Huawei who sold less than 100,000 mobiles in Australia in the last quarter according to IDC is facing problems launching their mobile devices in the giant US market.
Banned from selling their network gear to the U.S. due to security concerns the Chinese vendors is still facing problems from the fallout of the Adups scandal when US security Company Kryptowire discovered that Adups software was sending key information back to Chinese servers every 72 hours.
Adups said that their two biggest clients were ZTE and Huawei a reference that was removed when the scandal broke. Huawei later claimed that the Adups software was “not on the devices”.
The Wall Street Journal reported at the weekend that a number of obstacles are blocking Huawei Technologies path to success in the U.S. smartphone market.
U.S. carriers, which distribute more than 80% of handsets in the country, are reluctant to work with Huawei-the world’s third-largest smartphone maker by shipments behind Samsung Electronics. and Apple-because of its low brand recognition and security concerns associated with its networking equipment, people familiar with the matter say.
A 2012 congressional report recommended that U.S. carriers avoid using Huawei gear in their networks for fear that China might use it to spy on Americans. Huawei has denied such accusations, saying it operates independently of Beijing.
There are also technical hurdles related to mobile phone standards that would make U.S. expansion costly for the Chinese company.
“We haven’t figured out how to remove those obstacles,” said a U.S.-based Huawei manager who declined to be named. “It’s very challenging.”
Huawei said this month that it would launch its high-end Mate 9 smartphone in the U.S. But the phone, which carries a $799 price tag in Australia, will likely be sold just through online retailers such as Amazon, people familiar with the matter said.
The U.S. is the biggest missing piece in Huawei’s smartphone global expansion strategy. The company, founded by former People’s Liberation Army engineer Ren Zhengfei three decades ago is struggling to throw off their image that they are associated with the Chinese Government.
Last week Huawei Australia executives went out of their way to stress that they are “Not linked or owned by the Chinese Government”.
To comply with the mobile phone standard used by Verizon Communications. and Sprint, Huawei would have to make substantial and costly changes to its mobile chips. Verizon and Sprint also see little upside in adding Huawei devices to their already crowded lineup of phones given Washington’s wariness toward the Chinese company, people familiar with the matter said.
Huawei is also in a patent dispute with T-Mobile US Inc., making collaborations between the two unlikely.
While Huawei is more hopeful about the possibility of working with AT&T, one of the country’s two biggest carriers along with Verizon, and has communicated with the telecom giant, it is unclear whether they can agree on a partnership, according to the U.S.-based Huawei manager.
AT&T and T-Mobile declined to comment.
The WSJ said that until now, Huawei has largely ignored the U.S. as it concentrated on markets like Australia where it has spent heavily on advertising, working closely with local retailers and sponsored sports teams. As a result, its market share there more than doubled to 13% in the third quarter from 6% a year earlier, according to research firm IDC.
In the U.S., where handsets sold by retailers account for a small part of the market, Huawei needs a different strategy. Apple and Samsung dominate the premium segment, making it hard for other vendors to convince U.S. carriers to sell their high-end phones, analysts say.
For carriers, “it’s easier to sell brands that consumers already know, brands that are heavily marketed,” said Canalys analyst Chris Jones. Samsung, for example, spent years building relationships with U.S. carriers while outspending rivals in marketing.
Other Chinese players, such as ZTE Corp. and TCL Communication Technology Holdings Ltd., which owns the Alcatel brand, work with U.S. carriers by focusing on handsets that cost less than half of Apple and Samsung phones. ZTE also promoted its brand by sponsoring National Basketball Association teams.
Targeting the low-end segment, where margins are thin, doesn’t fit well with Huawei’s attempt to move upscale and sell more expensive phones.