Huawei vs Samsung: Rivers of Blood

Huawei flat-lines, passes advantage to Samsung 
The first indications for the smartphone market in Q2 16A are pointing to a loss of momentum for Huawei, Vivo, and Oppo. It will put a crimp in their plans to continue their rapid growth in 2016. Huawei is of particular note as it has very aggressive plans to become No. 1 in smartphones indicating it needs to employ a different strategy to continue gaining market share.

The net result is Huawei is no longer closing the gap on Samsung and its global ambitions are grinding to a halt. Huawei is now a comfortable No. 2 but I see it only making margins of 2-4% in the best instance. In order to earn better margins, it must become the No. 1 in terms of volume and outsell its closest rival by a factor of more than 2 to 1. It is this volume advantage that allows Samsung to earn 10-12% margins on Android devices which I think is sustainable for as long as it can maintain that volume advantage. This will be very difficult to achieve which is why I think Huawei is also working on differentiating its products through software and services.

I see three areas of development:

First: user experience. The aim is to lift the user experience on Huawei phones above other Android makers and thereby achieve differentiation. The user experience in developed markets is already reasonably well defined but RFM research finds that, in China, almost everyone struggles as 90% of users have low-quality stock Android. Only Xiaomi has developed a unique user experience but unfortunately, this has done nothing to help its poor profitability. Hence, I think Huawei will have to do something very special to achieve a price premium for its products which is unlikely to last long as good ideas will quickly be copied.

Second: proprietary operating system. I think Huawei is also building a complete alternative to Android where it would have full control of both hardware and software. This would give it the freedom to fully optimise the software to run with its silicon (HiSilicon) as well as to develop its own suite of services without having to put Google as the default. The problem is that outside of China and Africa, the Google ecosystem dominates Android to the point where it is almost impossible to sell an Android device without Google Play on it. Google uses this demand for Google Play to require handset makers put its services front and centre on their devices as well as precluding them from making devices based on other versions of Android. Hence, while this status quo exists, the Huawei version of Android is very unlikely to see the light of day outside of China.

Third: services. This is the Holy Grail because, if Huawei can develop a suite of Digital Life services millions of users love, it will be able to charge a significant premium for its devices. Unfortunately, this is by far the most difficult thing to do as one has to both build great services and then convince users to use them. Furthermore, in both China and overseas, there are bigger and stronger companies already dominating in the services space. I find it encouraging Huawei has understood and committed to differentiating in software as this represents its best chance of fulfilling its strategy without a substantial bloodletting for all Android handset makers. I think China represents Huawei’s best chance as it is in China where the most improvement in the user experience is needed and this is Huawei’s home market. I also see the possibility of a tie-in with Baidu, Tencent or even China Mobile as possibilities as these companies have very nascent, if any, verticalization strategies for their services. However, this won’t help in developed markets and Huawei must do everything it can to develop the appeal and attractiveness of its Honor brand.

These strategies will be difficult given the dominance of the Google ecosystem in these markets but I see cracks in Google’s position that might just give Huawei a chance. Huawei’s commitment to this strategy will be sorely tested as it is going to be a long and hard road and handsets could easily lose a lot of money before everything comes right. For the moment, the advantage has passed back to Samsung, who is also capitalising on the popularity of the Galaxy S7 to extend its lead in terms of profitability. This is why Samsung rests alongside Microsoft and Baidu as my top picks for 2016.

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Richard Windsor

Radio Free Mobile is an independent research producer specialising in the digital and mobile ecosystem. During Richard’s 11 years at Nomura Securities, Richard focused on the equity coverage of the Global Technology sector in Equities. During that time, Richard began looking at Handset software and over a period of 5 years became an industry leader in the space. As a result he was regularly consulted by small companies, start-ups, VCs and the like for strategic input and views on where both the mobile phone industry and the handset software space were headed. Richard has always strived to maintain an independent and objective view and would not pull any punches when concerns arose about the viability of a company or an idea. Radio Free Mobile is the land of the one man band. This research is created, written, owned, operated and maintained by Dr Richard Windsor PhD CFA. Dr W. also makes the tea.

43 thoughts on “Huawei vs Samsung: Rivers of Blood”

    1. I think it’s broader than that: It’s time for IT to be regulated a bit. Security standards and best practices, update mechanism, fines for noncompliance, indemnisation for negligence…
      I don’t think Google is any worse than any other IT firm, I actually think they’re a bit better, at least they’ve got AOSP and the Data Liberation Front.

      1. Heavily depends on where you place the boundary. It’s not even Search anymore. It’s virtually impossible to use the internet without making money for Google. So maybe it is commoditized.

  1. I believe the EU is investigating Google’s demand for Android obedience (GooglePlay or no Android for you.) as an antitrust matter.

    If so, would this give Huawei all the help it needs to roll out its sw?

    1. “GooglePlay or no Android for you.” That’s so off the mark it’s funny.

      Rolling out an OS isn’t the hard part (there’s about 10 rolled out and toppled about right now). What’s hard is getting customers and devs on board.

        1. You can have Android with no Google Play nor Google Play Services (not sure which one OP is talking about, but doesn’t make a difference).
          It is indeed about the services, but those aren’t Android, they’re Google services.

          1. Yes thats right. problem is its almost impossible to sell a phone outside of China that doesent have Google PLay on it. Thats how Google controls Android. if the EU breaks that stranglehold then there is a problem. A phone with Google Play on it and no Google services does not do Google any good at all.

    2. Yes it could. because it would free Huawei from the linitations of the MADA. It could deploy Google Play and its own services as well without Google causing problems.

  2. The funny thing here is that your recommendations for Huawei closely mirror what Samsung tried and failed at 3-4 years ago.

    User experience:
    Samsung and many other OEMs at that time tried hard to differentiate with User Experience. For Samsung, it was their TouchWiz UI. I’m sure that you remember that the tech crowd hated it. Interestingly, you say that current handsets in China are “low-quality stock Android”. Just a few years ago, the opposite was the prevailing opinion among the tech pundits; that stock Android provided a far superior experience compared to TouchWiz, etc.

    Proprietary operating system:
    Samsung tried (Bada, Tizen).

    Samsung Pay. Samsung Music, Samsung App Store, etc.

    Essentially, it seems that you are recommending to Huawei, exactly what Samsung was chastised for, and what they failed rather miserably at. Unless you have identified how and why Huawei could succeed where Samsung couldn’t, I fail to see your point.

    1. Samsung failed because of a civil war inside Samsung between hardware and software that never gave software a chance to get it right. Google turning up and demanding that hardware derived management shut down software development was the final nail in the coffin.

      Please note that I dont say that I think Huawei will succeed but what I do say that this is what is needed to make the strategy work unless Huawei can outsell Samsung devices by 2 to 1.

      1. I’m puzzled by how differently mobile phones are treated from … everything else. Does Renault need to outsell Toyota 2:1 to have a chance ? Do they need a magic feature aside from the ability to use the same roads and gas and be usable by all the driverbase ?

        Same as for phones, the value in cars is mostly about the stuff/bodies being transported, not about the device itself. Yet car OEMs are OK, and mostly doing OK, being OEMs. Should they aim at becoming Uber or Fed Ex ?

        1. Cars are not pure commodities. you can tell the difference by looking at them. Think about things like DRAM, NAND, HDDs, PCs are god exmaples where this applies. No one outsells anyone by 2to1 in PCs which is why no one makes any money

          1. By your own words then, the issue is to make phones you can tell are different by looking at them, not by what’s inside them. Incidentally, that’s probably what Samsung is doing right these days (the Edge and Active are very distinctive, I can probably spot a regular Samsung too), and Apple, wrong (at least w/ reference to their own previous models, but probably also to the rest of the industry’s designs now that everyone has gone HTC-One-like).

          2. But that is precisely the problem, There is only a certain amount you can do with a piece of black glass and a button. Thats why you have to go to services OR lead the market with at least a 2:1 advantage. If you can do ither of these you will be a 2-4% OP margin player in the best instance.

          3. Or something else, like stop the silliness with glass/metal phones that require a personnality-killing phone case, and use the back and sides for branding too.

          4. Good idea… I think the cases are such a bad iphoe is 2 years old never had a case and looks almost brnad new..and I drop it a lot.

          5. I’m still waiting for my Xiaomi Mi Max’s cases to graduate it to my main phone. It’s so thin, slippery, and I’m so bad at manual retention (and so good at the other retention) that I dare not go on the streets w/ an unprotected phone. Plus the Xiaomi does fell more fragile than my Huaweis.
            My 3yo nephew did alleviate the problem by putting large Cars stickers on the back of the phone, making it non-sliperry. When a 3yo beats teams of professionals designers, alarm bells should go off. Or maybe he’s a genius ? He did cover the camera lens, so.. Zuckerberg Jr ?

          6. If we can believe stats from Motorola it’s 21 percent of all smartphones globally (all kinds, not just iPhones) and 30 percent of all smartphones in the US (again, all makes and models), in use right now with a cracked screen. Seems to be a universal problem.

      2. It would be great if you could actually illustrate what kind of civil war Samsung had internally, because I’m not really aware that such a thing happened, and whether Huawei could somehow avoid one. Note that no company has ever been able to follow your recommendations and make them succeed, even though a fair number have tried. I would be wary of placing the blame on a peculiarity within a single company. It seems the inability to create a better user experience on top of Android, making an alternative OS that actually gets traction, making services that actually differentiate yourself is more universal, and I have no reason to believe that Huawei would be an exception.

        And honestly, stating that Huawei can beat Samsung if they outsell them 2 to 1 is a very strange statement. It’s like saying you can beat them, only after you’ve completely slaughtered them.

        1. Ok two things…
          1) I discussed the civil war inside Samsung in great detail in a piece of research that is available to my subscribers. (I have to eat too!) but there is a summary here (
          2) For Huawei to beat Samsung it must make a good return on its handsets like Samsung does. Samsung does this by its volume advantage. Hence Huawei not only has to catch up but also grind Samsung into the dust to make the strategy work

          1. I wish you had linked to a more useful summary. I hope you realise that your position on a “Samsung civil war” is not a popular opinion (I’ve never hear of it before) and that you need something to back it up. I have absolutely no basis to either believe or dismiss your argument, and hence I will take the natural default which is to dismiss.

            Also on the second point, I think you need to explain why Huawei cannot enjoy the same volume advantage as Samsung by selling the same number of handsets. Why does Huawei need to sell twice more to gain the same volume effect?

          2. Put it this way I triple checked the sources on this and they all confirmed each other. furthermore, this event also came right before Samsung’s collapse. This says it all.

            on your second point. simply because Samsung makes good margins now because of a scale effect. If both companies had the same scale effect they would compete agressively which other and the scale beneft would be competed away. It has happened time and again in markets where the product is a commodity.

          3. I actually took the time to read your summary, which doesn’t even mention a civil war at all. You say you’ve checked your sources, but you’re not even providing a clue about what you meant, let alone proving your point. You’re not being very helpful here.

            Regarding scale, you do realise that for Huawei to outsell Samsung 2 to 1, they have to match 1 to 1 along the way, don’t you? If I understand you correctly, you seem to be saying that your prescribed state is unreachable, and hence the prescription worthless.

          4. well, if you would be willing to buy the report I spent three months writing I would be more than happy to send you the whole thing!.

            Yes they would. Correct. at that point both companies would be making 2-4% operating margins. Only by growing share further would Huawei be able to start making the kind of margis that Samsung is making now..i.e they have to switch places.

  3. I just got a Xiaomi phone after a couple Huaweis and before that a Samsung.
    First, Huawei’s “experience” is about as tweaked as Xiaomi’s, and in the same Apple-y way too. No app drawer, a few UI tweaks, tricked-up camera app (Beautify mode, for our inner manga), proprietary services redundant with Google (and *only* redundant with Google’s, nothing new/exclusive), sugary looks
    Second, those tweaks add no value now. They used to, a bit, no longer.
    Third, a key value of the Android proposition is that you can switch OEMs. Proprietary apps+services start off with an inherent disadvantage.
    Fourth, I don’t grok the logic. If you’ve got an app/service that’s good enough to sell phones,
    why not make it available to 100% of the market instead of the 20% that buys your hardware ? Unless antinetwork effects have manifested in IT and nobody told me ?

    Unless an OEM suddenly finds the inspiration to become the next Facebook / Spotify / Niantic (and they wont, and if they do they should stop making hardware), the app/services angle is a red herring. And getting boring.

    1. easy. iOS and the advantage it gives to Apple. windows and the advantage it gives to Microsoft and historically, NOS and the advantage it gave to Nokia.

      1. Windows and the advantage it gives to MS ? We’re talking about Mobile right ?
        Historically Symbian ? Do we have the same history book ? The one with Palm and RIM in it too ?

        iOS… “Be Apple”, suuure. Assuming that’s even possible to have a) another Apple b) with a shared OS, how much value is actual iOS adding to Apple’s value proposition ?

        1. No we are talking everything. its not just mobile anymore its about delivering services on every possible digital device. Mobile is the most important at the moment but as other devices become important then corss device will increase in its relevance.

          iOS and the App Store are delivering MASSIVE value. I calculate around $163 per device is the value that these two assets deliver for Apple.

          1. Indeed, but is “be Apple” a realistic prescription for all (any ?) other OEM at this stage ? When your comeback is “do like MS and Nokia”, that should be a signal that the argument is.. problematic.

          2. Xiaomi is having a go. But I dont think that it will ever achieve what Apple has done and what Nokia did before it. If the Google ecosystem breaks (EU or other problems) then there will be space. I see space for this in China for the BATmen. (

          3. Let’s try to use some logic. If a handful of companies have tried the same strategies you have described and only Apple has succeeded, then the sensible conclusion would be that the strategy is not the cause.

            You are basically prescribing a strategy that has, based on history, something like 70-80% failure rate and only 20-30% success rate.

          4. I would argue that no tech company has actually done what Apple is doing. Others implement parts of what Apple does (often just the parts they think are the reason Apple succeeds, as if there is one magic bullet), but never the whole solution. So others fail while Apple succeeds, and a facile analysis would see this as the same strategy and have no idea why one fails and the other succeeds. The first step in copying Apple is understanding why Apple succeeds, and most people do not seem to understand that.

          5. True. At the same time, I’m sure that even Apple would have severe difficulty coming into a market already dominated by others, and trying to secure a beachhead with their own proprietary OS and services.

            A large part of Apple’s success with the iPhone is that they entered the market before it exploded (the iPhone triggered the explosion). They would not have succeeded as much if they had entered a world already dominated by Google Android.

            Therefore, giving Huawei the Apple prescription is much much too late. You’re giving medicine to a dead man.

            If any OEM wants to escape from the claws of Google, they have to find a market transition or unoccupied niche into which they can get into early. This is why Samsung is able to be the second largest Smartwatch vendor (excluding fitness bands) after Apple, even though it uses Tizen.

            If you want to beat Samsung in smartphones, you have to find a business that Samsung cannot or will not go into. a) unprofitable business models, b) Internet only branding/distribution (Xiaomi), c) business models that relinquish the brand (Shenzhen) are the ones that Samsung will not do and which have seen certain degrees of success.

          6. I suppose it depends on the market. Apple has had success in markets already dominated by others, but they did so by offering a better experience for customers. The smartphone market now is probably too mature for anyone to do what Apple did to Nokia and RIM, etc. Apple tends to walk onto the playing field and change the game, leaving many shouting “No fair!” The question is could Huawei change the game. I don’t think they can, they’re just too far away from having all the necessary pieces in play. What Apple is doing now took a couple of decades to set up, it doesn’t happen overnight.

          7. Changing the game is easier when there is a sea change and you can find a wave to ride (or a wind to take you there). Timing is key. A sea change is also when you are likely to find the incumbents flat-footed.

            Samsung exploited the shift to touch-based smartphones to leapfrog Nokia. iPhone exploited the new emerging technologies and power efficient CPUs. iPod exploited the new tiny hard drives from Toshiba. They all leveraged external opportunities to change the game.


            So the question to ask is, what external trends are there which Huawei might exploit? The answer in the smartphone market would most likely be “not many”. It’s easier in a more nascent market.

          8. “…then the sensible conclusion would be that the strategy is not the cause.”

            Or it could mean the strategy isn’t as easy to implement well as one might think.


  4. The first, second, and third areas for development are pretty much everything outside of hardware. That’s like saying “for the Lakers to win games, they need to improve their offense and defense to the point that they end up scoring more points than the opponent.”

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