And then there were three: Huawei shatters the duopoly

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The technology world was rocked when a ‘Challenger’ brand overtook the mighty Apple

For a long time the smartphone market has been dominated by the two main players – Apple and Samsung.

These two mega brands have traded blows for the best part of a decade and, over that period, have grown into a duopoly that has supremacy of the market.

For seven years the top two in every quarter has been either Apple or Samsung. That was the case until the last quarter when Huawei, overtook Apple to move into second place.

According to leading global technology market analyst Canalys’s figures for Q2 2018, Samsung led the way with 73 million shipments, followed by Huawei with 54 million and Apple with 41 million.

Huawei’s impressive surge was highlighted as it was up 41 per cent for year-on-year (YoY) figures. Apple also saw growth, albeit only one per cent, while Samsung was down 8 per cent YoY.

Decision Tech senior commercial manager Thom Bryan has described it as an “almost perfect storm” as Huawei has exceeded expectations to give consumers an alternative.

Strong performance

Huawei’s strong performance in the last quarter begs the question – how significant are these figures?

Huawei started 2018 in difficult circumstances when it was banned from operating in the US, one of the biggest smartphone markets in the world.

To be absent from such a huge market was expected to hurt Huawei. Instead, it turned its attentions elsewhere and has been rewarded with substantial success.

Bryan believes Huawei’s performance is a great example to other challenger brands that there is potential for a sizeable slice of the market.

“It sets a huge example for a whole host of challenger brands who now see there’s a big piece of the market for them, too, if they are persistent enough. Change is here and more change will likely come, inspired by this.”

Looking ahead, Canalys senior analyst Ben Stanton believes Huawei doesn’t need to rely on the US market to make it to the top.

“I don’t think Huawei needs to be in the US to make it to number one. There’s an argument being made with Samsung being strong in the US and having almost no presence in China for Huawei it is the opposite.”

uSwitch head of commercial communications Ernest Doku believes the US ban underlines just how well Huawei has performed in Q2.

“Once you put it into perspective it really gives you a real appreciation of what Huawei has managed to achieve.”

The US ban has meant Huawei has worked harder in other markets and shows that not being in America is not necessarily a hinderance.

“It also proves that it is possible to have a strong global standing without the US being core to that, so it stands to reason Huawei will continue with this.”

Apple was the brand that was overtaken in Q2 but analysts expect it to fight back in the next two quarters as it approaches launch season.

CCS Insights vice president forecasting Marina Koytcheva said: “Apple has a particular seasonality. The second quarter is always the lowest for them in market share and this gave Huawei an opportunity.

Stanton agrees and says the fact it’s not Apple’s strongest season means the results should be “treated with caution”.

Partnerships

Key to Huawei’s strategy has been its growing emergence in European markets where it has seen notably more success.

One aspect of this has been the support from the networks and the channel, say the analysts.

IDC senior research director Francisco Jeronimo said: “Huawei has a strong strategy based on partnerships with the mobile operators. It has consolidated that and it has improved the portfolio.”

Jeronimo points towards the strong effort of the networks in supporting Huawei which has increased consumer options.

“Operators and retailers want to have competitors to Apple and Samsung and don’t want to be dependent on two vendors. Huawei has received good support from the operators.”

Koytcheva echoes Jeronimo’s opinion: “The channels and operators like to have at least three contenders so there is no one brand with extreme power. The channel has been willing to help Huawei in pursuit of growth.”

Another imporant core strategy for Huawei has been around its price points where it is offering “good value alternatives” according to Bryan.

“For those in the market for a new phone, the flagships have never been more expensive and this has pushed up contract prices for those who don’t buy the handset outright.

“Huawei is offering good value alternatives and serving these customers. It’s a really timely strategy.”

Dual Dynamic

Huawei has also got a successful sub-brand in Honor that has supported the growth and vision of the Chinese company.

Stanton feels the Honor brand has been “massive” for Huawei and has driven a competitive dual dynamic within the company.

“A massive part of why Huawei has been so strong has been because of the Honor brand, which has been the chief instigator when it comes to value for money.

“This new dynamic emerging within the company has seen the Huawei and Honor teams competing against each other. They’re competing internally for the talent within Huawei and this competitive dual brand dynamic is driving Huawei forward.”

Honor’s drive doesn’t just stop with its bigger brother Huawei, it has even taken on Samsung in the lower end, enjoying success there, too.

“Honor is winning a lot of these battles in the lower end, and the engine behind Honor’s performance in the last quarter drove a large percentage of the growth in the quarter at the lower end.”

Defining Moment

Perhaps one really defining moment for Huawei this year has been the P20 Series which includes the P20 Pro.

In what has been a fairly stagnant smartphone market for innovation of late, Huawei produced the P20 Pro, which is the only smartphone with a triple camera.

The phone has been well received for the camera alone but has also won praise for its design and functionality.

Stanton has hailed it as a “game changer” and one that proves Huawei has the technology to compete with the big two in the higher tier.

“It is arguably the first time Huawei has proven it can supersede the technology of Apple and Samsung at the high end.”

Koytcheva agrees: “The P20 and P20 Pro are fantastic devices and have achieved a lot. Huawei needed this good device and it has done great.”

Doku believes the P20 Pro has shown Huawei has shown high-end smartphones don’t have to cost beyond £1,000.

“It has done incredibly well for performance and this has had a massive impact. Huawei is not willing to compromise in terms of spec and the P20 Pro has changed consumers’ perception of what can be delivered at this price point.”

On the other hand, Jeronimo feels Huawei’s success has been more dependent on the
mid-range devices, but does appreciate that the P20 Pro is one of the best handsets out there.

“Huawei is still dependent on mid-range devices, so the average selling price of Huawei is still much lower than Apple and Samsung.

“It’s about the experience, if people are trying the cheaper Huaweis first and enjoying the experience then they will transition to the higher end.”

Context

With Huawei’s growth evident, most notably through the Q2 figures for 2018, what does this mean for the current duopoly in the future?

To put it into context, while Apple and Samsung lead the way for smartphone shipments in the UK for Q2 according to Canalys figures, Huawei is the only brand of the three to see a YoY increase.

Apple shipped 2.1 million units, while Samsung shipped 1.6 million units and Huawei 625,000 handsets.

A closer look at the numbers tells a different story, with Apple and Samsung’s YoY performance down 13 per cent and 34 per cent respectively.

Huawei, on the other hand, has registered growth of 63 per cent in the UK, which is showing that it has the potential to take on one of the most brand led markets in the world.

So with the recent surge of Huawei, which of the two is more likely to be impacted by the Chinese brand?

According to the analysts, the signs are more worrying for Samsung and the fact both share an Android platform contributes to this.

Koytcheva argues Apple performed well in the last quarter and that the pressure is on Samsung and other Android players.

Koytcheva said: “It is fair to say this is way less about Apple than it is about Samsung because Apple’s performance showed a slight uptake in a tough market.

“Huawei’s growth has come at the expense of Samsung and other competitors like LG and Sony. The pressure is more on these competitors because it is easier to persuade an Android user to switch from one brand to another than an iOS user to Android.”

Jeronimo also acknowledges the Android battle and that Huawei’s rise is “more worrying” for Samsung than it is Apple and that retailers can have a big influence in this.

Increased Pressure

“For Samsung it is harder as it needs to compete in terms of price, design and functionality.

“The point of sale is also important in the Android space as most decisions are made in-store and based on the advice given by staff in that store. Samsung used to be strong on this front but Huawei has followed them. We will see more of this in the long run as the fight between the two happens in the retail space.”

Doku thinks the success of the P20 Pro will increase pressure on Samsung for innovation after a slowing down in the S9 that was released earlier this year.

“Huawei is a manufacturer with new designs, camera credentials and with a compelling price has shifted the market in its favour and that is an exciting story being borne out.

“This will cause Samsung to think about what it can deliver and it is exciting to know a manufacturer in Huawei can compete at attracting customers to an exciting alternative. The cost has played a big part in changing people’s minds.”

Although Apple was the brand that Huawei managed to leapfrog to claim second position, its performance YOY was that of growth, unlike Samsung.

One thing Apple will have that Huawei can’t change is the iOS platform. This unique platform is continually used by Apple fans who will likely invest in other portfolio products such as iPads, Macs – and in the past iPods –often regardless of price.

The Apple brand will always find consumers that are willing to spend big money for the premium devices, says Doku, who feels Apple is the standalone brand for premium smartphones.

Designer Brand

“The iPhone X has cemented Apple as a designer brand and has proven that you can charge £1,000 for a handset and deliver a device that is a brand piece.

“Apple has cemented a standalone position of being a premium brand in the most fundamental sense of the word. With Apple, people will almost flock to the brand irrespective of price. Apple has been able to carve a very significant niche of the market to themselves.”

Jeronimo agrees that Apple dominates the premium market and believes it won’t feel threatened should it continue spending on enhancing the experience for users.

“For Apple it is about continuing to invest in the user experience, and it is doing this by expanding the amount of devices it has. It is about managing the portfolio and making sure it maintains a high share in the premium segment. If the market share isn’t as high as Samsung or Huawei, Apple won’t care as much as it chases value rather than units and volume market share.”

Stanton, however, disagrees and feels volume has become more important to Apple as it is aware of Huawei’s growing threat. “Apple is aware of the dynamic and that Huawei is threatening to take share. There is a misconception that volume doesn’t matter to Apple and that is simply not true.

“The future of Apple is services driven and it needs to ship volume in order to support that. It can’t make money on the App store or services if it doesn’t have a big base of users.”

With Huawei’s emergence looking set to continue, consumers will likely benefit from the increased competition.

Stanton reckons this is good for consumers and hopes it will drive more innovation among manufacturers.

“It’s always a good thing for consumers to have several brands innovating, investing and competing at the top. It has come at a good time for the industry as in developed markets we’ve seen a lot of consolidation over the past couple of years as Apple and Samsung has got stronger at the expense of others.”

Doku concurs, hailing it as great news for consumers: “It is fantastic from a consumer perspective to have more competition in this space. It’s been a long time since we’ve anything threaten the duopoly in the market.

“Ideally, we’d like to see the likes of Sony, LG and HTC jostle for position a little bit more and seeing that it can be done if the market awareness is there.”

Jeronimo further expects the market to consolidate as he expects Huawei to join the duopoly and create a “big three”.

“The market will consolidate even further now. Huawei took a lot of users moving away from LG, Sony, HTC and BlackBerry.”

More Competitive

Koytcheva, on the other hand, expects more brands to follow Huawei’s strategy to make for a more competitive future market.

“There will be the big three and then there will be a second group of three coming from the Chinese players such as Xiaomi, Oppo and Vivo, and this will be a strong second group.”

With Huawei’s position continually improving, it is a question of whether it can maintain its solid performances in the future.

Huawei has already said it is aiming to be number one by the end of next year but will know that Samsung and Apple will be carefully considering how to respond.

One challenge will be maintaining interest, says Doku. “It’s about keeping the momentum going. Huawei has got into a good position but it is now about staying there. It’s a great milestone but it will be a challenge, and it’s a continuing testament to Apple and Samsung that they have been so strong for so long.”

Jeronimo also believes the hard work is far from over for Huawei but sees the third quarter of next year as an important benchmark to assess its standing in the market.

“Huawei can consider the position consolidated if it beats Apple in the third quarter of 2019.”

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