Huawei makes a good call in low-end smartphone market

The Huawei M835 smartphone (left), which looks similar to the BlackBerry beside it, attracts the low-income segment of the market. [Ariel Tung / China Daily]

Despite branding issues, Chinese company a top seller of handsets in US

Huawei Technologies Co Ltd's expansion in the United States may have been met initially with political obstruction, but its success in the handset market is unstoppable. Since entering the smartphone market in the second half of 2010, the Shenzhen-based telecommunications equipment supplier has carved out a niche in the lower-income segment in the US.

At a Metro PCS dealer store in Forest Hills, New York, customers buy Huawei's smartphone mainly because of its low cost - never mind they have a hard time pronouncing Huawei (Hwa-wey).

"Some customers bought it because it looks like a Blackberry, only that it's a lot cheaper. Also, if having an Internet phone is important to them, they will buy it. Customers are definitely attracted by its price," says Giorgi Tabagari, storeowner at Metro PCS.

Called Huawei M835, the Android smartphone retails at $39, and is cheaper than some of the normal handsets offered at Metro PCS. Other brands offered at the shop include Samsung, LG, HTC and BlackBerry.

Store assistant Ron Wemirovsky adds that Huawei's smartphone appeals to lower-income customers. The Huawei M835 is the cheapest Android smartphone in the US market.

A survey by Pew Research Center last year found that lower-income smartphone owners in the US are far more likely than others to use their devices as their main way to get online.

Although Metro PCS officials will not disclose any sale figures of their vendors, they say that the company has seen a tremendous growth of Android smartphone sales last year.

As a relatively newbie in the smartphone market, Huawei has already captured the lower-income segment of the market. The company's smartphone sales grew an astounding 250 percent in the third quarter of 2011 from the same period of 2010, according to data compiled by Strategy Analytics Inc, a global research and consulting firm.

Huawei's success in the past two years is because of its aggressive pricing, says Neil Shah, analyst of wireless device strategies at Strategy Analytics.

Because prepaid carriers such as Metro PCS and Cricket Wireless do not offer a contract or phone subsidy like AT&T and others, customers usually buy their phones at wholesale prices. This is where lower-cost smartphones come in, Shah says.

Huawei was ranked among the top 10 smartphones sold in the US at the end of 2010. Its sales ranked seventh in the third quarter of 2011, according to data compiled by technology data firm NPD Group.

Bill Plummer, Huawei's vice-president of external affairs, says the company aims to bring more inexpensive Android smartphones to the US market through both prepaid carriers and the Big Four in the US - Verizon Wireless, AT&T, T-Mobile and Sprint.

"We have good success in the US in bringing affordable devices into the market. There's a segment of US consumers who have not been able to graduate from a normal handset to a smartphone because of prices. We made it possible for them," Plummer says.

Carriers such as Metro PCS and AT&T also benefited from Huawei's endeavors in making the smartphone affordable to the low-income group.

"Our customers, the wireless carriers, invested a great deal in the network. It allows them to capitalize on their network investments by tapping a new consumer segment," he says.

Although Huawei is touted as one of the top 10 phone makers in the US, it still struggles with branding, since most of the company's devices are marketed under established brand names like AT&T and T-Mobile.

Besides the Huawei M835, which debuted at Metro PCS in July, Huawei launched a 4G Android smartphone called AT&T Impulse in September. The company also introduced an inexpensive Android smartphone called Sprint Express in November.

"Sometimes, customers hesitate to buy it because they don't know the brand name. They know Samsung, but not 'Hawaii' - is that how you pronounce it? They don't buy it because they can't even pronounce it," Tabagari of Metro PCS says.

In spite of its branding difficulties, the future continues to look bright for Huawei's handset business. According to Strategy Analytics, smartphones at a wholesale price of $190 and below will make up 30 percent of all smartphone sales in the US by 2014. Inexpensive smartphones will also make up 51 percent of global smartphone sales by then.

On the other hand, Huawei seems to be aiming at the higher-end smartphone market in the near future.

Earlier in January, Huawei announced that it will launch "the fastest and most compact smartphone in its class" called the Ascend P1 S. It will be sold in the US, Europe, Asia, Australia and the Middle East beginning in April.

Recognized as "the world's slimmest smartphone", Shah says it can be a good start for Huawei in entering the higher-end smartphone market.

"What Huawei did was to first gain market share at Cricket Wireless and Metro PCS. Now the company is targeting bigger carriers like Verizon Wireless and AT&T," Shah says.

"Huawei is planning to have a broader portfolio, to sell both low-range and mid-range phones. Higher cost smartphones are more profitable than lower-cost smartphones."

Plummer says that Huawei aims to "offer a full range of devices to consumers, including the higher-end ones".

Huawei's success in the handset market is a stark contrast to its past efforts in acquiring technology assets in the US. Citing national threat as a reason, Huawei's deals with technology companies such as 3Leaf Systems, 3Com Corp and Sprint Nextel Corp have been blocked by the Committee on Foreign Investment in the United States, which was suspicious of the company because Huawei's founder Ren Zhengfei is a former military officer. Huawei has denied any current relationship with the Chinese military.

More recently, the US Department of Commerce decided to block Huawei from participating in the construction of a nationwide wireless network for emergency responders. The US government again cited national security concerns, but declined to provide details.