Huawei’s smartphone sales are still soaring, but only in China. That’s a big blow for a company that just a few months ago was in pole position to overtake Samsung as the biggest smartphone seller in the world.
Those hopes were dashed when Washington placed Huawei on a trade blacklist in May. The ban bars US companies from selling tech and components to Huawei, the world’s largest telecommunications equipment maker and No. 2 smartphone seller.
Data from market research firms Canalys and IDC underscore how the company’s smartphone unit has been forced to focus on domestic sales, just as China’s economy is slowing and consumers are tightening their belts.
“Huawei is not hanging all of its growth prospects on China yet, but it has been backed into a corner in the past couple of quarters,” said Ben Stanton, an analyst with Canalys.
Huawei shipped 67 million smartphones in the third quarter, up nearly 30% compared to a year earlier, according to the data from Canalys and IDC. The surge was driven by a spike in sales in China, where the company grew shipments by more than 60%, despite the overall market shrinking compared with the previous year.
But Huawei’s smartphone sales outside of China fell 6% year-on-year last quarter, and that followed a plunge of between 12% and 17% in overseas shipments in the second quarter, data from IDC and Canalys showed. The two market research firms are independent, and use slightly different metrics to measure smartphone shipments.
The US ban has hit Huawei’s global sales particularly hard because new devices no longer have access to some critical Google (GOOGL) mobile services.
Huawei released its latest flagship phone, the Mate 30, in late September. The device, which is priced at €799 ($880) and upward, doesn’t have access to either the Google Play store or the many popular apps within it, such as Google maps, Uber (UBER) or Facebook (FB).
That’s less of a problem for Huawei in China, where some of the global apps have been banned for many years or there are homegrown alternatives.
But overseas, many carriers and retailers have “become more reluctant to stock Huawei products as [they] aren’t sure how Huawei is going to manage around the lack of Google services,” IDC analyst Melissa Chau said.
Global retailers ‘skeptical’ of phones without Google
Huawei is hard at work building up its own app store and operating system. Popular Chinese apps like Tencent (TCEHY)’s WeChat and Alibaba’s Alipay are already available. But convincing international developers to make mobile applications for anything other than Apple (AAPL) iOS or Google Play Store is hard work. Other tech giants such as Microsoft (MSFT) have tried that trick and failed.
Huawei’s “big challenge is to convince smartphone distributors, carriers and retailers that there is a market for a non-Google device outside of China,” said Stanton. “But many of them are still skeptical, having seen various platforms like Blackberry OS and Windows Phone fail in the past.”
Huawei founder and CEO Ren Zhengfei said at a press event last month that the restricted access to Google’s suite of applications, “will definitely have an impact on us.” He added that Mate 30 sales have been strong so far, but didn’t go into detail.
The company is expected to start developing new versions of other flagship phones, including its popular P series, early next year, according to Canalys. If the US trade blacklist is still in place, the new phones will also be cut off from Google services and the resilience of Huawei’s sales will be further tested.
Ren was cautious when it came to sales forecasts, saying the company’s consumer business group, which includes smartphones, “hopes to see significant growth next year. It may not pan out, though.”
The company has said that it would prefer to operate in Google’s ecosystem. And Washington has dangled hopes of a reprieve.
Last month, US Commerce Secretary Wilbur Ross said his department expects to grant some US companies licenses to sell to Huawei “shortly,” but the Trump administration has retreated from such promises before.
Growing the business with big bonuses
Even if Huawei remains on the trade blacklist into next year, the company could hang onto its spot as the world’s No. 2 smartphone seller ahead of Apple (AAPL), according to Charlie Dai, an analyst with Forrester.
Huawei has 40% of China’s smartphone market, “and we expect that it can further rise to above 50% and reach almost 60% in 2020 and beyond. This will help Huawei keep its momentum to some extent,” Dai said.
But it remains unclear whether Huawei’s ability to grow sales outside of China will be permanently impaired, especially in competitive markets like India and Southeast Asia, if it remains in limbo for much longer.
Huawei could “still say afloat” in the near to mid-term by shipping pre-ban smartphones with older Google software in overseas markets, according to Varun Mishra, an analyst with Counterpoint Research.
However, the absence of newer, Google-powered devices that can generate buzz for Huawei’s portfolio of phones “would definitely affect mindshare and market share until the ban is relaxed,” he said.
Huawei spokeswoman Evita Cao said that “overall retail sales remain stable and strong,” and noted that overseas smartphone sales in the third quarter were higher than in the second. The company’s business has also proven broadly resilient this year: When Huawei reported earnings last month, it said revenue increased 24% in the first nine months of 2019 compared to the same period a year earlier.
The company, which is known for its survivalist “wolf culture,” has been aggressively trying to grow the business despite the US restrictions. Ren has compared Huawei to a war plane riddled with bullets, saying staffers are working to repair the holes.
Those staffers are about to be well compensated for their efforts, too.
Last week, Huawei announced that it is paying 2 billion yuan ($284 million) in bonuses next month to people who helped the company find alternative suppliers and worked long hours “mending our weaknesses,” according to internal memos seen by CNN Business and shared by a Huawei employee. The news was first reported by the Financial Times.
The company is also doubling the salaries of all 194,000 employees for one month for helping ensure business continuity, the Huawei employee said.
Huawei declined to comment on the record about the bonuses.
— CNN’s Kenneth Leung contributed to this report.