Huawei’s smartphone sales in China had been a bulwark against the effects of its U.S. export blacklisting, but no longer. Even the company’s domestic phone business is running into increasing challenges due to the coronavirus outbreak, which has hit consumption hard.
The telecom equipment and smartphone giant said that it had largely resumed smartphone production by the end of March, after local infections of COVID-19 had reportedly slowed. The problem now is on the demand side.
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With the Chinese economy contracting sharply and consumers pulling back on purchases, selling more phones is shaping up to be a daunting task.
“Consumption is being continuously affected,” says CK Lu, a senior director analyst at research and advisory firm Gartner. “In this environment, it would be considered a really good result if they can maintain the same level of shipments as last year.”
Huawei had previously said it sells an average of 450,000 phones in China on a daily basis, while sales in international markets are declining, according to a transcript of billionaire founder Ren Zhengfei’s interview with the Wall Street Journal released on March 25.
Analysts say the Shenzhen-based company is launching new devices more frequently and offering aggressive discounts on some entry-level models to fend off rising competition, as major brands from Xiaomi to Apple are all focusing more on China.
For example, Huawei introduced in April several new models to its Nova and Honor lines, which analysts say have both hit the market earlier than expected. It also launched via an online event in March the company’s flagship P40 series, which come with enhanced lenses and bigger camera sensors.
“Huawei has accelerated the new product launch cycle,” says Wu Yiwen, a senior analyst at research firm Strategy Analytics.
For its smartphone business, analysts say revenues from China won’t be enough to offset losses from overseas. Huawei’s devices have been deprived of crucial Google services, such as Gmail, Maps and YouTube, after the Trump administration placed the company on the so-called entity list, which curbs the export of American technology on the grounds of national security concerns.
The company has since launched its own software services, but they haven’t gained much traction abroad. The lack of Google products isn’t a problem in China, because Beijing has long blocked a slew of Western platforms and supported local alternatives.
“They aren’t giving up on overseas markets but the situation is really very difficult,” Gartner’s Lu says. “HMS (Huawei Mobile Services) is simply not very attractive.”
One bright spot for the company is 5G, a technology that holds the promise of much faster internet speed and supports the online connection of more devices. Huawei has been investing heavily in this area, and Ren said in the Journal interview that the company’s research and development expenses would be increased to more than $20 billion this year from $15 billion in 2019.
When more devices with 5G features are launched in the third and fourth quarter, analysts say smartphone sales could see a small bump, and Huawei is expected to be the main beneficiary due to its better technologies. “5G phones will be priced at the mid to high-end segments,” Canalys’ Jia says. “Thanks to its self-developed chips, Huawei has a good brand image in this area.”
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