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Wary Smartphone Buyers Help Trump Turn the Screws on Huawei

Thomas Seal and Nate Lanxon
Wary Smartphone Buyers Help Trump Turn the Screws on Huawei

(Bloomberg) -- The Trump administration may have found the most potent weapon yet in its campaign against Huawei Technologies Co.: the European consumer.

The U.S. spent months lobbying allies to block Huawei from 5G phone networks, with limited success. It’s been less than three weeks since President Donald Trump restricted the Chinese tech giant’s access to Google’s Android operating system and already, Huawei’s smartphone business appears to be losing ground in Europe, a critical growth market.

Consumer fear that Huawei phones will quickly become out of date has meant demand for its devices has “dropped off a cliff,” Ben Stanton, a U.K.-based analyst at Canalys, said by phone, citing discussions with phone carriers, retailers and distributors. “That is rooted in this fear that the device may lose features, be insecure, lose support or even lose tangible value.”

In France, sales of premium Huawei smartphones fell by about one-fifth in the week after the U.S. blacklisted the company, according to a telecom industry representative who asked not to be identified as the figures are private. More British consumers have been trading in Huawei phones, and U.K. phone carriers starting the next-generation of mobile services have cut Huawei’s Mate 20 X 5G flagship handset out of their launches.

The chill may threaten Huawei’s bid to overtake Samsung Electronics Co. as the largest smartphone maker this year. Europe, where consumers are willing to pay up for the priciest models, has been one of Huawei’s fastest-growing markets, roughly doubling as a proportion of the Shenzhen-based company’s global smartphone shipments in the last four years to about one-fifth in 2018, according to data and estimates from Canalys.

A spokesman for Huawei declined to comment on sales figures.

Consumers can’t be guaranteed that Huawei phones, which run on Android, will have access to key apps and security patches after Aug. 19, when a 90-day grace period under the U.S. export order ends. Huawei has said its Plan B should the U.S. restrictions remain in place is to switch to its own new operating system, which is under development.

The uncertainty deterred Stuart Wilson, 67, from buying a Huawei phone when he was looking to replace his Samsung Galaxy S7.

“Originally I was thinking about trying a new phone,” Wilson said as he left an EE mobile phone store in central London with his new Galaxy S9. “But with all the press on Huawei, with Google and everything, it’s changing day to day. You just don’t know what’s coming in the future. I just basically decided no Huaweis -- stick with the old Samsung.”

Huawei sells about half its smartphones in China, according to Canalys. But it’s looking farther afield to boost its smartphone business -- part of the consumer unit that accounts for the largest share of the company’s revenue.

Growth Outside China

With sales in Huawei’s home country leveling off and the company effectively absent from the U.S., consumers in Europe, the Middle East and Africa are increasingly important for growth, Ovum analyst Daniel Gleeson said in a note last month to clients.

Huawei entered the smartphone market in Asia with mid-range phones featuring impressive cameras and large, vivid displays at lower prices than rivals Apple Inc. and Samsung. It began building higher-end products at home and for western countries, and today sells premium models priced over $1,000.

The strategy has helped it rapidly gain global mobile market share, according to the latest figures from Gartner. The Chinese company controlled 15.7% of the smartphone market in the first quarter of this year, up from 10.5% for the year-ago quarter, the researcher said on May 28. Samsung and Apple both saw year-over-year declines for the same period.

If the U.S. export restrictions stick, Huawei may find it tough to maintain that growth, and its top rival Samsung could be among the beneficiaries.

“The ban creates a huge gap in the market that will most likely be filled by Samsung and by other Chinese brands like Xiaomi, OnePlus, and Oppo,” Ovum analyst Gleeson said in his note to clients.

--With assistance from Thomas Pfeiffer and Angelina Rascouet.

To contact the reporters on this story: Thomas Seal in London at tseal@bloomberg.net;Nate Lanxon in London at nlanxon@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, ;Giles Turner at gturner35@bloomberg.net, Jillian Ward

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