SSNHZ Samsung Electronics Company Ltd (PK)

By Elizabeth Koh 

SEOUL--Huawei Technologies Co.'s sanctions-induced smartphone slump has rivals seeing opportunity in a market where switching brands is rare.

With U.S. restrictions curbing its access to key parts, Huawei has suffered a plunge in sales in recent months, most strongly benefiting South Korea's Samsung Electronics Co. and other Chinese makers.

Samsung, the world's largest smartphone maker, will be moving roughly a month ahead of its usual timetable when it launches its new flagship Galaxy S21 on Thursday--capitalizing on No. 2 maker Huawei's weakness, industry analysts say. Samsung recently forecast a 25% jump in quarterly operating profit, aided by a resurgence in phone sales.

Not long ago, Huawei seemed on track to meet its oft-touted goal of permanently unseating Samsung. But in the three months ended Sept. 30, its global market share shrank by nearly a quarter from a year earlier to 15% while Samsung's grew to 23%, according to market researcher Canalys Inc. Lower-cost Chinese operators like Xiaomi Corp. and Vivo Electronics Corp. also gained.

Those trends persisted during the final months of 2020, industry analysts say, with estimates for a slight retraction in shipments. The overall smartphone market has been struggling to recover from the coronavirus pandemic's blows last spring and summer. Analysts say they expect consumer demand to return to pre-pandemic levels this year.

"Samsung has recovered a lot better than most, and that's mostly because of Huawei's problems," said Mark Newman, a senior analyst at the brokerage Sanford C. Bernstein. "Huawei's share has just been decimated."

Apple Inc. hasn't much gained from Huawei's troubles. Only about 10% of people using smartphones powered by Google's Android switch to iPhones--a figure that's held steady for years, according to Consumer Intelligence Research Partners LLC, a market researcher--and just 7% switch the other way.

Samsung was in need of a misstep from Huawei. Big bets on 5G and foldable screens had failed to reverse the South Korean company's own multiyear smartphone sales slump. To better compete with Chinese makers, Samsung had started packing its lower-price models with features once reserved for its premium flagship products.

Huawei's pandemic trajectory initially looked enviable. Though it was one of the first smartphone makers to be hit hard by Covid-19, as China was where the virus was first detected, the country's faster recovery boosted the company to the top of the vendor list for the April-June quarter, when industry sales nosedived 30%.

But since September, tightened Western sanctions have squeezed Huawei's supply of chips for smartphones and consumer electronics, and it is now eating through its stockpiles. Industry analysts say some components could run out as early as spring, though the supply could last through fall as it continues to slash product shipments. Late last year, Huawei jettisoned its budget smartphone brand Honor, which might help the former subsidiary avoid U.S. curbs.

Huawei's woes look likely to continue, at least into the immediate future. Trade experts anticipate the administration of President-elect Joe Biden will continue a tough stance against China, perhaps easing measures slightly or leaning more on U.S. allies to enforce their own restrictions.

"I would guess that the existing sanctions [on Huawei] stay in place for a while," said Orit Frenkel, a former U.S. trade negotiator and executive director of American Leadership Institute, a Washington-based think tank. She added that Mr. Biden's first priorities are likely to be domestic rather than international.

Even if tensions were to ease, Huawei would need time to financially recover and reach its former capacity, said Canalys analyst Nicole Peng: "They've lost a year's time in the game."

Other Chinese makers have seen an opening, especially as Huawei's dominant perch in its home market of China also begins to erode. They have also been jockeying to grow into Huawei's user base with budget handsets.

Xiaomi has more than tripled its fraction of the Western European market since early 2019 to 14%, surpassing Huawei, whose share fell by more than half to 11%.

The strengths of smaller Chinese manufacturers include their agility and feature-packed phones at budget prices, said Tom Kang, a Counterpoint Research analyst. Samsung's marketing overhead is higher, he said, and its product-development cycles longer.

"Huawei is definitely in decline," Mr. Kang said. "It's an opportunity for those who are prepared."

Write to Elizabeth Koh at Elizabeth.Koh@wsj.com

(END) Dow Jones Newswires

January 12, 2021 06:28 ET (11:28 GMT)

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