TECH

Chinese market ceases to be a boost for Huawei during coronavirus crisis

Huawei's smartphone sales in China were a safeguard against the difficulties of entering the North American market, but no more. Even the company's home telephony business is facing increasing challenges due to the coronavirus outbreak, which has hit consumption heavily.
The telecommunications and smartphone equipment giant said it had resumed production of phones in late March after local Covid-19 infections had subsided. The problem is now on the demand side. With the Chinese economy contracting sharply and consumers cutting back on purchases, selling more devices is becoming a frighteningly difficult task.
"Consumption is continually being affected," says CK Lu, senior analyst at research and consulting firm Gartner. "In this environment, it would be considered a very good result if they could maintain the same level of exports as last year."
Huawei had previously said it sells an average of 450,000 phones in China daily, while sales in international markets are on the decline, according to a transcript of the interview by founder and billionaire Ren Zhengfei to the Wall Street Journal, released on 25 March.
Analysts say the Shenzhen-based company is launching new devices more frequently and offering aggressive discounts on some basic models to combat growing competition, as major brands such as Xiaomi and Apple are focusing more on China.
For example, Huawei introduced several new models in the Nova and Honor lines in April that, according to analysts, hit the market earlier than expected. The company also launched, through an online event in March, the flagship P40 series, which comes with enhanced lenses and larger camera sensors.
"Huawei has accelerated the cycle of launching new products," says Wu Yiwen, senior analyst at research firm Strategy Analytics.
Jia Mo, an analyst at market research firm Canalys, says the company's rich line of phones can still help it gain local market share, in addition to the 38.5% it acquired last year. But China's market itself may show a contraction of 371 million devices sold in 2019 to somewhere between 326 and 284 million this year. Assuming that Huawei's market share reaches a conservative 40% level, the company will be able to market 113.6 million units in China by the end of the year, down from 142 million in 2019, according to estimates based on data from Canalys.
In the first quarter, the company did not announce detailed results for its three business units when it published a selected set of financial information last week. Its total revenue reached 182.2 billion yuan (about $ 25 billion), with a growth rate of just 1.4%, compared with 39% in the same period last year.
In the area of ​​smartphones, analysts say that China's revenues will not be enough to offset losses from abroad. Huawei's devices were deprived of crucial Google services, such as Gmail, Maps and YouTube, after the Trump administration placed the company on the so-called “entity list”, which restricts the export of American technology for national security reasons.
Since then, the company has launched its own software services, but has not gained much strength abroad. The lack of Google products is not a problem in China, because Beijing has blocked a number of Western platforms and supported local alternatives.
"They are not giving up on overseas markets, but the situation is really very difficult," says Lu, from Gartner. "HMS (Huawei Mobile Services) is simply not very attractive."
A plus point for the company is 5G, a technology that promises much faster internet speed and supports connecting more devices online. Huawei already invests heavily in this area and Ren Zhengfei said in the interview with the Wall Street Journal that the company's research and development expenses would be increased to more than $ 20 billion this year, against $ 15 billion in 2019.
When more devices with 5G features are launched in the third and fourth quarters, analysts say smartphone sales may suffer a small jump, and Huawei is expected to be the main beneficiary, due to better technologies. "5G phones will have prices between the medium and high segments", says Jia Mo of Canalys. “Thanks to its self-developed chips, Huawei has a good brand image in this area.” 

by Yue Wang