Following day one blog on Huawei analyst event, day two focused on the breakout sessions covering carrier business, enterprise business and consumer business separately. Our analysts from our Wireless Smartphone Strategies (WSS) service joined the consumer business track.

Digitalization and Cloud are the key words for Huawei’s vision for the future. In March, Huawei announced the entry into public cloud domain, by establishing an entirely new Cloud BU with the focus on the enterprise market. In consumer business group, its cloud-based mobile services were also highlighted in the event, including Huawei theme store, magazine unlock, Huawei HiCloud, SkyTone, Huawei Pay, Huawei HiApp, and Huawei Video. But, it remained as a question whether Huawei is going to monetize these mobile services to improve profitability of consumer business or to provide certain differentiating value for its smartphone business for more market share. 

As mentioned in yesterday’s blog, Huawei will prioritize profitability over scale for smartphone business in 2017. In day two’s event, the vendor did not disclose its specific shipment target for 2017 as it always did in previous years. Instead, it shared the goal to grow over 50% YoY in mid- and high-end smartphone shipments and over 30% in revenue from overseas markets. As it said, the vendor is seeking for a “high-quality” growth in 2017.

Channel wise, Huawei is trying to implement a more cost-effective strategy. In China, it will continue the investment in offline channels in tier 3 and tier 4 cities, but in a more selected manner. Outside China, it will focus its energies on more developed cities via the cooperation with key local partners.

Overall, we are impressed by Huawei’s achievements in 2016: 30% YoY growth in global smartphone shipments, impressive breakthroughs in multiple foreign markets, as well as its continuously improved brand perception. Looking forward, we however are cautious on its volume growth in 2017 and find four areas that Huawei needs to carefully address in the near future. 

• First, improving profitability requires stronger cost control, while lifting up Huawei’s smartphone brand in global markets needs continuous investment. The vendor needs to find the right balance between its long-term-oriented marketing investments and its strategic priority in 2017. In other words, Huawei needs to develop a cost-effective branding strategy and execute it perfectly.
• Second, Huawei needs major breakthroughs in top smartphone markets for a balanced regional mix, which in turn will drive the “high-quality” growth for Huawei in the long run. In 2016, Huawei recorded massive YoY growth in markets like Ukraine (711% YoY), Russia (446%), Czech Republic (234%), and Poland (227%). However, in the key global markets like United States, India, Japan and United Kingdom, its presence remained modest.
• Third, Huawei needs more hardware innovations for flagship models that create a wow effect. Huawei’s latest flagship models, P10 series, are competitive products in the market with excellent camera performance. When compared with Samsung S8, they however are significantly behind in terms of display innovation. Display is a primary driver behind the innovations in smartphone industry. Samsung’s dominance in AMOLED display plus the current shortage of the component make Huawei an unflavoured position. Huawei needs to quickly find a way out.
• Fourth, although targeting to different consumer groups, Huawei’s two smartphone sub-brands (Honor and Huawei) are offering very similar products to consumers, especially in lower-end product category in China. The vendor needs to carefully manage and streamline its product portfolio to avoid cannibalization.

In summary, we are impressed by Huawei’s achievement in 2016. In 2017, Huawei will prioritize profitability over scale and seek for the growth in overseas markets and in mid- and high-end models. We expect the smartphone vendor will keep growing in 2017, but its growth will slow down. Looking ahead, Huawei needs to build and execute a cost-effective strategy in branding and channel development, to make major progress in top smartphone markets, to surprise the market with more hardware innovation in flagship models, and to carefully manage its two sub-brands.