Richard Yu Says Huawei’s Market Share Has Exceeded Apple, While its Margin is Too Low

Huawei’s client servicing CEO Richard Yu said the current mobile phone market has yet to reach equilibrium: most brands will die out, and three or fewer will survive worldwide.

“We aim to sell 15 million phones in the Mate10 series, and our price is much more competitive than the iPhoneX,” Yu said, “We could become the world’s top seller merely by increasing our low-end sales, but Huawei has cut a number of its budget models to move the brand upward.”

The artificial intelligence chip has been Huawei’s “nuclear weapon” in its quest to conquer the upper-middle market. Yu named the Qilin 970, fabricated after two years of development, as the key to “AI Era.” He said phones are currently in the App Era, but AI is the future.

The Qilin 970 drew attention even from outside the industry at the IFA exhibition on September 2 in Berlin. As Huawei’s first mobile AI computing platform, the Qilin 970 was said to be its “nuclear weapon” in terms of user experience. At the Mate10 press release, Yu mentioned the technology numerous times. With constant input into research and development, Huawei will conquer the market, he said.

“There has been a constant increase in Huawei’s research and development budget, exceeding even some of our big American counterparts. In terms of research and development in mobile phones, we have invested more than a hundred of our domestic competitors. Behind the chip is a team of more than 10,000 research scientists,” Yu said, “I told my team we are not going to make products slightly better than others, but far ahead of our competitors. You can expect to see more innovations by Huawei, but I will keep them a secret for now. There are 180,000 people in Huawei, and this news is not even shared internally. People only hear about it when the technology is ready to debut. We are creating a technology that is ages ahead of our competitors.”

Yu said AI is bringing breakthroughs to the smartphone experience: it enables the use of voice commands instead of a touchscreen; it adds deep learning capabilities and access to a cloud repository; and it offers comprehensive service without checking apps. Most smartphones that utilize AI are using technology still in its infancy. Yu said AI is just a base, and applications using voice and image recognition are the first step. The next step is to develop a holistic ecosystem. Huawei has opened up a space for new AI developers. “With listening, speaking, and thinking capabilities, the future of AI will bring new potential to phones,” Yu said.

The industry’s current battleground is the screen, but Yu said it’s a poor territory. Better cameras and thinner phones are trivial to produce, and most manufacturers can make them. Companies promoting their greater screen sizes are selling awkwardly shaped bodies with poor cameras and their designs won’t last, Yu said.

Yu said the key is user experience: durable phones that are usable for many years and take great pictures. A focus on form factor is a sign of incompetence, since the software and underlying hardware is what matters, Yu said.

During the press release for Mate 10, Yu said Huawei sold 112 million units in the third quarter of 2017, as sales increase of 19 percent over last year and a 30 percent increase in revenue. Huawei surpassed Apple in market share to become the second most sold handset with a significant lead in the Chinese market.

“Huawei’s share of high-end phones is growing rapidly, and so is its unit price. The Mate8 series phones sold 7 million units. The Mate9 sold 10 million units,” Yu said.

“European and Chinese markets have been Huawei’s driver in moving into the high-end market. Currently, sales of the Mate series and P series have stabilized,” said Yan Zhan, research director at Counterpoint Analytics.

Compared to sales volume, the margin is still a ceiling impossible for domestic mobile phone makers to overcome in the short-term.

The “Global Mobile Phone Profit Share 2017 Q2 Report” by international research organization Counterpoint found the global margin for phone makers fell 10 percent in the second quarter of 2017. Despite that, Apple still takes the lion’s share of the global mobile phone market. In the reporter period, Apple claimed 65 percent of all profits with 9 percent of the sales volume. The top three Chinese mobile phone brands – Huawei, OPPO, and Vivo – achieved profit shares of 4.1, 4.0, and 3.0 percent.

Yu said Huawei’s profit margin is better than other domestic brands, but still lags behind Apple and Samsung. Its closed iOS ecosystem gives Apple a huge advantage, he said.

This article originally appeared in CHINA BUSINESS NEWS and was translated by Pandaily.