http://www.businessweek.com/articles/2014-06-06/huawei-says-it-can-beat-xiaomi-in-race-to-be-chinas-top-smartphone-brand

Mobile & Telecom

Huawei Says It Can Beat Xiaomi in the Race to Be China's Top Smartphone Brand


Xiaomi isn’t the only Chinese smartphone maker looking beyond its home market. As Bloomberg Businessweek reports in its latest issue, Xiaomi is the hottest smartphone brand in China, the world’s biggest smartphone market. The Beijing company is only four years old, but its phones have built an Apple-like following among millions of Chinese. That’s thanks, in part, to the celebrity of its leader, Lei Jun, and the company’s savvy use of social media.

But Shao Yang, an executive at Huawei Technologies (002502:CH), says Xiaomi is no sure thing beyond China. Shao is in charge of Huawei’s handset division, and he argues that there is a need for a Chinese brand to challenge the dominance of Apple (AAPL) and Samsung Electronics (005930:KS). “Two brands is not a stable architecture,” says Shao, vice president for marketing at Huawei Consumer Business Group, the division responsible for smartphones. “Everyone wants to have a third one. Where this third one comes from—China is a very obvious choice, because China is the biggest market.”

Lei Jun and executives such a Hugo Barra, recruited last year from Google (GOOG), are pushing an aggressive expansion plan to have Xiaomi phones fill that role, but Shao Yang argues that Huawei, the telecom equipment giant that has long-established relationships with carriers around the world, is in a better position to be the Chinese brand that takes off with overseas consumers. Xiaomi, argues Shao, can’t match the reputation Huawei has built over the years, and that will make the difference. “They are quite dynamic. That’s their advantage,” he says in an interview. But Huawei by now has a long track record with partners, an advantage Xiaomi can’t match. For an older company such as Huawei, Shao says, “trust is more important.”

Huawei may not be able to compete with Xiaomi’s razzle-dazzle, but the Shenzhen-based Huawei has made big strides of its own in building its brand and making cool handsets. Last year it launched the Ascend PG, which Huawei said was the world’s slimmest smartphone, with a depth of just 0.24 inch (6.18 millimeters). In the first quarter of 2014, Huawei shipped 13.5 million smartphones, compared with Xiaomi’s 10 million, according to Bloomberg Industries. At $155.30, the average selling price for Huawei’s phones is slightly less than Xiaomi’s $159.60. And like Xiaomi, Huawei now sells most of its phones under its own brand. Three years ago, most of the handsets Huawei sold carried operators’ brands, with only 30 percent using Huawei’s own brand. Today, 95 percent of Huawei phones use the Huawei brand.

Early success in brand-building doesn’t ensure that a company will be able to maintain its momentum, though. Look at HTC (2498:TT). The Taiwanese company pursued a path similar to Huawei’s: Like Huawei, it started out primarily making smartphones for carriers and then quickly shifted to selling phones under its own brand. That worked for a while, with HTC’s becoming the top smartphone in the U.S. But the company couldn’t match the cool factor of Apple and the marketing might of Samsung and is now struggling to avoid irrelevance.

Shao Yang says that won’t happen to Huawei, because of the company’s history selling 3G and 4G equipment to carriers. “We think three things are fundamental for smartphones,” he explains. “No. 1 is hardware, No. 2 is software, No. 3 is telecommunication. The best hardware is from Samsung, best software and user experience [are] from Apple, and Huawei is the one that can provide the best telecom connectivity. This is the advantage of Huawei. People know that Huawei can provide the best 4G.”

Xiaomi generates buzz now, but as Chinese handset brands take their competition global, Shao is counting on Huawei’s reputation to carry it ahead of its sexier rival.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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