Update: Huawei aims to top China's luxury smartphone list

Huawei, China's top smartphone maker, has set itself the ambitious goal for 2016 of being the biggest mid- and high-end smartphone brand in China. According to the notes of an internal meeting held last week, reportedly seen by the Global Times, Huawei aims to generate over $100bn in revenue in five years. Last year, its consumer division's revenue leapt to more than $20bn, boosted by 108m smartphone shipments. Huawei's founder Ren Zhengfei believes that creating a mid- and high-end smartphone brand will drive sales of the company's low-end phone brand Honor. It is a strategy welcomed by analysts: "The only way that Huawei can boost its brand awareness and maintain sustainable development is by entering the high-end market, which has much higher profit margins," said Zhu Dalin of market research firm, Analysys International. As we recently noted, Huawei already made steps to compete in the upper end of the market at the end of  2015 with the release of premium smartphones including the already popular Mate 8.

Huawei Technologies Co, which analysts said boosted the global prominence of Chinese smartphone makers in 2015, has set an ambitious goal for 2016. The company wants to be the biggest mid- and high-end smartphone brand in China. Other domestic smartphone manufacturers have also entered the high-end segment, signifying threats to Apple Inc.

A consumer checks out Huawei smartphones earlier this year at a store in Nanjing, capital of East China's Jiangsu Province. Photo: CFP

After spending two years in fight for survival in fiercely competitive smartphone business, Huawei Technologies Co believes now is the time for it to take a leading position in the mid- to high-end segment of the market.At an internal meeting on Wednesday, Huawei's founder Ren Zhengfei required the company's consumer division to "rapidly" grab more of the smartphone market where the company has an advantage in scale.Ren, who played a key role in the development of China's telecom industry, set an ambitious sales goal for the division, according to a written record of the meeting seen by the Global Times. It aims to generate more than $100 billion in revenue in five years.In 2015, Huawei made a big splash when its consumer division's revenue surged nearly 70 percent year-on-year to more than $20 billion. Its sales revenue was driven by a 44 percent annual increase in smartphone shipments to a robust 108 million units."I think we will be the survivor in the future, but whether we can be a real leader depends on [our efforts in the] next significant period of 2016-17," Yu Chengdong, head of Huawei's consumer division, told the press at the 2016 International Consumer Electronics Show in Las Vegas, the US.To meet its goals of becoming a market leader, Huawei has pinned its hopes on the mid- and high-end smartphone market.At Wednesday's meeting, Ren gave the consumer division a mission-critical assignment to create the mid- and high-end smartphone brand, which he believed would then drive sales of Huawei's low-end phone brand Honor.Analysts applauded Ren's new strategy. "The only way that Huawei can boost its brand awareness and maintain sustainable development is by entering the high-end market, which has much higher profit margins than the low-end market," said Zhu Dalin, an industry analyst with the market research firm Analysys International.Huawei actually started raising its profile at the upper end of the market in 2015, when it released an array of premium smartphones, including the Mate and Ascend P models.It launched its latest high-end smartphone, the Mate 8, a couple of months after the release of the iPhone 6s Plus by Apple Inc. Huawei sold more than 1 million units of the Mate 8 in the first month after it debuted on December 9, 2015.Huawei is not alone in targeting the high-end market."This is an industry trend, a way of seeking higher profits," Zhu told the Global Times on Thursday.The mid- and high-end smartphone market, which encompasses phones priced between 3,000 yuan ($456) and 4,000 yuan, accounted for around 77 percent of the overall mobile phone shipments in China in the third quarter of 2015, according to a report released by market consultancy Qianzhan in November 2015. That figure is up from 8 percent in all of 2014.The goal of China's aggressive smartphone manufacturers is to seize market shares from other high-end overseas brands, including Apple and Samsung."Our new year's resolution for 2016 is to overtake Apple in China's high-end market," Yu said.He added that Huawei is trying to become the No.1 smartphone vendor in 2016, as well as the No.1 high-end player, especially in its home market.A report by Taipei-based market research firm TrendForce on Thursday showed that China-based makers' combined shipments accounted for more than 40 percent of the global smartphone market in 2015, taking seven of the top 10 spots in the global vendor ranking.Huawei led the global rise of Chinese smartphone makers, ranking the third overall. It's global smartphone shipments increased by 2.2 percentage points from a year earlier to 8.4 percent in 2015. Apple ranked the second with 17.5 percent, up 1.1 percentage points from 2014. TrendForce forecast that Apple's market share will drop to 16.8 percent, while Huawei's will rise to 9.3 percent in 2016.Regarding the domestic smartphone market, Beijing-based Xiaomi Inc had the largest share - 15 percent, according to an industry consultancy OFweek's report issued on Friday. Huawei followed with 14 percent and Apple came in third with 11 percent.Li Yi, an independent IT expert, predicted Huawei will be the leader of China's smartphone industry in 2016."Thanks to the growing brand awareness of Huawei boosted by the company's dual-brand strategy and its strong R&D capabilities, Huawei would undoubtedly surpass Xiaomi and threaten Apple," Li told the Global Times on Thursday.Still, there is some doubt about whether Huawei can challenge Apple in the high-end segment."I have not seen any smartphones made by Chinese companies that can compare with iPhones," Zhu said."The latter has always been more competitive due to its unique operating system, while its Chinese rivals are Android adopters," Zhu noted.As a whole, Chinese vendors remain strong across all market segments. "In 2016, TrendForce expects Chinese vendors to take around 45 percent of the global market share, with their shipments exceeding the combined shipments of Samsung and Apple… major international vendors are now facing a tougher market situation," TrendForce smartphone analyst Avril Wu said.Without a doubt, 2015 was a good year for Huawei and other domestic smartphone brands. But their challenges will only grow as the market matures.As the smartphone demand weakens and users buy new phones less frequently, many cellphone makers in China will go out of business, analysts said.Lenovo, which once had been seen as the leader of China's cellphone market, may be one. Both Li and Zhu said that Lenovo will not be able to return to its former glory, even with its acquisition of Motorola, due to its rigid management system."Phone makers can no longer rely only on smartphone sales as times have changed," Li said. "Only the ones that offer users advanced Internet technology and killer online services via their devices will survive."He said that traditional phone makers need to follow the example of Internet companies by creating their own ecosystems that combine Internet content with smart devices so they can further monetize their user traffic.Foreign phone makers such as Apple and Samsung, as well as domestic peers like ZTE and Huawei, have already diversified into smart wearables area and now are exploring opportunities in Internet value-added services such as online payment tools.While disclosing that its more than 70 million shipments in 2015 missed its 80 million unit target, Lei Jun, Xiaomi's CEO, said in a press conference held in Beijing on Friday that Xiaomi would set up its own R&D laboratory to develop cutting-edge technologies such as intelligent robots and the virtual reality.