This was not the plan. U.S. President Trump’s blacklisting of Huawei—now entering its second year—was intended to curtail the export of potentially high-risk Chinese technology. But it now looks like there will be a surprising twist. The sanctions were aimed at Huawei’s 5G equipment, but it is the company’s smartphone business that has been hardest hit. The loss of Google has decimated sales outside China.
Prior to the blacklisting, Huawei was on the cusp of generating more revenue from exports than its huge domestic market. That has now all changed. The company relies on smartphone sales at home to replenish its balance sheet, fuelling the vast R&D investments it makes each year. Its share of China’s smartphone market—the world’s largest—has grown post-blacklist. The company is dominant.
Huawei knows full well that to recover any ground in its international consumer sales it needs to either restore Google or deliver on its promise of a home-grown alternative. The U.S. government is not about to allow the former, and the latter will take many years—as the company has openly admitted. So the question had been whether market leaders Samsung and Apple could capitalize on Huawei’s misfortune and take further market share from the Chinese giant.
That question has changed. The risk for Huawei now is whether another Chinese phone giant, unencumbered by U.S. sanctions and still able to ship phones with Google onboard, can replicate Huawei’s lower-priced premium-quality model in overseas territories. Huawei had taken those markets by storm, racing to become the second largest smartphone maker globally. The industry berth for a tier-one Chinese smartphone exporter is now vacant—but perhaps not for long.
Huawei described its performance in 2019 as “solid,” shipping 240 million phones and maintaining its number-two slot. But the company had wanted to be nearer the 300 million mark, closing down on Samsung, increasing its market share. Instead it warned that 2020 would be tough, cautioning that smartphone sales would shrink.
The same day that Huawei released its 2019 results, March 31, its domestic rival Xiaomi did the same. The much smaller phone maker is dwarfed by Huawei at home, but is growing overseas even faster than Huawei is shrinking. On results day, March 31, Xiaomi bragged that “it had achieved the highest year-over-year smartphone shipments growth among the top five smartphone companies.”
Worse for Huawei, Xiaomi saw revenue from overseas markets grow 30% across the year, reaching 40% in the fourth quarter. By the end of 2019, exports accounted for almost 47% of sales—that figure is now over 50%. In the European market Huawei has taken a decade to conquer, Xiaomi saw 115% growth in the fourth quarter—with annual sales in Spain, France and Italy up 65%, 69% and 206% respectively.
Ahead of the U.S. blacklisting last May, Huawei’s 2018 results announcement painted a picture of flawless export execution. That has been reversed now—phones released since the blacklist, those missing Google, have tanked outside China. The company admits it will be at least a year, maybe several, until it can properly address this. Meanwhile, Xiaomi has sensed an opportunity. Shifting away from its economy reputation to ship premium models at higher prices. For Huawei users, this Xiaomi shift upmarket has provided a new alternative that did not exist before.
This is a serious irritation in Shenzhen—and this year is going to be much worse. In the first quarter of 2020, market analyst Canalys estimates that Xiaomi was up in fourth place in Europe—trailing Samsung, Apple and Huawei. But while the other brands all shrank year-on-year, Xiaomi was up nearly 80%. With Huawei down a huge 40%, it’s easy to see where its European consumers were churning to. And why not. Same model as Huawei, similar Chinese brand, only with Google onboard.
The first quarter Canalys data suggests Xiaomi now has around half the market share of Huawei in Europe—although in Spain it leads the whole pack, proving it can be done. With the Mate 30 and P40 falling flat in Europe given the Google issue, Huawei is relying on a sales spike for its re-spun and Google-equipped P30 to stem the tide moving relentlessly in Xiaomi’s favour.
Tech site Android Authority asked its readers whether Xiaomi “is the new Huawei,” and the answer was categorical—80% of those responding said it was. “The U.S. trade ban against Huawei has opened the door for other Android brands,” the site pointed out, “and it looks like Xiaomi has been the biggest beneficiary.”
This isn’t limited to Europe, of course. Xiaomi is the leading smartphone brand in India’s vast market, with a stellar 30% market share. And the company has aspirations to hunt down listless Huawei consumers—along with any that can be picked off from other Android brands—in other markets around the world.
Xiaomi is publicly listed in Hong Kong, in contrast to Huawei’s complex private ownership structure that has made it difficult to disprove allegations of state control. Xiaomi is also a consumer brand first and foremost, which means it has escaped the Xinjiang surveillance criticisms that have hit Huawei and other leading Chinese companies. All of which puts Xiaomi in better shape against the possibility of U.S. sanctions, albeit the company has acknowledged the possibility.
But Xiaomi has been the subject of its own security issues—as Thomas Brewster reported exclusively for Forbes in April, users were warned that the levels of phone data and web tracking pulled from Xiaomi phones far exceeded industry norms. And, worse, that intrusive data was allegedly being sent to China. Xiaomi denied the reports, but then announced that it would provide data-tracking opt-outs in its next software updates, as well as a user setting to keep data away from China.
Make no mistake—Xiaomi intends to entice Huawei consumers with upgraded phones such as the recent Mi 10 Pro, better able to compete with Huawei’s flagships in overseas markets. The company is also making a feature of its “easy access to Google,” as its marketing goes head to head with its larger Chinese rival. Right now, Xiaomi has a unique opportunity to strip away market share with Huawei helpless on the Google front. And it seems that millions of Huawei users outside China who want to maintain Google on their phones are already voting with their wallets.
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