Huawei and Lenovo salivate at Samsung phone fail

October 12, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

Huawei and Lenovo are salivating at Samsung’s phone fail. The South Korean group’s decision to scrap the Galaxy Note 7 is a golden opportunity for Chinese rivals. Execution will be key, and Huawei looks better prepared than the rest.

The exploding Note 7 debacle may be one of the costliest product safety failures in tech history. Analysts expected Samsung Electronics to sell up to 19 million devices. At a price tag of almost $900 per unit, that translates to lost revenue just shy of $17 billion.

That’s a rare opportunity to steal market share, and Chinese competitors, in particular Huawei and Lenovo, are poised to pounce. Both firms want to expand globally with an eye on the lucrative $600-plus premium smartphone market that has been dominated by Samsung and Apple so far. Unlike Chinese competitors OPPO, Vivo and Xiaomi, Huawei and Lenovo already have premium models in production, and they also enjoy relationships with carriers and distributors in developed economies. Lenovo is especially well-positioned in the United States, at least in theory, thanks to its $2.9 billion purchase of Motorola in 2014.

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Unfortunately Lenovo has been struggling to turn around its smartphone business. The company earlier this year reported its first full year loss in six years, due to acquisition and restructuring costs as well as weak handset sales. In the three months to June, its global smartphone shipments plunged 31 percent year on year. Lenovo last year also laid off 3,200 staff to restructure and cut costs, and its stock has taken a beating.

That leaves the much larger Huawei, which already ranks third behind Apple and Samsung in terms of global market share. Huawei’s large-screen premium Mate device also looks like a natural alternative to the Note 7, and the company already has 12 percent market share in Western Europe, according to IDC.

But it won’t be easy. National security concerns about Huawei have stained its brand in the United States, while Lenovo is still trying to integrate Motorola. Nor will competitors snooze; South Korea’s LG and Google are no doubt strategizing, and of course Apple also sees an opportunity.

Both companies will need to step up to make Samsung’s loss their gain.

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