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Huawei to Reopen Shop in U.S., but Can't Lose Sight of Europe

NEW YORK (TheStreet) -- Was Huawei Technologies' (SHE:002502) strategic move to withdraw from the U.S. last year ever a concrete manifestation of indifference? Apparently not.

If indications at the Interop confab in Las Vegas last week are anything to go by, the $39.5 billion telecommunications giant aims to restore its partner agreements in the U.S. What remains to be seen is whether the world's third-biggest smartphone maker will position itself as a trusted player on American turf without losing its focus on European markets.

Huawei's renewed interest in the U.S. emerges in the wake of an ostensible closure to long-standing accusations of its involvement in cyber-espionage and allegations of its links to the Chinese government, especially after the National Security Agency's covert infiltration into the telecom equipment maker's networks facilitated its exoneration.

With U.S. carriers currently selling about 90% of the country's handsets, the Shenzhen-based ICT solutions provider would now take years to make headway in the U.S. as it continues to grapple with low brand visibility, and trust issues among customers, market analysts say.

"In spite of repeated accusations on geopolitical grounds that have never proven to be true, Huawei is growing manifold to become a global industry leader that increasingly prides on the confidence and trust of a growing U.S. customer base," said a Huawei spokesperson, referring to the company's enterprise channel partnership with online retailer Newegg.

A key roadblock to Huawei's efforts to bolster its footprint in the U.S. is the market leadership of established players like Apple (AAPL - Get Report) and Samsung (KRX: 005935). During third-quarter 2013, Huawei accounted for an inconspicuous 3% of all phones sold in the U.S., while Samsung and Apple contributed about 33% and 36% to national phone sales in the country, according to International Data Corp.

Huawei has been hoping for a large network deployment with a major U.S. operator. Instead, the telecom network vendor is gingerly testing the waters through tie-ups with smaller rural carriers in a motley variety of infrastructure-related areas, including the Radio Access Network, or RAN.

To compensate for its dithering network equipment sales to U.S. telecom operators, Huawei is swooping down on the handset market to woo American consumers, with an unswerving eye on the high-end smartphone segment, where it is expanding its lineup with more devices like the 4G-enabled Ascend Mate 2, which was launched at CES in January 2014. Many phones would be priced at $411 and more, Eric Xu, Huawei's deputy chairman and rotating CEO told delegates at the Mobile World Congress in Barcelona in February 2014.

The company expects to sell up to 100 million smartphones around the world in 2014, compared to the 50 million devices it sold last year.

It would augur well if Huawei's U.S. growth strategy involved strengthening its distribution networks and pumping more money into R&D efforts in the country. The key question that arises is whether investing in R&D is something Huawei is able to do in the U.S.

Meanwhile, Huawei can't afford to lose sight of its allegiant ally, Europe, where it spent $3.4 billion (euro 2.4 billion) last year to import components from the continent and flex its R&D muscles as it implemented a strategy of localization to warm up to British and European suppliers. It was the same year, as Huawei's income statement reflected a handsome net profit of $.3.38 billion, up 34.4% from 2012.

Specific Huawei initiatives, such as the recent collaboration with Vodafone on M-Pesa in Romania and last year's campaign, Make It Possible, aimed at netting sponsorships from Europe's leading soccer teams, are garnering greater mindshare for its handsets business, which already has a strong footprint in the region.

A key factor that bears testimony to Huawei's brand equity in Europe is the steady rise in consumer awareness of the company's flagship devices. The global brand visibility quotient for Huawei's phone business in Europe jumped 110% year-over-year to reach 52%, according to a survey conducted by Ipsos, a global market research organization.

In Europe, Huawei has also developed 560 channel partnerships and expanded its employee base to 7700, largely hiring Europeans at a time when Sweden's Ericsson (ERIC - Get Report) and Paris-based Alcatel Lucent (ALU) were injudiciously downsizing their staff.

Huawei's annual turnover in the continent was $4.17 billion last year, scaling a respectable 11.2% over a two-year span, owing to an upsurge in the demand for both smartphones and infrastructure networks.

 Between March and April this year, Huawei's stock price rose $1.16, or 5.5%, to $22.32.


At the time of publication the author owned no shares in companies mentioned in this story.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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