Perception still the Achilles' heel for Huawei

By Edwin Yapp June 26, 2015

Still attempting to crack the US market amidst mounting suspicion
Expected to grow globally, security concerns largely US phenomenon

ANALYSIS AMERICAN comedian and entertainer Stephen Colbert has been attributed with saying, “Facts matter not at all. Perception is everything. It's certainty.”

Whether you agree with Colbert or not is a matter for debate, but his quote arguably fits what China’s Huawei Technologies Co Ltd is going through in its bid to win global recognition in the worldwide smartphone arena.

A recent ZDNet article noted how the Shenzhen, China-based telecommunication powerhouse is offering its latest and smartphone, the Huawei P8, to the US market at an incredibly low price of US$250 or less.

The phone is said to be unlocked and available on any US network, and the hardware isn’t half bad for a phone at that price.

The 1.5GHz Snapdragon 615 octa-core P8 comes with a 5.2-inch display and a high-definition 720p resolution; 13-megapixel and 5-megapixel rear- and front-facing cameras; high-speed Long Term Evolution (LTE) connectivity; and a microSD port for additional storage of up to 32GB.

It boasts of an incredibly thin body at just 7.7mm, and is remarkably light at just 130 grams – all of which is wrapped with Corning Gorilla glass (front and back). It also comes equipped with dual-SIM slots, allowing users to switch between one or more carriers – which is always handy for frequent travellers.

But if you agree with what Colbert had to say about perception, Huawei was already in trouble even before this device hit the shelves Stateside.

For if perception is everything, then Huawei questionably has the worst one in the United States, where it has been dogged by allegations of espionage and spying over the last few years.

According to The Wall Street Journal, attempts by Huawei to expand into the United States are being seen as a threat to national security.

After a year-long investigation by the US House of Representatives Intelligence Committee in 2012, Huawei and its fellow Sino vendor ZTE Corp were accused of being security risks to the United States because their equipment could allegedly be used for spying on Americans, The Journal noted.

“American military and intelligence officials have long been warning privately that China poses a cyber-espionage threat to US defence systems and companies,” the daily said.

“Government officials have been reluctant to voice those concerns publicly for fear of angering China. That has begun to change, and the House report represents the most direct statement of concerns about specific Chinese companies.”

After the report was released, both Chinese vendors denied the allegations, with Huawei saying that it “would not jeopardise its global commercial success nor the integrity of its customers’ networks for any third party, government or otherwise.”

And in a rare appearance this year, founder and president Ren Zhengfei vehemently rebutted the accusations (subscription required) that Huawei spies for China, according to a Financial Times report.

“We have never been asked by our government to spy,” he said flatly, in an hour-long town hall-style meeting that was broadcast online from the World Economic Forum in Davos.

“We are a Chinese company, we definitely advocate the Communist Party of China; we love our country, but having said that, we definitely will not compromise the interest of any other country or government.

“We comply with the laws and regulations of any other country we do business in,” Ren was quoted as saying.

Meanwhile, while US Government officials were alleging that such cyber-espionage activities were taking place, some analysts have speculated that the real motivation for casting aspersions on the Chinese vendors was political rather than actual evidence of maleficence.

One analyst even went on record to say that there was no concrete proof that has been adduced to show that Huawei’s equipment posed a national security threat.

Perception still the Achilles' heel for Huawei Neil Shah (pic), research director at Counterpoint Research, told Digital News Asia (DNA) in an email that whether these assertions are true or not, concerns over Huawei’s alleged security issues are largely a US phenomenon, made worse by negative public perception of the company’s products.

He noted that a couple of years ago, Huawei was in a stronger position until the US Government expressed security concerns about the company’s network infrastructure products, which had an adverse effect on its devices business as well as causing it to lose shelf space with top carriers.

“Huawei’s mobile phone market share plummeted from 3% in the first quarter (Q1) of 2013 when it was gaining traction at operators such as AT&T and T-Mobile, to almost 0.4% in Q1 2015,” he said.

How about Asia?

Perception still the Achilles' heel for Huawei

According to Shah, most countries outside of the United States haven’t shown any distress yet with regard to Huawei’s products.

Its performance has been fairly decent and picking up, especially in Latin America, parts of Europe and Asia, he added.

Asked how well Huawei’s devices such as the Honor 4X, Honor 6 Plus and the P8 were moving in Asia, and whether there was any negative security stigma in this region, Shah said that there hasn’t been any such sentiment affecting its business here.

“Huawei’s smartphone share in Asia, including China, has in fact grown to 7%, trailing Xiaomi, and it was the fourth largest smartphone brand in Q1 2015,” he said.

“Huawei’s new products – under the online brand ‘Honor’ – have been really well received and are driving volumes for Huawei.”

Shah noted that in the long run, Huawei is better positioned with its global scale, greater research and development (R&D) expertise, and deeper pockets to challenge the likes of Lenovo Group Ltd and Xiaomi Inc for a third spot at a global level, and this even includes the US market.

In the United States however, Shah said Huawei would have to convince the government and carriers that its wares are safe, by subjecting them to comprehensive device testing and certifications.

“Other things Huawei could do would be to commit to establishing local cloud servers in the countries where there are potential security or privacy data concerns,” he suggested.

“In the longer run, Huawei may need to spin off the device business into an independent listed company, so that the operations and shareholders’ structure is quite transparent,” he added.

Asked whether the recent rumours that Google Inc may have appointed Huawei to build the next iteration of its hugely popular Nexus smartphone could change the perception of the China-based vendor in the United States, Shah said building a Nexus device would certainly elevate its brand perception there.

“Google helped LG Electronics Inc raise its profile with the Nexus 4 (LG G2) and Nexus 5 (LG G3), which was certainly one of the factors for the company growing its market share in the United States in the last couple of years,” said Shah.

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