Huawei Technologies Co. may be unknown to many U.S. consumers, but the Chinese company is becoming a threat to
Samsung Electronics Co.
005930.SE -1.52% , the world's biggest smartphone maker.
Huawei's rise is an indication that growth in the mobile-phone industry is coming mainly from outside China—emerging markets where many consumers are still replacing basic feature phones with smartphones. While China's increasingly saturated smartphone market is showing signs of slowing growth, Huawei is expanding rapidly in Africa, the Middle East and Latin America.
As Huawei tries to sell more handsets overseas, among its advantages are its close relationships with mobile carriers around the world. Huawei, whose main business is supplying networking equipment, counts most major telecom operators as its clients. For the past few years, Huawei has been trying to turn its smartphone business into another major source of revenue and profit.
In the second quarter, Huawei was the third-largest smartphone maker in the world, as its market share rose to 6.9% from 4.3% a year earlier, according to research firm IDC. Samsung's market share dropped to 25% from 32% a year earlier, while
Apple Inc.
AAPL +0.37% 's share fell slightly to 12% from 13%. Huawei's shipments for the quarter jumped 95% from a year earlier, by far the fastest growth among major handset vendors, while Samsung's shipments declined 3.9%. Analysts say Huawei is more of a threat to Samsung than to Apple, since Samsung sells handsets at various price points and most of its phones use Android, like Huawei phones do.
In a recent interview with The Wall Street Journal at the company's headquarters in Shenzhen, Richard Yu, the head of Huawei's consumer business group, talked about the future of the global smartphone industry and how Huawei will compete against Samsung and Apple.
WSJ: Why did Huawei decide to sell consumer devices in the first place, instead of continuing to concentrate on telecom equipment?
Mr. Yu: About 10 to 12 years ago, telecom carriers began to roll out third-generation mobile networks. But 3G phones were still very expensive, and carriers wanted Huawei to design handsets. We made white-label phones (that were sold under the carriers' names). After Apple launched the iPhone, carriers asked us to design smartphones for them. At that time, HTC and Samsung were the main suppliers of Android smartphones, and there were few others.
Our products had good quality. As a white-label supplier, we had to compete against other white-label smartphones that cost less and had lower quality. It wasn't good for us. No brand, no value. That's why we started using our own brand.
WSJ: How is Huawei doing in the smartphone market?
Mr. Yu: There are too many smartphone makers in the market, especially in China. The whole industry is consolidating and some global vendors are disappearing. But even though most vendors are suffering, Huawei is growing, not only in terms of shipments and revenue, but also profit. Last year we became the third-largest supplier by shipment. We shipped 52 million smartphones last year, and our target for this year is more than 80 million.
WSJ: What makes Huawei different? What's your advantage?
Mr. Yu: There are many other brands that are also providing very good products, and some are better-known brands than Huawei. But we are a telecom equipment supplier. We build communications networks around the world, both fixed broadband and mobile broadband networks. Because we have that technology, we can make our mobile devices work better when they connect to the networks. We think we can support the latest network technology better than other handset makers. This is the value we can bring.
WSJ: What is Huawei doing in terms of software for smartphones?
Mr. Yu: User experience is key and we put a lot of resources in software research and development. We build our own user interface software on top of Android. Our software team has roughly 2,000 people, and we are increasing our investment about 20% to 30% every year. To provide better services, we have partnered with some software and Internet companies. The industry is changing and you cannot do everything by yourself.
WSJ: For most handset makers Android is the only option. Is that a problem?
Mr. Yu: It's difficult to say. We have tried using the Windows Phone OS. But it has been difficult to persuade consumers to buy a Windows phone. It wasn't profitable for us. We were losing money for two years on those phones. So for now we've decided to put any releases of new Windows phones on hold. We have worries about Android being the only option, but we have no choice. And we have a good collaboration with Google.
WSJ: Have you ever considered using the Tizen operating system [developed by Samsung and backed by Intel Corp. and others]?
Mr. Yu: We have no plans to use Tizen. Some telecom carriers are pushing us to design Tizen phones but I say "no" to them. In the past we had a team to do research on Tizen but I canceled it. We feel Tizen has no chance to be successful. Even for Windows Phone it's difficult to be successful.
We have no plans to build our own OS. It's easy to design a new OS, but the problem is building the ecosystem around it.
WSJ: Lenovo Group Ltd., another Chinese smartphone maker, is in the process of buying Motorola Mobility. What is Huawei's strategy in terms of acquisitions?
Mr. Yu: Lenovo may gain market share with acquisitions, but different companies have different approaches. We are not so eager to acquire companies. We invest more in research and development. Larger scale can help lower costs and it's important. But it's not the most important thing. Without investing more in R&D, you can't bring better products and more value to consumers.
WSJ: Are you trying to sell more mobile devices to companies and government clients?
Mr. Yu: Our enterprise customers (Huawei supplies equipment to corporate clients and helps build their private networks) need mobile devices. Those customers care about security and efficiency. To meet their demand, our device business is working with our enterprise equipment business. Apple recently announced a partnership with
IBMIBM +0.47% and Samsung's Knox business is providing services for enterprise clients. This is an important business for Huawei, too.
Résumé
Career: Mr. Yu joined Huawei in 1993 as a software engineer. He held a number of executive positions within Huawei, including head of the European region, between 2008 and 2010, and president of Huawei's wireless product line. He is now chief executive of Huawei's consumer business group, which includes smartphones and tablets.
Education: He holds a master's degree in electronic engineering from Tsinghua University, Beijing.
Hobbies: Mr. Yu enjoys mountain climbing and playing golf. He and his wife have a son and a daughter.
