One of Huawei’s greatest defences in its ongoing battle against Washington and the blacklist imposed by the Trump administration has been its stronghold at home. The Shenzhen tech giant knows that the impact of the blacklist is limited by unwavering support at home, where the headline loss of full-fat Android, its biggest international issue, has no impact on smartphone sales—Google’s software and services are unavailable in China.
All that said, Huawei’s performance in pushing out smartphones in the third quarter was extraordinary. As reported by market researcher Canalys, “this is Huawei’s sixth consecutive quarter of double-digit growth amid a gloomy China market.” The company posted 66% annual growth, reaching a staggering 42% smartphone market share.
All Huawei’s rivals have now been left far behind, but it’s the impact on Apple’s iPhone sales that will steal headlines just ahead of its own results. Apple has been desperate to hold onto a sensible market share in China, but this latest drop of 28% on the same quarter a year before takes it down to its lowest quarterly level for five years.
CANALYS
For Huawei, a combination of keen pricing, technical innovation and patriotism has turned a strong domestic position into a dominant one. And given this is the world’s largest smartphone market, that dominance carries significant weight. The overall China market has shrunk slightly year-on-year, down 3%. But of the 97.8 million devices that did ship in the quarter, Huawei had its brand stamped on a staggering 41.5 million of them.
As Huawei sails away, Apple remains stuck below Vivo, Oppo and Xiaomi. And at just a 5.1% market share, it now risks dropping into the dreaded “others” zone. The three also-ran domestic brands all saw similarly material drops—Vivo down 23%, Oppo down 20%, Xiaomi down 33%—and now enter rethink territory with their failure to arrest Huawei’s dominance.
“Huawei is in a strong position to consolidate its dominance further amid 5G network rollout.” Canalys commented. “This puts significant pressure on Oppo, Vivo and Xiaomi, which find it very hard to make any breakthrough.”
Clearly, Apple’s year-on-year quarter three drop has been a year in the making, But its challenge is that with a 5G offering a year away, it risks further China slippage as the market adopts smartphones capable of a generational shift in network speeds. Apple’s position would have been much worse without the launch of the iPhone 11 in the final few weeks of the quarter. Given its late entrance, a surprising 40% of Apple’s third quarter devices were the new models. The Chinese market has taken to camera improvements and tidier pricing—but that will not carry Apple through the next 12 months.
Canalys offered some hope for Apple’s China aspirations, commenting on the iPhone 11 improvements as reason for some optimism. But this need a reality check, the research team warns that Apple “faces a looming challenge, as Chinese vendors and operators drive heavy marketing and promotions around 5G in the next two quarters.” The close out of the year and the all important holiday fourth quarter will give more of an insight into the sustainability of iPhone 11 sales against competition from Huawei’s new devices.
Huawei is on something of a smartphone sales tear this year—it hit the 200 million device shipment milestone a full two months earlier than it managed last year, and expects to reach somewhere around 270 million units shipped by the year-end. This would put it within touching distance of Samsung’s outturn for last year, as it keeps its focus on closing the gap to the global top spot.
Most analysts still expect Huawei to start to take a hit as its newest devices reach the international markets absent core U.S. tech—read Google and full-fat Android. But no-one had expected the level of performance at home that Huawei has managed. It will also expect this growth to continue as the Mate 30 and Mate X sales take hold. This is a self-reinforcing model, the financial rewards can be ploughed back into its development budget as it looks to drive innovation to maintain its heady lead.
Stepping back from the detail, this will be welcome news in Shenzhen after a mixed few days for the company. Despite his government seeming to give Huawei something of a pass, Bruno Kahl, Germany’s foreign intelligence chief, has warned that Huawei should not be trusted as a core network supplier. Meanwhile, in the U.S. the FCC looks set to end what remains of Huawei’s network sales across the rural carriers. And the speculation that the U.K. is set to allow Huawei into its own networks remains unsubstantiated and, if true, will still need to survive an inevitable domestic and U.S. backlash and the uncertainties of an imminent election.
What we do know, though, is that Huawei remains well positioned to continue its battle against Washington. The company has acknowledged the hit it will take internationally, the need for a political compromise or a new non-Google ecosystem that will take years to develop. But what’s happening at home has ensured that none of this will be existential for the company and its consumer business any time soon. And the longer Huawei keeps something close to business as usual, the more the chance that a political compromise between Beijing and Washington is found.
Apple reported solid overall results for the quarter ended September 28, beating analyst estimates. Forbes coverage can be found here. Overall sales in China suggested a marginal decline, shored up by strong early iPhone 11 sales, as reported above, and other revenue streams. iPhone’s market share is sharply down, though, as reported here, with the lack of 5G likely to become an impediment to any recovery with its 5G devices still almost 12 months away.
