Jan 27, 2017
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Huawei wants to beat Apple and become the world’s largest smartphone vendor

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Chinese smartphone maker Huawei is experiencing meteoric growth but it may need to boost U.S. sales to surpass Apple.

Huawei’s not doing too badly for itself. In the first half of 2016, the privately held Chinese smartphone maker saw sales jump a healthy 40 percent to about $39 billion and shipments climb 25 percent to 61 million. It dethroned Xiaomi as China’s largest smartphone maker. It also bucked an industry trend — in the third quarter of 2016, Huawei managed to move an estimated 33.6 million smartphones at a time when global smartphone sales climbed a measly three percent. But it aspires to do better.

Huawei’s set a goal of more than 140 million smartphone shipments in 2017, up from the 108 million it shipped in 2015. “We want to grow into top two market share, and, in the future, top one by 2021,” CEO Richard Yu told Fortune.

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That will be a challenge. Its investments in storefronts and brick-and-mortar placement increased the number of outlets selling its device to 35,000, up 116 percent. But the company’s operating margins took a hit as a result, diving six percentage points to 12 percent in the first half of 2015 compared to the same period a year ago.

Huawei’s had particular difficulty breaking into the U.S. In the third quarter of 2016, it sold just 153,000 handsets, and it has yet to crack the list of top 10 smartphone makers in the country, trailing behind budget phone rivals like Blu and OnePlus. And none of the “big four” — Verizon, AT&T, T-Mobile, and Sprint — has cut a deal with Huawei.

“The past five years, we were not taking the right strategy,” Yu said. “We didn’t have the right people.”

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But now, the company’s turning things around. Loans from China’s government helped it build a network business in Africa and Latin America, which helped it to win networking equipment deals with major European carriers like Vodafone. According to IDC, Huawei has doubled its regional market share in first nine months of 2016, to 12 percent, sold 10 times as many smartphones as Apple in Finland, and dominated the sales charts in Portugal and the Netherlands.

That is thanks, in large part, to the company’s strategy. Huawei, which makes the bulk of its revenue — $35 billion a year — selling networking equipment, provides carriers vouchers worth a percentage of their spending on network equipment. Most put those vouchers toward phones from Huawei, which get better marketing placement as a result.

The company hopes to translate that success to the U.S. market. It recently hired Michelle Xiong, a former Verizon wireless executive who has experience negotiating with device makers that will help sell Huawei’s smartphones. It also inked deals with retailers like Best Buy and Walmart that will see more of its unlocked phone portfolio in physical outlets.

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Already, it is within striking distance of Apple. The Cupertino, California-based company shipped 45.5 million iPhones in the third quarter — just 10 million more than Huawei.

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