Huawei, mindful of profit margin, to exit markets where its smartphones can’t dominate

PUBLISHED : Thursday, 13 April, 2017, 4:08pm
UPDATED : Thursday, 13 April, 2017, 10:43pm

It’s taken Huawei Technologies more than two decades to step out of a swampy southern China village to produce one of every five smartphones sold on the planet. It’s even managed to unseat global brands like Apple Inc and Samsung Electronics in its home market of China.

Just when it’s poised to take on the global crown and stamp the Made-in-China brand across the world, Huawei said it will play down its presence to preserve its profitability, and may even consider pulling out of markets where its smartphones can’t take at least 10 per cent of the market share.

“Profitability is the bottom line for Huawei this year,” said Shao Yang, president of strategy marketing at Huawei’s consumer business group, in an interview with the South China Morning Post. “Our aim this year is to boost our sale of every single model of smartphones to between 8 million and up to 10 million handsets, from the previous average of 5 million units in the earlier models.”

As of the fourth quarter of 2016, Huawei sold 22.6 per cent of the world’s premium cellular phones -- those priced between US$500 and US$600 -- more than double its market share from the same quarter in 2015.

The key to Huawei’s success was its relationship with the world’s operators of fixed-line telephony, all of whom are customers of its stations and equipment. When it came time to selling smartphones, it was natural for Huawei to bundle its latest cell phones with carriers in 170 countries.

With the strategy, Huawei’s market share had surpassed 20 per cent of the smartphone sales in 22 countries, while occupying 15 per cent share in 33 markets as at the end of 2016, according to data by GFK.

Still, the rapid growth in market share came at the expense of its profit growth which had been flat, despite a surge in group revenue after the company invested an additional 4.9 billion yuan (US$712 million) on smartphone marketing and opening new stores.

Net profit margin narrowed to 7.1 per cent last year, from 9.3 per cent in 2015, affected by the thinner margins from terminal products sales, including smartphone, tablets and smart watches.

“We found that the timing was not ripe yet,” Shao said in Shenzhen.

China and Europe remain the most important battleground markets for Huawei. The company will be less reliant on other developing countries, as it looks to sell more expensive handsets to consolidate its financial report.

“China is Huawei’s largest market and it’s doing well. So it makes sense for Huawei to continue to focus on the Chinese market,” said IDC’s senior market analyst Tay Xiaohan. “Huawei has also been seeing good growth in Western Europe, central and eastern Europe over the years. Many countries in central and eastern Europe are still emerging, and there’s still that potential for growth.”

Zhao Ziming, an analyst at consultancy Analysys International in Beijing, said that Huawei’s global strategy is in line with that for its home market as the company has been gradually ditching mid-to-lower-end product lines over the years, and looking for mature markets where consumers are able to afford expensive handsets.

“To Huawei, India is like the third or fourth-tier Chinese city or town, where demand for smartphones is huge, but the profit margin is very thin,” Zhao said.

“It is hard to see some explosive growth from Huawei’s smartphone businesses for the time being. But when the 5G network is eventually competed, Huawei is very likely to take the lead in the market,” Zhao said.