With 76% of its smartphones selling in China, domestic sales will account for a huge percentage of the drop. But exports will also decline further. And it’s those export markets that Huawei’s domestic rivals are now targeting.
Building on its growth in Europe and already strong position in other markets, most notably India, some analysts have suggested Xiaomi could become a global top-three player. But now, as reported by Nikkei, Oppo “aims to have a market share of at least 5% in Europe by next year and plans to be one of the top players there in the next three years.” Backed by BBK, Oppo is arguably a more serious long-term threat than Xiaomi.
Oppo says that it has tripled sales in key parts of Europe this year. “But for any smartphone maker,” Oppo global sales lead Alen Wu told Nikkei, “one has to achieve a share of some 10% to 15% in a market to be called a leader and to reach that break-even point… We aim to reach that goal in the next two to three years.” Xiaomi has shown that can be done. Ironically, the most likely impediments to Oppo’s growth are Xiaomi and its BBK stablemate Vivo, which will also likely ramp up exports to benefit from Huawei’s likely decline. While both phone companies need to work on their brand recognition outside Asia, they have enjoyed fast growth and now rank highly for global sales.
Huawei was uniquely positioned to take on Apple and Samsung, ultimately targeting that number one spot. Realistically, its moratorium has levelled the playing field for the others. There may be some brand loyalty for Xiaomi in Europe, but as nothing compared to the stickiness Huawei had built. And recent fast growth suggests recent converts that can likely be converted again. All of which will be obvious to Oppo and Vivo and BBK, which also has the OnePlus and RealMe brands and is a genuine threat to the larger global smartphone manufacturers.
Conversely, Apple and Samsung clearly do enjoy strong consumer loyalty. But Huawei has demonstrated that it can be targeted successfully. When Huawei toppled Samsung for the second-quarter, albeit built on strong China sales, Canalys pointed out that it was “the first quarter in nine years that a company other than Samsung or Apple has led the market.”
So, what about Huawei? As I’ve reported before, the company has adjusted its strategy, focusing on its software ecosystem as it prepares for a shortfall of smartphone chipsets. For the new strategy to succeed, it needs other manufacturers, likely Chinese, to adopt it as an alternative to Android. Doing so will play well in China but will be an inhibitor in Europe and elsewhere. It’s hard to see why any OEM with a chance to target European consumers would do anything to make that job harder or to help a rival.
The scale opportunity for Oppo and Vivo has opened up directly because of Huawei’s blacklist restrictions. Huawei was able to overtake Apple and target Samsung. Now we have multiple Chinese brands seeking to replicate the recipe and achieve the same. Clearly these Chinese brands will compete for market share between themselves, with Huawei remaining in the picture albeit diminished. For Apple and Samsung, though, the net result is all about an ever more competitive market fuelled by exporting Chinese manufacturers able to change the industry’s economics.
Reports this week that Huawei may sell its Honor brand to free it from U.S. sanctions perfectly illustrates the extent of changes we may now see. Beyond that, there’s the small matter of a U.S. election. One can’t help but conclude that Huawei and China’s relative silence awaits the result and an assessment of what changes may come. In the meantime, BBK has become the Chinese smartphone giant most likely to take its crown—even though its brands appear to publicly distance themselves from the parent (all of which are private companies) and to genuinely compete.
The Link LonkOctober 18, 2020 at 05:00PM
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