Huawei Makes Push to Get Ahead of Apple, Samsung

China’s Huawei, the world’s third-biggest smartphone maker, is moving upmarket with its new flagship phone. Photo: Reuters

A Chinese telecommunications giant founded by a former engineer of the People’s Liberation Army is about to take a shot at challenging Apple Inc. AAPL -1.18 % and Samsung Electronics Co. SSNHZ 0.00 % in the global smartphone market.

During an event in London on Wednesday, Huawei Technologies Co., the world’s third-biggest smartphone maker by shipments, will unveil a new high-end smartphone with a dual-lens camera, people familiar with the matter said, beating Apple and Samsung to the market with the feature that promises better color and sharper contrasts even in lowlight conditions.

Engineers from Shenzhen-based Huawei and German optics company Leica Camera AG worked together for nearly a year to develop the camera, the people said.

The new phone, called the P9, is the latest salvo in Huawei’s five-year battle to transform its mobile handset business from a manufacturer of cheap phones to one that can compete with the industry’s top players. Huawei is using a strategy few Chinese firms have pulled off: pushing its products upmarket to build a global brand. To do so, it is ramping up research and development as well as spending on marketing.

“We want to become No. 1 as a premium brand,” said Richard Yu, Huawei’s consumer electronics chief, in an interview, adding that Huawei plans to launch a flagship phone in the U.S. later this year.

The push has seen some early success. Huawei’s smartphone shipments rose 44% to more than 100 million units last year, according to research firm IDC. Huawei said its consumer-gadget revenue jumped 73% last year to $ 20 billion. Huawei logged $ 9.2 billion in R&D spending in 2015, higher than the $ 8.1 billion Apple reported spending.

Inside Huawei’s Campus

A tour of the Chinese tech giant’s huge campus in Shenzhen reveals its ambitions.

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Workers eat lunch at Huawei’s Shenzhen headquarters. The Shenzhen campus has roughly 50,000 employees.

Workers eat lunch at Huawei’s Shenzhen headquarters. The Shenzhen campus has roughly 50,000 employees. JURO OSAWA/THE WALL STREET JOURNAL

Huawei’s spacious Shenzhen campus, located in the northern suburb of Bantian, has dozens of buildings. This building, a research lab, is sometimes called “the white house” by employees due to its resemblance to the U.S. president’s official residence.

Huawei’s spacious Shenzhen campus, located in the northern suburb of Bantian, has dozens of buildings. This building, a research lab, is sometimes called “the white house” by employees due to its resemblance to the U.S. president’s official residence. JURO OSAWA/THE WALL STREET JOURNAL

On the Shenzhen campus, most young workers are casually dressed. The average age of Huawei employees is 33.

On the Shenzhen campus, most young workers are casually dressed. The average age of Huawei employees is 33. JURO OSAWA/THE WALL STREET JOURNAL

Once a year, each business department of Huawei chooses winners of the so-called Future Star award. The winners typically receive medals at ceremonies.

Once a year, each business department of Huawei chooses winners of the so-called Future Star award. The winners typically receive medals at ceremonies. JURO OSAWA/THE WALL STREET JOURNAL

Cafeterias and restaurants on Huawei’s Shenzhen campus serve all kinds of food, including Chinese, Japanese, Indian and Western.

Cafeterias and restaurants on Huawei’s Shenzhen campus serve all kinds of food, including Chinese, Japanese, Indian and Western. JURO OSAWA/THE WALL STREET JOURNAL

Apart from lunch break, Huawei employees typically work long hours, including every last Saturday of the month. In China, the company’s intense work culture has been described as “wolf spirit.”

Apart from lunch break, Huawei employees typically work long hours, including every last Saturday of the month. In China, the company’s intense work culture has been described as “wolf spirit.” JURO OSAWA/THE WALL STREET JOURNAL

Some Huawei employees live on campus with their families. The Shenzhen campus has shops, clinics, playgrounds and other facilities.

Some Huawei employees live on campus with their families. The Shenzhen campus has shops, clinics, playgrounds and other facilities. JURO OSAWA/THE WALL STREET JOURNAL

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But Huawei still has a long way to go. Its global smartphone market share in the fourth quarter was 8.1%, behind Samsung’s 21% and Apple’s 19%, according to IDC.

The challenge is greater in markets like the U.K. and Germany where carriers’ subsidies have traditionally made Apple and Samsung phones more affordable, reducing Huawei’s price advantage. Its brand image is also a potential liability in the U.S., where its networking equipment business has effectively been banned since a 2012 congressional report cited concerns that the Chinese firm’s gear could be used by Beijing to spy on Americans. Huawei has repeatedly denied such allegations.

Fortunes in the global smartphone market can also quickly rise and fall. Other Chinese rivals that briefly took the global No. 3 sales post—including low-cost manufacturer Xiaomi Corp. and Lenovo Group Ltd. LNVGY -3.99 % —haven’t been able to maintain their spots.

Huawei plans to unveil a new high-end smartphone with a dual-lens camera at an event in London. ENLARGE
Huawei plans to unveil a new high-end smartphone with a dual-lens camera at an event in London. Photo: AARON TAM/AGENCE FRANCE-PRESSE/GETTY IMAGES

But Huawei’s Mr. Yu said the company can be a long-term force in the industry and it is overhauling its hardware to build more stylish phones.

“The weak part for Huawei is that we need time to build our brand,” Mr. Yu said.

Five years ago, Huawei phones looked inexpensive and had power buttons, volume keys and jacks all at random locations, said Huawei’s creative director, Joonsuh Kim, whom Mr. Yu hired in 2012. Mr. Kim, who previously helped design Samsung’s Galaxy smartphones, opted for metal rather than plastic and has been overseeing the design of Huawei flagship phones including the new P9.

To cut costs and gain more control over the phone’s performance and the timing of product upgrades, Huawei developed its own processors just as Apple and Samsung have done—a strategy not adopted by most of their competitors.

According to analyses by research firm IHS, the total material and assembly cost of Huawei’s P8—a $ 530 flagship phone released last year—came to $ 206, compared to $ 188 for the iPhone 6S and $ 284 for Samsung’s Galaxy S6 Edge. None of the companies disclose material and assembly costs.

Huawei has also used high-end components from suppliers that also work with Apple. And it has added features like fingerprint sensors and pressure-sensitive touch screens, as Samsung and Apple have done.

But some current and former employees say Huawei has been conservative in its designs, at times reluctant to push beyond templates established by other firms.

“The next step is to say, ‘Okay, we have understood what we need to understand. Now we are the ones setting the course,’” said Mathieu Lehanneur, who joined Huawei last year to run a Paris-based design-research center.

Mr. Yu also scrapped Huawei’s previous strategy of supplying cheap nonbranded phones to carriers and started selling Huawei-branded phones directly to consumers through retailers.

Most carriers and retailers in Europe were initially reluctant to sell Huawei-branded phones. In Italy and Spain, Huawei persuaded retailers by promising to pay for in-store promotions and offering sales training sessions, according to Huawei employees and retailers. It also flew executives from major European retailers to Shenzhen for a factory tour and for an awards ceremony to honor top sellers, according to people who attended.

The strategy has worked.  In Western Europe, Huawei’s smartphone shipments rose 51% last year, faster than Samsung’s 2% growth and Apple’s 15%, according to IDC. In Italy and Spain, Huawei’s smartphone market share rose to 11% and 12% in the fourth quarter, respectively, from roughly 3% three years ago.

To increase its visibility to high-end consumers, Huawei more than doubled its advertising spending in Italy last year and sponsored a party during Milan’s Fall Fashion Week to celebrate Vogue China’s 10th anniversary.

With new products like the P9, Mr. Yu is under pressure to win more consumers who can afford to buy high-end Samsung and Apple phones.

At Huawei’s annual management meeting in Shenzhen in January, Chief Executive Ren Zhengfei, the former PLA engineer who founded the company in 1987, announced his bold wish to quintuple its revenue from consumer gadgets to $ 100 billion in five years, according to people who heard his speech.

Mr. Yu responded that a more realistic target would be around $ 60 billion or $ 70 billion. Mr. Ren, with a smile, responded to Mr. Yu: “$ 100 billion.”

Write to Juro Osawa at [email protected] and Sam Schechner at [email protected]


WSJ.com: US Business

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