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Huawei’s IoT ambition poses challenge to Xiaomi and Apple

The rapid growth of the IoT sector has drawn in Huawei amid falling smartphone sales.

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At a Huawei product launch event held in Shanghai in November 2019, the brand’s flagship smartphones were notably missing.

Instead, taking center stage, were two of Huawei’s Internet-of-Things (IoT) products: the MatePad Pro and the Sound X smart speaker. Previously relegated to supporting roles behind smartphones, this new class of products has become pivotal to Huawei’s consumer business strategy.

Yu Chengdong, CEO of Huawei’s consumer business section, confirmed to 36Kr that new product launch events dedicated to IoT products will become the norm, as IoT will be a priority alongside smartphone products in Huawei’s “1+8+N” strategy.

Huawei’s new strategy put the smartphone at the center (“1”), with eight types of smart gadgets including PCs, speakers, and watches (“8”), all interconnected to smart mobility and entertainment systems (“N”).

Huawei’s first-ever released phone was the C300 back in 2004, and since then, the company has devoted many resources to its consumer business division, which includes smartphones, PC and tablets. However, slowing growth in the industry is forcing Huawei to seek alternative revenue channels. According to statistics compiled by IDC, the global smartphone market has been in decline since the third quarter of 2017, only to rebound slightly in 2019, growing by a feeble 0.8% compared to the same quarter in 2018.

Even if Huawei recorded a year-on-year (YoY) shipment growth of 28.2% in Q3 2019 to become the second-largest global vendor by shipments, IDC predicts the global smartphone market to grow at an annual compound rate of just 1.9% through 2023.

IoT takes the center stage

IoT is the prime vertical that will offer Huawei a path to continued growth, according to industry watchers.

McKinsey expects the economic impact of IoT to reach USD 11 trillion by 2025, which is equivalent to about 11% of the world economy. Currently, China is already the world’s largest IoT market, with 64% of the 1.5 billion global cellular connections.

The Chinese government is also proactive in creating policies for smart cities and IoT. In June 2019, The Chinese Ministry of Industry and Information Technology issued the first 5G commercial licenses to four major telecom carriers, laying the groundwork for faster communication speeds in various sectors, including telecommunications, autonomous driving, and IoT.

Huawei’s push in IoT has been paying off, and the company’s IoT category has experienced tremendous growth, far outpacing its smartphone sector. According to Yu, in the third quarter of 2019, Huawei’s PC category grew 214% YoY, while smart speakers recorded a 260% increase and wearables rose by 272%. IDC also reported that, in the same quarter, Huawei’s tablet shipments in China surpassed Apple’s, claiming the top spot with a 37.4% market share.

Recently, Huawei also designated its cloud and AI business unit, which oversees its IoT services, as the company’s fourth major business group, following carrier, enterprise, and consumer business.

Huawei forecasts that there will be 100 billion connected devices used in every area of business and life by 2025. In Huawei’s “1+8+N” vision, smartphones will become enablers for other connected devices to offer all-scenario services with applications such as remote real-time musical collaboration, medical diagnosis and treatment, or industrial production.

Yu expects the number of IoT products to increase to take about 30% or more of total sales of Huawei’s consumer unit, bringing in 30–40% of total revenue.

Still, when it comes to IoT, Huawei is a relative newcomer in China. To make its vision a reality, the firm will have to take on entrenched players who have already invested heavily in several areas of this industry, like Xiaomi and Apple, and new contenders such as Baidu and Alibaba.

How Huawei plans to take on Xiaomi

Compared to Huawei, Xiaomi already has a successful portfolio of IoT products and an established ecosystem based on a strong network of partners. Xiaomi calls its strategy “1+4+X,” which refers to smartphones, four smart devices (TVs, smart speakers, routers, and laptops), and other products like air purifiers and wearables manufactured by its partner companies.

In the third quarter of 2019, Xiaomi’s revenue from IoT and lifestyle products rose by 44.4% YoY to RMB 15.6 billion (USD 2.2 billion). During last year’s Singles’ Day shopping festival, Xiaomi’s IoT and lifestyle products recorded a YoY increase of 148% in sales.

These strong sales figures have enabled the company to invest heavily in developing IoT tech. In January 2019, Xiaomi upgraded its IoT strategy to “smartphone+AIoT”, a concept combining artificial intelligence (AI) with IoT to transform homes into intelligent spaces. Xiaomi has pledged RMB 10 billion towards its implementation, which will involve connecting 22 categories of devices and home appliances.

On the other hand, Huawei’s IoT solutions focus on “smart lifestyle in smart cities” rather than the home. Currently, over 500 cities have submitted proposals to become “smart”, with 90 of them being undertaken by the Chinese government as pilot projects. By 2025, more than 50% of smart cities in Asia will be located in China, generating USD 320 billion for the country’s economy and benefiting technology companies like Huawei and others, according to a report by Frost & Sullivan. 

Smart cities will rely on high-speed internet and IoT to gather and transmit data from an expansive network of sensors and devices throughout the city, and to generate information to support timely decisions to improve the quality of life and work.

For example, metropolises like Shanghai have deployed IoT and AI for smart waste management, while in Hangzhou, Alibaba Cloud’s “City Brain” controls almost all traffic lights and helps expedite emergency responses. 

However, as one of the market leaders in 5G technology—with research and development investments topping USD 1.4 billion—Huawei has a clear advantage over Xiaomi in consumer-facing products as well. For starters, Huawei has stepped into research, innovation, and development of connected car technology. Huawei’s IoT portfolio also takes care of consumers’ connectivity needs at home, in the office and on the move, with smart gadgets such as TV, pads, and speakers, which are key products in Huawei’s premium IoT consumer portfolio.

Challenging Apple with premium products

Huawei’s ambition to capture the high-end market, which has so far been dominated by Apple, further sets it apart from Xiaomi. While Xiaomi aims to remain affordable for the mass market, cutting-edge products and an improved user experience are Huawei’s assets to challenge Apple’s fortified position in the high-end market.

One of the company’s two newly launched products, the MatePad Pro tablet, is meant for the premium end of the market. It runs Huawei’s latest chipset, the Kirin 900, and holds enough power to stand by for more than 10 hours. Huawei’s multi-screen solution, called “Parallel World of Vision,” lets users display three active windows simultaneously on a single screen. Even though it is more expensive than previous versions, at RMB 3,299 (USD 470) for the basic model, it is still competitive in a market where Apple prices its newest iPad Pro at RMB 6,331.

The price of Huawei’s new Sound X speaker, RMB 1,999, is also a steep hike from before, when its first smart speaker was released for RMB 399. Sound X is in direct competition with Apple’s lineup, but Yu is confident that the sales of Sound X in China will surpass Apple’s HomePod. “Sound X uses audio technology from French premium speaker brand Devialet, which is superior to Apple,” he said.

Furthermore, Apple adjusted the HomePod’s price from USD 349 to USD 299 in April last year. Huawei will likely also face new competition from Samsung, which has announced the release of its Galaxy Home Mini early this year, a device that will integrate with Samsung’s homegrown smart platform to control the company’s entire ecosystem of IoT devices.

Huawei is confident that it can build a portfolio that includes high-, mid- and low-end products to satisfy all consumer needs. At the same time, Huawei is trying to gain a competitive edge by expanding its own ecosystem, optimizing the user experience, and lock in new users to its connected products. During an interview, Yu proudly said, “Our distributed operating system for multi-device integration is better than Apple.”

Despite the confidence, Huawei will not have it easy, as more hardware makers have also started to build their own ecosystems. Vivo and Oppo, the second- and third best-selling smartphone brands in China as of the third quarter of 2019, have initiated their own IoT strategies and platforms. Both brands have formed an alliance with Xiaomi to enable direct wireless transfer of files between devices from the three brands. Similarly, Samsung has collaborated with Microsoft to enable seamless transfer of data between Samsung’s Android devices and Microsoft’s Windows-based computers, in a bid to challenge Apple’s ecosystem where data can move seamlessly between devices, from wearables to desktop computers to smartphones.

Huawei may have staked its bet on the premium market, but to successfully launch into this space may require more than technical excellence, such as fending off competitors that are gradually building their own ecosystems and inching into the premium space. Even for Apple, the popularity of its ecosystem is not simply based on top-notch hardware quality and IoT capabilities, but also hinges on its cloud services, as well as other in-house platforms for streaming music, videos, and podcasts.

To achieve its consumer IoT ambitions, Huawei will have to listen to its customers and continue its transformation to adapt to a rapidly changing market.

The original article was written by Li Zhenliang of 36Kr, KrASIA’s parent company.