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Presented To: Presented By:

Dr. Adeel Nasir Umar Saadat (EMBA-005)
Qasim Javed (EMBA-018)
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A Dark Horse in the Global
Smartphone Market: Huawei’s
Smartphone Strategy
 

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Summary

The case sets China’s Huawei Technologies in the context of the evolving global smartphone
industry, notably its positioning and the links between its competitive strategy and its
corporate (global) strategy. It describes the origin, growth and structure of the smartphone
industry, evolving industry trends and dynamics, and profiles the major players including
Apple and Samsung (originally hardware manufacturers), Google and Microsoft (originally
software developers), and new entrants such as HTC and Xiaomi. It focuses on the factors
behind Huawei’s stunning success—from a traditional telecom equipment provider to the
third largest smartphone maker in the world (after Samsung and Apple), while pointing to
the challenges that lie ahead. The unique characteristics of smartphones— multi-
functionality, high degree of technology integration, and fast-moving ecosystems—make
them an ideal choice for analysis of industry change. The tale of Huawei—a Chinese
telecom giant—entering and succeeding in the highly competitive global smartphone
industry allows for discussion of the competitive strategy and organizational transformation
of an emerging economy multinational enterprise.

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Case objectives

• To discuss the past, present and future of the smartphone industry.

• Sources of competitive advantage of the major smartphone makers.
• Challenges facing smartphone makers to sustain their competitive
advantage.
• Co-evolution of competitive, corporate and global strategy of an
emerging economy multinational

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A Dark Horse in the Global Smartphone Market:
Yangao Xiao and Guoli Chen
Innovation, design, customer centrism and 5G wireless

Largest telecom manufacturers in the world

Future vision of converging the physical and digital worlds “Cloud-based”

“Bring digital to every person, home and organization for a fully connected,
intelligent world” (Huawei Annual Report, 2018).

Operating in 170 countries and regions and with 300 billion consumers i.e
Mount Everest and the Arctic Circle.

Huawei’s competitive advantage in the smartphone industry and sustainability.

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The Evolving Smartphone Industry
A Brief History
Simon by IBM, 1993 (first smartphone in the world) – Touchscreen and Zaurus OS,
One App “Dispatch It”.

Nokia 9000 Communicator, 1996 – email, calendar, address book, calculator,

notebook, web-surfing, fax.

Ericson R380e, 2000 (first to be officially called “Smartphone”

Early Riser Nokia, Symbian OS and hardware capacity leading global brand outside
North America.

Canada based RIM (Research in Motion) – BlackBerry took a rising share in North
America and globally.
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Striving To Gain Competitive Advantage in Market
Other Companies entry - offering powerful functions.

iPhone, Jan 2007 – self developed iOS (design, touchscreen, fool-proof

OS), Sales (1.2 million in U.S) in three months

Android OS, 2008

Nokia lost grip to newcomers

HTC Dream(T-Mobile G1 in U.S) Oct 2008, Samsung & Motorola – Oct

2009, LG – May 2010, Sony Ericsson – Aug 2010, Huawei – Oct 2010

Global Shipments reached 1.293 Billion Units, Annual GR 10.3% - 2015

(TrendForce Report) 8
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Suppliers
Smartphone has Software & Hardware components – OS,
applications, memory, processor, display, frame, battery, camera,
and so forth. OS and SoC are key ones.

Android OS by Google, iOS by Apple, Windows Phone OS by

Microsoft, Blackberry OS.

Android OS and Windows Phone OS open to other smartphone

makers, iOS and Blackberry OS exclusive to Apple and
Blackberry.

Market Share in 2nd Quarter, 2016 – Android 87.6%, iOS 11.7%,

and Windows Phone OS 0.4% by IDC.
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SoC type of integrated circuit (IC) - Baseband, Radio frequency (RF), Central
Processing Unit (CPU), Digital Processor (DSP), Graphical Processing Unit (GPU),
Memory, Chips with Camera, Multimedia, Navigation, Wireless, Connection,
Touchscreen Control, Power Control Capabilities.

Traditional SoC suppliers: Intel, AMD, Broadcom, and NVIDIA (All failed)
Major Designers and Suppliers: Qualcomm, MediaTek (MTK), Apple, Samsung,
Huawei HiSilicon, Spreadtrum.

SoC suppliers adopt model of fabless semiconductor company – focusing on design of

IC and outsourcing manufacturing to OEMs i.e TSMC, UMC, Global Foundries, SMIC.

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• Snapdragon series by Qualcomm(fabless semiconductor company).
SoC by Qualcomm used by Anroid Windows phone and Blackberry OS.
• “A” series by Apple(fabless model). “A” series SoCs are manufactured
by Samsung and TSMC for only Apple products.
• Exynos series by Samsung. As an IDM, Samsung supplies to its phones
and HP, Acer, Meizu.
• MT series by MTK(fabless IC design company), Android SoC – offer
low price and high level integrations of software and hardware
components popular in small and medium sized phone makers.
• Kirin series by Huawei(using fabless model), SoCs are used for Huawei
and Honor phones.

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Distribution and
Buyers
Traditional feature phones – Distribution by Telecom carriers. Supplemented by
offline sales channels.

Telecom carriers bundle sell feature phones – package of phone number + calling
plan + contract of fixed duration.
Moreover, upper hand in negotiation & pricing over phone makers.

Smartphone distribution channels – Telecom carriers, vendors, dealers, retailers,

etc., in both online and offline market.
Apple, Samsung, Huawei, Xiaomi, etc. – vendors have their online & offline stores.

Third party online retailer platforms i.e Amazon (U.S), eBay (U.S), Alibaba (China), JD
(China), Tesco (U.K), Rakuten (Japan), Otto (Germany), MercadoLivre (Brazil), Ozon
(Russia), Lazada (Southeast Asia), Souq (Middle East), Jumia (Africa) – disrupt
traditional carrier-led distribution. 15
China, Russia, Southeast Asia, Latin America, Africa – vendors, dealers, retailers in online or
offline stores.

In Europe & U.S – Telecom carrier maintain strong grip on distribution of contact smartphones.

Demand shift from calling rate & brand names to differentiated features i.e wireless data,
speech communication, camera capabilities, social networking, self-expression, identity.

Feature phone buyers – call quality, fee plan, and the brand

Smartphone buyers – mobile experience, high-tech style, camera, multimedia functions,

payment, interactivity, community, battery life, and so forth.

New entrants – Apple, Samsung, LG, Huawei, Xiaomi controlled market and squeeze out Nokia,
Ericsson and Sony.

More attention to software development, content innovation, design & hardware for multiple
features.
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Substitutes
Substitutes – feature phones, desktop, PCs, Laptops, Tablets, Smart TVs, Game
players, Cameras, Multimedia Players, Bank Cards, Smart Watches.

Smartphones are substitutes with high level of functional integration and

expandability.

Computers – 157 million, 2010 – 133.85 million, 2014 – 121 million, 2019.
Tablets – 19 million, 2010 – 229.7 million, 2014 – 406.8 million, 2017 – 170.4
million, 2019. (Market research company: Statista)

Digital Camera – 5.088 million, 1999 – 110.07 million, 2008 – 22.341 million, 2015.

Sales revenue – 227.903 billion yen (US $2.28 billion), 1999 – 1638.668 billion yen
(US $16.39 billion), 2008 – 307.148 billion yen (US$3.07 billion), 2015
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Complements

Hardware – wireless routers, Bluetooth earphones, smartphone decoration, protection.

Apple leads design and supply of smartphones decoration and protection.

Huawei leads in design and supply of routers and other products.

Software – various apps, online multimedia, mobile games, community-sharing and

survives.

Software development critical for completive advantage in competitive market.

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Entry Barriers
Feature phones – Simple devices (components & Assembling techniques).

Smartphones – high precision components i.e SoC, wireless connector, antenna, camera, battery,
display, and so forth. (Stringent Standards)

High level integration & complexity of manufacturing process (MES)

Phone makers compete on scale and price if unable to differentiate on hardware design, software &
services.

Value of phone tied to capabilities of OS, variety, price and number of apps available.

Apple(2007) entry was helped by itunes Stores apps and resources.

Google(2010) benefited from its Android OS and bountiful Google apps.

Xiaomi’s MI smartphone(2011) facilitated by updated version MIUI OS and MiChat.

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High degree of differentiation, High brand loyalty and switching cost.

Blackberry’s mobile business functions attracted business people.

Samsung leads in display and user experience, benefiting from its expertise in display
technology.

iPhone design, extensive apps, seamless integration with other Apple mobile devices
continue to delight Apple fans.

Xiaomi selling point: great community interaction and user experience

Huawei attracts with its design in hardware and software, aided by its strengths in
telecom equipment and cross-business synergies.

High level of differentiation reflects multi-dimensional nature of smart phone users’

demand which suggests more niche market opportunities.
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Evolving Trends
IDC statistics, Global Shipments – 173.5 million, 2009 – 1.433 billion, 2015 – Average Annual Growth
rate 43.82%.

Recent Growth rate – 75.62%, 2010 – 10.08%, 2015 (Many factors i.e. market saturation).

Statista, Annual shipment growth rate to North America – 27.4%, 2014 – 7.3%, 2015.

Estimated - negative growth rate in 2016.

Japan and other developed countries in Asia Pacific, Western Europe, Latin America experienced a fall
– large or small – in growth rates.

In contrast, growth rate in Asia-pacific, Middle East, Africa has been firmer.
Shipment growth rate in Asia-Pacific – 53.4%, 2014 – 35.8%, 2015.

In china, sales of 385.3 million, 2015 were down from 392.8 million, 2014, estimated bounce back in
2016.

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Shift in demand from developed to Emerging markets triggered a growth in demand
for low-end phones, driving down average sale price (ASP).

Statista, global smart phone ASP dropped from US$440, 2010 to US$305, 2015 or
6.99% annually. Sales revenue in certain regions also declined.

Slowdown of growth & declining ASP foreshadow fierce competition. “The squeeze
is on”, noted the Wall Street Journal, April 2016.

Smartphone makers seeking new growth and profit opportunities by offering new
content, services, or devices.

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Major Players

In 2010, top five vendors of global smartphone shipments and market share – Nokia
(100.1 million – 33.9% market share), RIM (48.8 million – 16.5%), Apple (47.4
million – 15.4%), Samsung (22.9 million – 7.0%), HTC (21.7 million – 6.8%).

In 2015, top five vendors shipments and market share – Samsung (325.7 million –
22.9% market share), Apple (231.5 million – 16.2%), Huawei (106.2 million – 7.4%),
Lenovo (74 million – 5.2%) and Xiaomi (64.9 million – 5.0%)

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Apple and Samsung
Apple and Samsung, the current superstars, both started off manufacturing hardware,
and both have their own self designed smartphone SoC’s.

iPhone, synonymous with stylish design, premium quality & cutting edge technology
fascinate users. Targeting premium segment of market.

iPhone sales revenue - $155 billion, 66%, 2015 of Apple net sales – 56%, 2014.

Apple iOS – 1.4 million apps & games, perfectly paired with iTunes.

Since iPhone 4, Sept 2010 – Apple released new model every year.

Tight grip on premium segment – Tested middle segment by releasing iPhone 5C priced
$100 lower than iPhone 5S in 2013. iPhone SE priced $339 in 2016.
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Samsung – Galaxy S (a high end smartphone based on Android OS). Advantage of LCD/LED/OLED display.

Applied AMOLED display technology to launch Galaxy S2 with 4.3 inch display, 4G capabilities in May
2011. Galaxy Note - 5.3 inch in Oct, 2011.

High definition displays enabled them to compete Apple (iPhone 4S, 3.5 inches).

In 2011, shipments of smart phones 94.2 million surpassing Apple’s 93.1 million.
Samsung retained its No. 1 position since then.

Google and Microsoft

Google and Microsoft both began as Software developers, both have smartphone OS – Google Android OS and
Microsoft’s Windows Phone OS – entries in hardware differed.

Light assets business model – Google designed, developed, promoted, services and supported the Nexus series.
Outsourced manufacturing & partial to OEM partners i.e HTC, Samsung, LG, Motorola, Huawei.

Nexus One manufactured by HTC – launched in Jan, 2010.

Motorola mobility acquisition Aug, 2011 for $12.5 billion.

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Most of Motorola Mobility assets sold to Lenovo Jan 2014 for $2.91 including patents, trademarks & sales channels.
Microsoft become vendor through acquisition of Nokia. Intense Competition in market.
Nokia Shipment fell 100.1 million, 2010 – 77.3 million, 2011. Lost market leadership.

Rise of Android OS (Samsung, LG, HTC)

Market share of Microsoft’s OS – Windows plunged 10.2%, 2009 to 1.6% , 2011.

Microsoft and Nokia – strategic agreement (Microsoft Window OS become Nokia’s main
platform.
In 2013, Microsoft acquired Nokia’s mobile business and patents for $7.17 billion.
In 2014, Nokia would no longer offer Symbian OS and updates. Microsoft launched its first
Lumia series smartphone – Lumia 535.
In 2016, Microsoft new focus on developing Windows 10 Mobile OS and manufacturing
hardware, shedding entry level feature phone assets.

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HTC, Xiaomi, Lenovo & other from Emerging
Economies

Booming Market in China, India, Southeast Asia, Middle East and Africa greatly benefited
local makers including HTC, Xiaomi, Lenovo, Oppo, Vivo, Huawei, ZTE, Meizu.

Taiwan HTC first to join Android Open Handset Alliance led by Google in Nov, 2007.

HTC launched HTC Dream, the first commercially released phone using Android OS.

In 2010, HTC released HTC HD7 and HTC 7 Mozart, using Windows phone 7 OS.

In 2011, prime year for HTC with 43.5 million units sold, 9.1% global share.

Not strong as Apple(Software dev), Samsung(display tech) or ability to control industry chain.

Started to lose medium and low-end market segments. (20.345 million, 2013 – 15.623 million,
2014)
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Xiaomi Inc., founded Jun Lei April 2010, quickly gained market share due to MIUI OS based on Android.
Low-priced and high value products.

In 2014, shipped 61.12 million units in China, or 12.5% market share (up by 186.5% year on year), overtaking
Samsung (12.1%) in China.
Started expanding to India, Brazil, South Africa, U.S and international markets.

Affected by lawsuits by Ericson and other companies & U.S based non practicing Blue Spike.
In 2015, shipped 64.9 million way bellow Jun Lei expected goal of 80-100 million.

Lenovo’s cell phone business – since 2002, providing Chinese telecom carriers low-end feature phones. Long
standing relationships with Chinese telecom carrier helped.

Rapid expanded market share in low-end segment (below US$150) of China market.

In 2013, Lenovo had 13.2% of market in China, second to Samsung. Global market share 4.51% - No.5 in world.

In 2014, Lenovo purchased Motorola Mobility from Google, focusing on medium and high end markets
worldwide.

In 2015, launched high-end Moto X in China, priced $813, comparable to iPhone 6S.

In 2016, Lenovo was not even among five smartphone vendors in China, where Huawei, OPPO, VIVO,
XIAOMI, APPLE accounted for about 60% of total volume. 31
Two other emerging giants: Oppo and Vivo, both subsidiaries of BBK
Electronics based in Guangdong, China, highly successful in China, South Asia,
India, Middle East and Africa.

In 2016, Global Market Share: Oppo (7.1%) and Vivo (5.9%)

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Huawei – A Chinese Technology Giant
• Huawei - A Chinese telecommunication giant , founded in 1987 by a former
engineer of peoples’ liberation Army (Zhengfel Ren) with a registered capital
of USD $ 3,000/-
• Started as a sales agent for Hong King Co. producing private branch exchange
(PBX) switches.
• Purpose to challenge Apple Inc. & Samsung Electronics Co.
• Headquarter in Shenchen , China
• China ‘s technology giant Huawei provides telecom carriers, enterprises and
consumers.
• With products & services including ICT (Information and communication
technology) solutions, fixed and mobile networks, routers , smartphones and
other mobile devices.

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Huawei – A Chinese Technology Giant …cont.
• Huawei winning the government’s official recognition in 1993 by succeeding
in developing C & C08 2000 line switch in Chinese telecom equipment
market.
• In 1997, Huawei seized the opportunity of Chinese booming mobile cellular
networks, launching wireless GSM – based solutions resulting sales price
driving down of GSM equipment.
• In 1999, Huawei launched first digital product in China – access server and
within one year supply 70% of all newly installed access servers in market, a
milestone in china.
• In 2001, after agreement of China with WTO, Huawei found an opportunity to
enter in a global telecom equipment market with rapid growth.

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Huawei – A Chinese Technology Giant …cont.
• Strategies adopted by Huawei,
• Continuous customer centric innovation
• Win-win cooperation.
• Huawei established R & D centers and 36 joint innovation centers worldwide
with Vodafone (leading telecom carrier) in China, US, Canada, Japan, Western
Europe
• In 2002, Huawei took cross licensing agreements with Ericsson and Nokia
(patent holder of WCDMA) to enter in 3G market.
• In 2003, Huawei distributed base stations in market resulting cutoff the
volume of base station equipment by 10 times and weight by 15 times.
• By the end of 20o7, formed partnerships with all telecom carriers in Europe ,
taking 62% of LTE (4G) market in Europe.

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Huawei – A Chinese Technology Giant …cont.
In 2011, Huawei also focused on integrated “ Cloud-Pipe-Devise strategy aiming
to develop synergies among the following businesses:
Cloud refers to Cloud Computing and service, Annual report 2015 shows Huawei
massive data storage servicing more than 4000 enterprises over 150 countries.
Pipe denotes wireless network infrastructure and mobile telecommunication
technology seizing the opportunity of commercializing 4G, targeting 5G
technologies by 2020.
Device refers smart devices for consumers, best represented by smartphones.
In 2003, Huawei Device Co. Ltd founded for development, manufacturing,
marketing and sales of mobile devices and accessories.
In 2004, Huawei first 3G mobile phone deputed at 3GSM conference.
Since 2011, Huawei focused on Brand recognition, channel development & eco-
system creation in global smartphone brands for five years.
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Three Pillars of Huawei’s Smartphone Strategy
Cloud-Pipe-Device elevated the importance of of device business to Huawei in
2011.

1- To provide High quality devices and services

2- To build a premium brand
3- Leading global consumer market.

Target set by Zhengefei Ren, founder and CEO ‘ to become one of the three
global smartphone makers by 2015.

Major Competitors of Huawei are:

Apple ,Samsung, Blackberry, HTC
Lenovo, ZTE, Xiaomi (Domestically)
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Huawei – A Chinese Technology Giant …cont.
• Achievements of Huawei: (2015)
Shipped 108 million smartphones with an annual growth rate of 44%
securing to three global smartphone markets.
Rank No. 1 – in global telecom equipment market (replacing Ericsson).
Rank No. 3 – in global smartphone market (after Samsung & Apple)
serves more than 170 countries/regions,(1/3rd) of worlds’ population.
Revenues are USD $ 60.839 billion
and operating profits USD $ 7.052 billion
% age of revenues (Region wise) of the total is:
from China is 42.5% & overseas revenues is 57.5%
%age of Revenues (Sector wise) of the total is:
from serving telecom carriers = 58.8% (High ratio)
from enterprises = 7.0%
from consumers = 32.7% 38
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Major responsibilities and Channel Restructuring
• Huawei initially offering low end phones (below US$150) , the high end
market. Over 80 % Huawei phones made for telecom carriers , who placed
large orders but targeted low end mass market. This strategy become failed
as phones were made for carriers instead of consumers.

• Huawei Device cut more than 80 % of Huawei old phone models and risked
retaliation from carriers (Vodafone and FTE) enabling Huawei to understand
consumer importance and preference first. This decision results to
differentiate Huawei to ZTE and Lenovo (still under the telecom carriers)

• Huawei developed other channels such as offering online sales.

• Huawei then adopted Dual Brand and Dual Channel model.

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Major responsibilities and Channel Restructuring
• Dual Brands include Huawei Brands (Offer high end smartphones P-series),
Honor Brand (targeting medium end consumers and young)
• Dual Channel includes offline sales Channel (include traditional agents,
retailers and company owned stores) and online sales channels (such as
online agents, company’s own e-commerce channel VMALL and 3rd party
online retailers
• Under the new model , Huawei boost sales through dual channels to 80 %
and reducing sales through telecom carriers to 20%.
• Internet sales greatly reduced distribution costs and drove up volume
• Honor brand successfully entered 74 countries and shipped more than 40
million units (doubled form 2014)
• Huawei brand (high end segment people) mainly used offline channels,
Huawei Mate series designed for business people while P-series focused on
technology move to high and medium market and increased brand value. 42
Focusing on SoC Development and Smartphone Design
Huawei’s rise and rapid growth from its continued focus on R & D.
Steps for R & D include:
• Employed 79,000 R & D personnel (45% of total employees).
• Spending US $ 9.2 billion (15.1 % cost of total revenue)
• Outstripped major competitors
Apple (3.45%), IBM (6.42%), Cisco (12.63%) and Ericsson (14.1%)
• Huawei devoted substantial financial and managerial resources to SoC
development and smartphone design.
• Huawei has founded Hisilicon Technologies Co. Ltd a fabless IC design
company with design centers located, Its Kirin SoCs were core to Huawei’s
release of its latest smartphone models enabled to move up elite club of
smartphone leaders with their own SoCs including Apple and Samsung

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Focusing on SoC Development and Smartphone Design

• Huawei conceived its smartphones as a Collision between ‘high-tech and

fashion’
• Emphasizing both technology capability and user interface design.
• Huawei collaborated with leading camera and audio companies such as Leica
and Harman/Kardon to improve smartphone quality and user experience.
Huawei’s P9 smartphone has a dual-lens camera jointly designed and
developed by Huawei and Leica.
• In 2012, Huawei establish industrial design and designed flagship products
such as Huawei P7, Mate S, P9 and Honor 6.

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Driving Synergies between Businesses

• Huawei’s background and technological capabilities gives a technological

advantage
• For example, battery life has been a pain point for amartphone users and
Huawei developed Kirin 950 SoC to address this problem be leveraging its
deep understanding of 3G and 4G wireless Modem technologies.
• Huawei also integrated base station detection technology into Kirin 950.
• By the end of 2015, Huawei LTE entered 140 capital cities and successfully
deployed more than 400 LTE networks and more than 180 EPC networks.
• Huawei Mate 8 smartphones connect the wireless networks of more than
1,000 carriers in 200 countries.
• These resources and capabilities are unique to Huawei and are unmatched by
major competitors including Apple and Samsung
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The Future of Huawei Smartphones
• CEO of Huawei said in 2015, he would
‘keep on fighting despite non-stop setbacks’
• Huawei has emerged one of the global smartphone industry due to following
reasons such as:
‘ Benefiting from market repositioning’
‘continued focus on R &D
‘ Synergies between business’
• But still many challenges faced by Huawei as:
Weakness in designing operating systems and apps.
Limited ability to control the industry chain
Rising manufacturing costs
Target set by Huawei as ‘ to overtake Apple in 3 years and Samsung in 5 years’

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Thank
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