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Chinese tech giant Huawei's latest smartphone faces frosty US reception

A Chinese technology giant, whose telecom networking equipment is shut out of the U.S. due to security concerns, is bringing its high-end smartphone to American consumers for the first time.

But a number of obstacles are blocking Huawei Technologies Co.’s path to success in the U.S. smartphone market.

U.S. carriers, which distribute more than 80% of handsets in the country, are reluctant to work with Huawei—the world’s third-largest smartphone maker by shipments behind  Samsung Electronics Co. and Apple Inc.--because of its low brand recognition and security concerns associated with its networking equipment, people familiar with the matter say. A 2012 congressional report recommended that U.S. carriers avoid using Huawei gear in their networks for fear that China might use it to spy on Americans. Huawei has denied such accusations, saying it operates independently of Beijing.

There are also technical hurdles related to cellular standards that would make U.S. expansion costly for the Chinese company.

“We haven’t figured out how to remove those obstacles,” said a U.S.-based Huawei manager who declined to be named. “It’s very challenging.”

Huawei said this month that it would launch its high-end Mate 9 smartphone in the U.S. But the phone, which carries a €699 ($759) price tag in Europe, will likely be sold just through online retailers such as Inc., people familiar with the matter said. Huawei hasn’t disclosed the price or exact release date in the U.S.

The U.S. is the biggest missing piece in Huawei’s smartphone global expansion strategy. The company, founded by former People’s Liberation Army engineer Ren Zhengfei three decades ago, has become a major force thanks to its growth in China—the world’s biggest smartphone market—as well as Europe, the Middle East, Africa and Latin America. In the U.S., where it sells inexpensive models, it had a market share of just 0.4 % in the third quarter, according to research firm Canalys. Apple was the U.S. market leader with 39%, followed by Samsung with 23%.

The U.S. is the world’s largest market for high-end phones priced above $500, according to Canalys. Cracking that market would help Huawei in its mission to overtake Apple and Samsung within five years as the world’s top smartphone maker.

“It takes time to build trust in the U.S.,” Richard Yu, head of Huawei’s smartphone business who has set that ambitious goal, said in an interview this month.

But there are technical challenges. To comply with the cellular standard used by  Verizon Communications Inc. and  Sprint Corp., Huawei would have to make substantial and costly changes to its mobile chips. Verizon and Sprint also see little upside in adding Huawei devices to their already crowded lineup of phones given Washington’s wariness toward the Chinese company, people familiar with the matter said.

Huawei is also in a patent dispute with  T-Mobile US Inc., making collaborations between the two unlikely.

While Huawei is more hopeful about the possibility of working with  AT&T Inc., one of the country’s two biggest carriers along with Verizon, and has communicated with the telecom giant, it is unclear whether they can agree on a partnership, according to the U.S.-based Huawei manager.

AT&T and T-Mobile declined to comment.

Until now, Huawei has largely ignored the U.S. as it concentrated on more welcoming markets. In Western Europe, it has spent heavily on advertising, working closely with local retailers and sponsored professional soccer teams. As a result, its market share there more than doubled to 13% in the third quarter from 6% a year earlier, according to research firm IDC.

In the U.S., where handsets sold by retailers account for a small part of the market, Huawei needs a different strategy. Apple and Samsung dominate the premium segment, making it hard for other vendors to convince U.S. carriers to sell their high-end phones, analysts say.

For carriers, “it’s easier to sell brands that consumers already know, brands that are heavily marketed,” said Canalys analyst Chris Jones. Samsung, for example, spent years building relationships with U.S. carriers while outspending rivals in marketing.

Other Chinese players, such as  ZTE Corp. and TCL Communication Technology Holdings Ltd., which owns the Alcatel brand, work with U.S. carriers by focusing on handsets that cost less than half of Apple and Samsung phones. ZTE also promoted its brand by sponsoring National Basketball Association teams.

Targeting the low-end segment, where margins are thin, doesn’t fit well with Huawei’s attempt to move upscale and sell more expensive phones.

“The U.S. device market is significant for Huawei,” a Huawei spokesman said. “We are patient, however, and we measure our success over the long term.”

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