Stumped in the West, Huawei Targets Emerging Markets

Now that Huawei Technologies Co. Ltd. has felt the wrath of suspicious Western nations that have limited its business opportunities and raised questions about the alleged security threat that the company's products and business connections pose, it should come as no surprise that Huawei is setting its sights on other markets.

A recent announcement positions the company to take advantage of a continent where smartphones only account for about 10 percent of the total phones in the market. Huawei will team with Microsoft Corp. (Nasdaq: MSFT) to offer a phone dubbed the Huawei 4Afrika, which is the first in a series of smart devices being custom developed for the continent and released as part of Microsoft's sweeping new 4Afrika Initiative.

As Huawei and Microsoft set their sights on providing smartphones to consumers living in seven countries -- Angola, Egypt, Ivory Coast, Kenya, Morocco, Nigeria, and South Africa -- these new markets will provide fresh prospects and new opportunities to counterbalance the suspicions and lost opportunities that Huawei faces in the West.

Undoubtedly, Huawei is still smarting from the October 8, 2012, report of the US House of Representatives' Intelligence Committee, which identified Huawei and ZTE Corp. as companies that have ties to the communist party and shouldn't be given the right to sell their telecommunications equipment in the US. Doing so, Congress alleged, could provide Chinese intelligence services the opportunity to tamper with US telecommunications networks for the purpose of spying.

The US wasn't the first country to show the cold shoulder to Huawei. In March 2012, Australian authorities announced that security concerns were behind their decision to block Huawei from bidding on contracts in the lucrative $38 billion Australian National Broadband Network.

Britain has taken a mixed view of the company, in part because the country needs investment as its economy grinds through a slump. Late last year, Huawei said it would invest $2 billion in Britain, which will go toward new technical centers that are expected to create 700 jobs. Huawei already operates a research center in Ipswich and employs 800 workers in Britain. However, Huawei is also the subject of an investigation by Britain's Intelligence and Security Committee, which consists of parliamentarians who report to the Prime Minister. The committee is investigating whether Huawei represents a threat to the UK's cyber-security.

While its networking and telecommunications equipment business faces headwinds in Western nations, Huawei is adjusting by focusing on its mobile phone, tablet, and enterprise businesses. Reports are that in a New Year's message to staff, Guo Ping, Huawei's acting CEO, estimates that the company's earnings will increase by 29 percent to about $2.4 billion, on revenue of $35 billion.

Much of the expected revenue increase will come from smartphones. In January, another bit of good news was release by IDC, which showed Huawei for the first time in third place behind Samsung Electronics and Apple in the global smartphone market.

According to IDC:

Huawei suddenly finds itself among the top three smartphone vendors in the world, a first for the company. The company had previously been a Top 10 vendor. To reach this milestone, Huawei has courted both the mass market with its simple and inexpensive smartphones and the high-end of the market with its Ascend-branded product line. Along the way, the company has demonstrated its innovative skills, having released the world's thinnest (6.68 mm) smartphone last year, the Ascend P1s, and this year it announced the upcoming Ascend Mate, the first smartphone with a 6.1-inch display. At the same time, Huawei has brought its own software innovations, including Magic Touch, Guiding Wizard, Smart Reading, and Floating Windows.

Huawei's story may prove that Western sanctions don't hurt companies in the way they used to. Today, as new markets open up, and a growing middle class in Asia, Latin America, Africa, and other emerging economies clamors for affordable consumer products, winning new customers and greater market share can shield companies like Huawei from the pinch of Western sanctions.