Huawei Top Dog in Chinese Smartphone Market – So What Now?

huawei campus shenzhenHuawei has leaped over local rival Xiaomi to take number one spot in China’s much prized smartphone market, according to Canalys. I covered the news for IDG Connect and asked Canalys VP analysis, Rachel Lashford, whether she thought the Middle Kingdom now belonged to domestic players.

She argued that the market has actually decelerated slightly of late (1% from 1H14 to 1H15) which has increased the pressure on all vendors – but Apple and Samsung are still flying the flag for the Rest of the World.

“Apple still has a very powerful brand in China and we expect to see the latest product launches to continue its popularity,” Lashford told me.

Samsung, meanwhile, has dropped from the top spot of a 15% share in 1H14 to fourth place (9%) a year later.

“But it is recovering in the high end and has really focused on investing in localised marketing messages,” Lashford added, by email. “Combined with recent restructuring of its channels, focusing on large retail and operators, it should be well equipped to keep the pressure up on its local competition.”

So what of Huawei and Xiaomi? The former’s rise has come on the back off a steady building out of online channels over the past two years and a focus on its offline channel presence. Aiming squarely at the mid-range ($200-500), it has increased investment in the brand to good effect, concentrated on quality and kept momentum with regular product updates.

Xiaomi, on the other hand, may have taken its eye off the ball by concentrating on wearables, TVs and other smart home kit. It will need a “refreshed flagship” in time for Chinese New Year to wrest back momentum, she claimed.

And what of the two vendors’ plans for international expansion? Well, half of Huawei’s sales already come from outside the massive China market. But Xiaomi will need more help to get it competing beyond the Great Firewall.

“Many vendors are hindered by the lack of patents and having the difficulties and expense of licensing those in order to enter markets like the US and Western Europe where these are adhered to, so this needs to be overcome,” claimed Lashford.

“As does the adoption of a successful channel strategy. Xioami’s focus has been directly online, but it will still likely need the expertise of distributors mobility businesses – like Tech Data and Ingram Micro – in order to navigate the complexities of bringing those products to market.”


The Future of Google (Spoiler: It’s Pretty Bright)

google logoI’ve just finished a piece on Google’s uncertain future. Bit odd, you might think, given it’s one of the world’s biggest and most profitable companies.

Well, the initial brief was based on the web giant missing analyst expectations for Q4 2014. Which it didn’t do by a long way, but there you go. Although it has since bounced back with a storming start to 2015, there’s still enough latitude to ask where the firm might be headed over the next decade. Where are its core strengths, and how it will cope with the slow down in ad spend, increasing competition from the likes of Facebook and the move of more ad dollars into mobile, etc etc.

Google is in a lot of ways a company of two parts: the shiny, innovative, envelope-pushing start up putting huge amounts of cash into cutting edge technology projects that could transform the world in years to come; and the cash-hungry advertising behemoth. The problem it has is that the former relies on revenue from the latter to continue, although this is declining. The key I think will be Google’s ability to pull in more revenue from new streams going forward.

One of these will be video.

“I think for Google YouTube will remain a key strategic play and over the long term a strong source of revenues. YouTube combines two major digital advertising channels into a single location – search and video,” Ovum analyst James McDavid told me.

“Ovum’s forecast data shows that search is still the single largest segment of digital advertising spending but video is the fastest growing. Google having market leading plays in both sectors bodes pretty well for their future.”

Another key area is likely to be mobile, and Android is well placed with a market leading share. Google has a great opportunity to increase sales of services, ads, licenses and devices as well as peeling off a healthy cut of app sales. Only the huge market of China, where Play is locked out, and the potential fragmentation of the OS, threaten it here.

Quocirca founder Clive Longbottom agreed that Android represents Google’s best opportunity platform wise going forward.

“Chromebooks have been a bit of a disaster: a hell of a lot of work is required to make Chrome into an OS that works effectively and brings all the other Google services together in a way that really works,” he told me.

“Android, however, has been a runaway success – it is probably better for Google to concentrate on Android as the OS with a Chrome layer on top in a looser way than it has tried to date.”

I’ve only just had time to scratch the surface here; there’s also a great opportunity in cloud services, IoT and wearables and more for Google. It’ll just be interesting to see how it gets there – and whether any others can realistically challenge the Mountain View giant over such a wide sweep of product and service areas in the future.


Indonesia’s 20 per cent smartphone tax likely to backfire

indonesiaThis week news emerged that the Indonesian government is planning to levy a 20 per cent luxury goods sales tax on all smartphones made outside the country. It’s an old fashioned piece of protectionism which could hit mobile phone makers in the region pretty hard and is unlikely to have the desired outcome.

As I mentioned in my story for The Register, Indonesia is a growing smartphone market with massive potential – as the world’s fourth most populous nation.

Firms that might be particularly dismayed by the tax include BlackBerry, which counts Indonesia as one of its few remaining strongholds, and Apple, which only recently restarted iPhone 4 production to target budget conscious locals.

If the rumours are true it can be seen less as an attempt to spur local handset makers, of which there are few, and more as a means to persuade more global manufacturers to locate facilities in the country.

Foxconn has already stolen a march on its rivals here by announcing a $1bn investment in facilities there.

Canalys analyst Jessica Kwee told me that, seeing as most domestic smartphone makers are focused on cheap, low-end handsets it’s unlikely that high-end users will be persuaded by the tax to buy local.

“What I think is more likely to happen is that the extremely wealthy would continue to buy their premium phones as is,” she said.

“Then other users will resort to the grey market to source their high-end phones – either via grey importers, by buying when they travel to nearby countries like Singapore or Malaysia, or by requesting from their friends etc. The latter would certainly not benefit the government.”

It’ll be interesting to see whether the government follows through with its plans. After all, at one stage it was mooting the tax only on handsets over Rp 5 million (£260), which I still reckon is the most likely outcome.


Tizen bulks out, but still no handsets

tizenA few of you may have seen that last week I wrote about improving momentum behind mobile OS project Tizen.

Well now I have a bit more detail from some of the key players involved.

For those who haven’t heard of it, Tizen is an open source alternative to Android, iOS and Windows Phone. Begun in 2011 by the Linux Foundation, it’s already got the backing of Samsung, Huawei, Intel Vodafone, Orange and NTT Docomo.

However, as of yet there are still no handsets, despite much expectation to the contrary.

Unruffled, last week the Tizen Association announced an impressive 15 new members, which bodes well for the on-going prosperity of the platform..

On second glance, though, it’s not as positive a news story as it seems.

First up there are only four major mobile names among the 15 – ZTE, Softbank Mobile, Sprint and Baidu – with the rest a group of smallish mobile game and software makers, few of which I’d heard of.

I asked the firms whether their joining the association meant we could finally expect a handset to have a look at, but sadly even this prospect is unlikely.

A spokesman for Japanese operator Softbank said that “currently nothing is decided on the future development of Tizen OS smartphones”.

He added:

SoftBank Mobile joined the Tizen Association Partner Program to study the platform technology. Unlike some of the board members (like NTT DOCOMO), we are not taking an active role in developing or promoting Tizen. We have participated in developer conferences in the past, too.

Then this came in from ZTE:

ZTE’s membership is consistent with the company’s multi-platform approach to product development. ZTE’s comprehensive line-up of mobile devices includes products that support different platforms including Android, Windows and Firefox OS.

Hardly a ringing endorsement from either party then.

So will we ever see a Tizen phone? NTT Docomo has backtracked on plans to launch this spring, apparently stating that “the market is not big enough to support three operating systems at this time”.

That said, the invites have already been sent out to hacks attending Mobile World Congress of a Tizen press conference in which the association is said to be finally showing off some actual hardware.

It better be good. Even with Samsung on board, time’s running out and the market is barely big enough for Windows Phone – not to mention the likes of Firefox OS, Sailfish and others –  let alone a fourth name.


Microsoft’s Windows Phone challenge: selling Nokia-less Lumias in India

lumia 520A couple of weeks ago I wrote how Asia would be the key to Microsoft’s success with its soon to be acquired handset business and Windows Phone. Well, new IDC stats out this week confirmed the importance to Redmond of one of Asia’s biggest markets, India, but also that it may struggle without the Nokia brand.

India is now rated by many analysts as the fastest growing smartphone market in the world.

The numbers speak for themselves. The largest democracy on the planet has a population of over 1.3 billion but smartphone penetration of only around 10 per cent – in this it’s some way even behind China and has huge growth potential.

The question is who’s going to capitalise? Well, at the moment it’s the same old story of cheap, local Android handset providers. In India Karbonn and Micromax are two of the most prominent.

Windows Phone was a surprise second place in Q2, however, with a market share of 5.3 per cent, according to IDC. Granted, this is way behind Android’s 90+ per cent, but still above iOS and BlackBerry and remember that percentages translate into 500,000+ units.

The key to success going forward, however, will be how it handles the Lumia, according to IDC analyst Kiranjeet Kaur.

She told me that although Nokia sells  the Lumia 520, 620, 625, 720, 820, 920 and 925 in India it has been the 520’s low price point of around Rs 10,000 (£100) which has made it popular.

Microsoft can’t rely on the Lumia range to continue attracting buyers in the future though, because the all important Nokia brand will soon be removed.

“People buy the Lumia because they’ve had an association with Nokia for many years and see it as a good brand,” she said. “But if the [acquisition] deal goes through in the next few months I’m not sure how quickly Microsoft can do the rebranding.”

Time will tell whether this makes a big difference. It has to be said that Nokia was far from coasting in India. Despite winning the country’s Brand Trust Report for the third year in a row in February, it has been mired by tax problems and slowing sales.

Still, India remains Nokia’s second largest market after China, according to IDC, so the next 12 months will be a key test of whether Microsoft can continue the momentum and take on the likes of HTC and Samsung in the mid-range as well as stealing a bit of share from domestic players at the lower end.

It will be an uphill task.


Come in Agent Elop, your work is done

nokia eventIt’s finally happened. Microsoft today announced it is buying most of Nokia’s mobile phone business for a bargain €5.44bn (£4.62bn) in cash.

The deal will see Redmond snap up the Finnish giant’s Devices and Services business for €3.79bn (£3.2bn), license Nokia’s patents for €1.65bn (£1.4bn).

It’s a dramatic last roll of the dice for outgoing CEO Steve Ballmer and neatly brings back former Redmondite Stephen Elop into the fold.

He’ll be stepping aside as Nokia boss to become EVP of Devices and Services, but must be one of the favourites now to succeed Ballmer. If so, this will be one of the most expensive pieces of headhunting in corporate history.

Nokia’s chairman of the board Risto Siilasmaa will take the reins as interim CEO while the deal goes through the usual shareholder and regulatory approvals. Microsoft said it expects the transaction to close in Q1 2014, all being well.

For Microsoft the deal is proof if any were needed that it’s no longer a software company, that it sees success in the smartphone space as crucial to its future and that it can’t rely on a partner like Nokia to deal with the hardware side of things.

A few things occur to me:

  • HTC and RIM will be pretty disappointed – who are they going to get to buy up their failing businesses now?
  • Agent Elop has now been recalled after 2 years out in the field persuading Nokia’s board to sell to Microsoft. Job done – you may now progress to Microsoft CEO.
  • China’s up and coming smartphone poster child Xiaomi was recently valued at $10bn, nearly $2bn more than Nokia at this sale. Surely over-inflated.
  • This deal, while it could theoretically ensure phones get out faster to market, is not going to make life any easier for Microsoft or its new Nokia Devices and Services division. Especially in Asia. Its lack of apps will still hold it back.
  • Is Nokia still Europe’s largest technology firm? Over 30,000 staff will now be Microsofties but it still has over 50,000 employees on its books working on the reasonably profitable NSN biz and location services. It should be in pretty good shape.

IDC analyst Bryan Ma told me that the deal would give Microsoft a shortcut or “jump start” into the hardware space, but could end up alienating OEM partners.

“It’s got device, manufacturing, economies of scale, and channels to sell into which would have all take it longer to grow organically, as well as valuable patents,” he argued.

“My concern is as much as this can help it doesn’t solve the biggest problem facing Windows Phone and Windows 8 on tablet and PC – it doesn’t have enough apps to make a compelling platform.”

Tellingly, Microsoft only devotes one bullet point on the app ecosystem in a mammoth 27-slide presentation explaining its strategic rationale, he pointed out.

Ma added that the deal could end up alienating more OEM partners.

“The whole debate Microsoft got into when it released Surface was that its hardware partners like Acer said it was stepping on their toes. This will raise questions over whether this is more salt in the wounds for them.”

As for smartphone OEMs well Windows Phone has very few of those beyond Nokia anyway so it will step on fewer toes, he said.

However, I’d agree with Canalys VP research Rachel Lashford that it’s not exactly going to attract any more into the fold either.

“It reminds me of a decade ago when Nokia owned Symbian and tried to license it out but it didn’t work out,” she told me. I can’t think of many OEM vendors would fancy going head-to-head with Microsoft on Windows Phone now.

As for Asia-specific repercussions, well I’ll be taking a look at those – and there should be some given Nokia’s legacy in India and Microsoft’s desire to crack China – in my next post.


Not all bad: Huawei outlines corporate social responsibility push

huawei campus shenzhenNot content with breathing down Ericsson’s neck in the telecoms equipment space and making huge gains in the global smartphone market, Chinese giant Huawei now has its sights set on becoming a leader in corporate social responsibility, but maintains it’s definitely not part of a soft power push.

Speaking at a media event in Hong Kong on Wednesday, the firm’s head of CSR, Holy Ranaivozanany, revealed that it would be extending its Telecoms Seeds for the Future project to Australia this year.

“We thought that we needed to use the expertise in the company to bring something to the community. After stakeholder dialogue we saw there was a high expectation on us to help local schools and universities improve ICT education,” she said of the genesis of the project.

“There’s a gap between what is learned at school and what is learned in the industry, so we looked at how to bridge that gap. That’s why we launched this program in 2008.”

The project could involve scholarships and internships at local Huawei offices where students get mentored by a Huawei engineers, lectures by Huawei staff at local universities and even the creation of training centres. In Malaysia the firm is spending $30m over several years to build out such a centre, she said.

However, head of international media affairs, Scott Sykes, refuted any suggestions that this global CSR strategy might be part of an effort to soften the image of the company abroad, especially in countries like Oz which have been rather hostile to it in the recent past.

“Our top objective is not soft diplomacy but us realising our responsibility as a leading ICT company. We’re not just selling kit, we’re benefitting the communities we operate in,” he argued.

“In one sense our technology is enriching lives, making affordable high quality broadband services. Beyond that we bring jobs. 150,000 work at Huawei including 50,000 non-Chinese outside China – and that number is growing each day. In addition there’s the ecosystem. Last year we spent $6bn in the US, $3bn in Europe, $3bn in Taiwan and $1bn in Japan, so when we win this ecosystem around our business wins.”

Still, it can’t hurt the firm to show it has the interests of local communities at heart, after all the negative stories of it as a national security risk and shadowy agent of the Chinese government that usually follow it and Shenzhen rival ZTE around, especially in Australia and the US.

Ranaivozanany was even magnanimous enough to say that the firm wasn’t necessarily hoping to train up future Huawei engineers with its Telecom Seeds program, but simply “nurture a pool of talent to … keep the industry going”.

In many ways, Huawei is still learning the ropes when it comes to CSR – something that doesn’t come naturally to Chinese companies.

Ranaivozanany admitted there was “no specific measure of RoI” on Huawei’s CSR efforts, but that it was now “integral to what we do”, while Sykes emphasised that the firm was simply coming good at last on expectations of what a large multi-national industry-leading vendor should be doing in this area.

“We’re still a young company. We were only founded about 25 years ago while some of our competitors were founded 100 years back. Our focus on our core business has probably been to the detriment of other things, like communicating properly,” he admitted.

“We’re not saying we have the best ideas regarding CSR. We acknowledge we’re a newcomer in this area, but we’re building our muscle.”

For the record, Ranaivozanany outlined the “four pillars” by which Huawei defines its CSR activities as follows .

Creating and maintaining reliable networks, especially in the event of natural disasters; helping close the digital divide by connecting those in rural areas; building greener products; and the rather wooly  “realising common development with stakeholders”, which basically means improving the livelihoods of employees and citizens in the countries it operates.


MediaTek and the battle of the budget quad cores

mediatek logoLast week Asian chip giant MediaTek launched its latest System on a Chip design, the 28nm quad core MT6589. Before you click on to something more interesting, here’s why it should make anyone with a mobile phone sit up and take notice.

First, MediaTek. It’s probably the most ubiquitous chip company you’ve never heard of. Asia’s biggest and the fourth largest fabless chip company by revenue globally, it lists LG, Huawei, Sony and others among its clients. Until now the firm has largely been focused on the 2G feature phone market, especially in China where demand was huge  until recently, but this announcement sees it really break out into the high end smartphone space.

The analysts I spoke to pretty unanimously agreed that MediaTek and arch rival Qualcomm between them are making a seriously disruptive play in the mobile space. Put simply, MediaTek is making quad core affordable by sticking CPU, GPU and wireless modem on the same SoC, which means the MT6589 will end up in plenty of cheap smartphones as well as some higher end ones.

The result? The big brands are going to have to differentiate on something other than quad core. In effect, as IDC analyst Teck-Zhung Wong told me, it’s going to kick off a whole new round of price competition, which is great for users and will spur the industry forward to keep on innovating, which is good for all stakeholders.

In the background there’s also the tussle between Qualcomm and MediaTek.

Qualcomm is doing amazing things this year and now sits third by revenue in IHS iSuppli’s new ranking of global chip companies. It has already produced a quad core aimed at the same market and has an advantage in its modem capabilities, which even MediaTek admitted to me. So it’s Taiwan versus the US in the battle of the budget quad cores. MediaTek historically has that huge customer base in China to tap and is likely to be faster to market but Qualcomm is catching up and apeing many of MediaTek’s technical advantages and customer relations strategies.

The jury’s out but it will be an interesting 12 months to see who the smartphone winners and losers will be.


Meet Huawei, the not so hidden dragon

huawei campus shenzhenI’ve just spent a fascinating two days with Huawei in Shenzhen. If you haven’t heard of the firm you will soon – it’s the world’s number two manufacturer of telecoms kit, powering all the UK mobile operators and BT, Talk Talk and Virgin Media’s fixed line operations.

It’s also number six in the mobile devices market globally, with its eyes on a higher position, and has entered the enterprise IT space where it sees big growth potential.

The trip was a chance to see and be impressed by Huawei HQ, a sprawling campus in a suburb of Shenzhen in the south of China next door to Hong Kong, rather than have an opportunity to quiz senior execs on the firm’s roadmap.

The firm has been spending rather a lot of money to show rather a lot of journalists the same thing – well, it can afford to, having made around $32bn last year.

The reason is that despite its best efforts it’s still not winning a huge amount of enterprise custom, its devices don’t have great brand recognition and, most irritatingly for the firm, it’s the subject of a high profile US Congressional investigation into links with the Chinese government.

The US has regarded Huawei with great suspicion and reckons it may have links to the PLA and the Communist Party (via its founder Ren Zhengfei) which make the firm’s products a potential risk to national security.

Needless to say, Huawei’s PR team were more keen to focus on the less contentious part of its story. And it is a very impressive story. Ren apparently founded the firm with a few thousand pounds and today, 25 years later, it has 140,000 employees, makes billions, operates in 150 countries and the average age of employees is just 29.

Yup, not really the impression many might have of the company. Due to its unique corporate structure which makes it wholly employee-owned, staff can retire at 45 if they’ve spent more than eight years with the firm with their share dividends providing a handsome retirement fund.

The analysts are in agreement that it has great technology, bags of patents and huge potential, so is the US just being protectionist?

Well, yes and no. Huawei may open up some of the source code of its products for investigators to scrutinise but apparently the big sticking point is info on how the firm is run, and past a certain point Huawei will not divulge that, so it may be deadlock for some time yet.

Ren is still a member of the Communist Party and for anyone who’s read the book The Party by Richard McGregor, this will be a cause of concern to some foreign governments – although it must be said not to the UK, which has welcomed the firm’s investment with open arms.

Now, I’m not saying I fully agree with all of the book but McGregor speaks very convincingly of the Party as acting “like a large magnet that makes iron filings suddenly cling together as it moves into position above them”, making them “stand to attention when it focuses its attention on them”.

In the end, both the West and Huawei are learning to cope with one another. We’re just starting to understand the firm a bit better and it is beginning to understand the greater level of media scrutiny, demands for more transparency and need for a more media friendly executive board – all of which are pretty alien to Chinese companies.


Samsung latest to be hit by supplier labour abuse scandal

factoryAnother week, another woeful tale of big tech brands taking advantage of weakly enforced labour laws and immoral supply chain manufacturers.

This time it was Samsung that had its supplier factories investigated, and what was revealed, as always, was not pretty.

HEG Electronics’ plant in Guangdong – which apparently makes phones, MP3 players and other electrical kit for the Korean giant – was infiltrated by spies from not-for-profit China Labor Watch, yup, the same group that warned of severe irregularities in the auditing system of the tech supply chain.

The same old problems came to light as at Foxconn and VTech, of low pay, staff bullying and physical abuse, dangerous working conditions and forced and excessive overtime.

However, HEG was also accused of employing kids as young as 14 year’s old – illegal even in China –and paying them, and the huge intake of student interns it uses to man its factory, just 70 per cent of their rightful salary.

To its credit, Samsung did respond with a little more than we got from VTech and its customers:

Samsung Electronics has conducted two separate on-site inspections on HEG’s working conditions this year but found no irregularities on those occasions.

Given the report, we will conduct another field survey at the earliest possible time to ensure our previous inspections have been based on full information and to take appropriate measures to correct any problems that may surface.

Samsung Electronics is a company held to the highest standards of working conditions and we try to maintain that at our facilities and the facilities of partner companies around the world.

The issue here again goes back to the validity of the inspections. Unless they are independent – conducted for example by not-for-profits like China Labor Watch – and unannounced then they are virtually useless.

Samsung, if you remember, was highlighted as a client of Intertek, the professional auditing company that has in the past been found guilty of accepting bribes from clients in return for passing a clean bill of health.

There’s no suggestion that happened at its HEG audits, but it’s clear that the audit card should no longer be accepted as a reasonable explanation of such irregularities.