May 10, 2011 / 7:10 AM / 6 years ago

Analysis: Huawei lifts veil in bold bet on consumer gadgets

<p>A general view shows the headquarters of Huawei Technologies Co. Ltd. in Shenzhen, Guangdong province June 29, 2009.Stringer</p>

HONG KONG (Reuters) - China's Huawei Technologies is making an aggressive push into the consumer electronics space, marketing its new smartphones and tablet PCs in glitzy Beijing malls and even a Milan fashion show as it seeks to emerge from decades of obscurity.

Huawei is betting on Google Inc's Android operating system for its smartphones, taking aim at grabbing market share from Apple's iPhone and Samsung Electronics' Galaxy in a move that is pushing the private company to open its once closed doors to the outside technology world.

After repeated requests, Huawei recently granted rare access to a research & development center in Shenzhen, putting on display its new approach and its entry into the consumer space.

The building is dotted with evidence of Huawei's drive for innovation.

On one floor, the R&D team displayed an array of products still in the works -- a 4G network card, a smartphone with a wireless charger and a snazzy smartphone with a see-through case.

Having built itself into the world's No. 2 network equipment provider, with plans to nearly quadruple revenues to $100 billion in ten years, analysts are banking that Huawei is up to its newest consumer market challenge.

"I cannot predict if Huawei has the makings to be Asia's next Samsung, but I would definitely not count it out," said Matt Walker, principal analyst at research firm Ovum.

Huawei has surpassed the likes of Alcatel Lucent and Nokia Siemens Networks among gear makers. It now hopes to double its cell phone shipments to 60 million this year, including 15 million smartphones.

"We hope to become the world's No. 3 in cell phone shipments and the world's No. 5 in terms of revenues within five years," Victor Xu, chief marketing officer of Huawei Devices, told Reuters as he played around with a Huawei IDEOS smartphone.

Under Huawei's previous direction, consumers weren't "able to see our brand on the things we make," Xu added, occasionally slipping into his pocket to grab his personal phone - an iPhone - when it rang. "But now we're changing our strategy."

RARE PEEK AT R&D Center

The change in strategy was in evidence when Huawei allowed Reuters exclusive access to its R&D center in China's southern boomtown of Shenzhen recently.

On the walls along the corridor are rows of paper with hand-drawn sketches of cell phone and tablet PC designs. Just around the corner is an unusual 3D printer that spews out plaster-like handset models for the R&D staff to have a look-and-feel of their designs.

Visitors and staff at the center are barred from carrying cameras and flash memory cards to ensure new designs are kept under wraps.

"I've noticed a lot of interesting innovations going on in Huawei," said Hagen Fendler, chief design director of handsets, who moved from Germany last year to join Huawei after working for Siemens.

"Twenty years ago, virtually no one has heard of Korea's LG Electronics in Europe, but now it's a big brand. I think Huawei will be able to achieve the same in China," said Fendler, one of many foreign R&D staff Huawei has hired globally to beef up its technology and designs.

While Huawei's network equipment has had success globally, one destination remains elusive -- the United States. It hopes smartphones and tablet PCs will help it capture that market.

With its network gear business plateauing in some markets, such as China, Huawei hopes to cash in on fast-growing mobile devices. Selling at about 1,500 yuan, Huawei's smartphones have been sold in markets from Australia to Kenya.

Global smartphone shipments exceeded PC shipments for the first time in the fourth quarter of 2010, with the cell phone market expanding to $341.4 billion by 2015 and smartphone sales contributing to three quarters of that, industry figures showed.

Setting up its own marketing channels instead of relying on distributors is another area Huawei has to work on.

"Huawei needs to create a brand that consumers can identify with and it will need its own marketing channels instead of relying just on distributors. From what we see, distributors aren't that keen on selling Huawei's handsets," said Ji Yongqing, author of the Chinese-language book "Huawei's World".

Huawei's spectacular growth and global standing have boosted its profile, but its ambitious overseas expansion plans have previously hit roadblocks on suspicions the company maintains links with China's military.

Part of that perception is fed by the extremely low profile kept by its CEO, and his past as an ex-officer with the PLA who founded Huawei 24 years ago with just 21,000 yuan ($3,230). Two decades later, CEO Ren Zhengfei has seen his investment soar.

In the latest edition of Fortune magazine, Ren was ranked the fifth most powerful businessman in Asia, just behind Samsung Group's chairman and CEO Lee Kun-hee.

Underscoring the company's transitive phase, a source says that Ren, a former member of the People's Liberation Army, owns two phones -- one Huawei and the other, an iPhone4

In February, Huawei said it would back away from buying the assets of U.S. server technology firm 3Leaf Technologies for $2 million after the U.S. government raised concerns over national security. [ID:nN19134618] Three years ago, Huawei had to drop a massive investment into U.S. telecom 3Com, under similar pressure from U.S. government officials.

Additional reporting by Tarmo Virki in HELSINKI; Writing by Lee Chyen Yee; Editing by Anshuman Daga

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