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Why Huawei will be the biggest Chinese smartphone maker ever

Latest Electronics Products On Display At The CEATEC ExhibitionLatest Electronics Products On Display At The CEATEC Exhibition
A Huawei phone.Photograph by Kiyoshi Ota — Bloomberg via Getty Images

Much of the hype surrounding China-based smartphone makers has centered on Xiaomi, an Apple-like company with a very loyal fanbase. However, it’s Huawei that may just deserve the spotlight.

Huawei on Tuesday announced the third-quarter performance for its Consumer Business Group (CBG), which encompasses the company’s entire smartphone business. Huawei reported that it sold 27.4 million smartphones worldwide during the period, up 63% year-over-year. In China, a massive and growing smartphone market, Huawei’s shipments rose 81%. Perhaps most importantly for the company, it experienced “growing interest” in its mid-to-high-end products, which boosts better specs, higher price tags, and solid margins.

Huawei generated over $46.5 billion in revenue in 2014—largely on the sale of telecommunications and networking equipment—and sells a wide range of smartphones. The company’s flagship Mate 7, P7, and P8 devices—which take aim at products like Apple’s iPhone—have all sold well over 4 million units each. Huawei also sells several cheaper smartphones designed for emerging markets, such as the Middle East, Latin America, and Africa.

For years it was Xiaomi that stole the show and Huawei was viewed as a telecommunications company that sold smartphones on the side. Now, though, Huawei’s on pace to become the biggest China-based phone maker ever, and there are no signs of it slowing down.

“For Huawei, they have been one of the more impressive smartphone [makers] this year and I expect they will continue this momentum right into 2016,” says IDC program director and market analyst Ryan Reith. “[Huawei] will most likely be the first Chinese smartphone [maker] to surpass 100 million shipments in a year ever. Most people thought this would have been Xiaomi.”

The company’s Richard Yu, CEO of CBG, says that his company is “extremely proud” of its growth, adding that he, too, believes Huawei will ship over 100 million smartphones this year.

The revelation that Huawei, and not Xiaomi, is set to become the biggest and most important Chinese smartphone maker was underscored in July when IDC revealed that the company was the world’s third-largest smartphone maker—behind Samsung (SSNLF) and Apple (AAPL), respectively—in the second quarter of 2015. While Samsung’s shipments were down 2.3% year-over-year, Huawei’s shipments were up 48.1% during the same period.

“Think of [Huawei] as leading the ‘rest of the market’ pack (excluding Apple and Samsung),” says Wayne Lam, principal analyst at IHS Technology. “We see them as a growing force in the smartphone industry, a [smartphone maker] that has potential to break from the pack of the brands outside Apple and Samsung.”

So, how did Huawei do it? Well, it’s not because of sales in China. According to Lam, Huawei sells about half of its smartphones outside of its home country—a move made possible by investing heavily in markets outside of China.

“To help support this growth they have made a number of strategic marketing investments in, I believe, 29 markets,” says Reith. “This includes both high-growth (Latin America, Middle East), as well as areas that are more mature but important for visibility (Western Europe, Australia, U.S.). They have great product design, but it’s investments like this that help drive visibility and ultimately make channels want to sell their products.”

Lam agrees, adding that in Europe—where shipments were up 98% in the third quarter—the company has been “tremendously successful by all measures.” However, it’s Huawei’s ability to rely on other parts of its business—most notably, its chipmaking division—that sets it apart. “A key to Huawei’s success has been their vertical integration (much like Samsung, they manufacture and use their own chipset/modem from their HiSilicon division),” Lam says.

Looking ahead, Huawei’s future seems bright. Indeed, market analysts believe there is little-to-no chance of Huawei being overrun by Chinese competitors anytime soon, and all signs point to record-breaking growth.

“When compared to other leading Chinese [manufacturers], Huawei will likely stay in a market leadership position,” Lam says of Huawei’s future.

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