Here Comes Huawei

A truism of the smartphone market over the past few years is that for all the sales of Android smartphones, only Samsung is actually turning a profit making them. Now China’s Huawei may be getting in on the party as its profits surged 33 percent in 2012, and the company now gets two-thirds of its revenue from outside of China.

It’s difficult to say for sure if Huawei really has a profitable Android business because the firm is also a major manufacturer of telecommunications networking equipment (competing with Cisco and Erickson, in other words) alongside handsets and not all of its handsets are Android handsets. But there have been a lot of other indications of very high sales volume of Huawei Android smartphones, so it’s likely that money is being made here. Huawei also looks like a classic low-end entrant. They haven’t gotten much attention as a device-maker in the U.S. because nothing they’ve put out seems to be a serious contender for title of “the best” smartphone.

But with digital component prices always falling and the Android OS available for free, there’s a big market out there for people who don’t want the best smartphone. What they want is a really cheap phone that can complement a cheap contract-free plan, and that has some “smart” features. That’s a great product for tens of millions of low-income households in rich countries and for maybe a billion or three people in developing countries. Profit margins are sure to be low serving that low end, but it’s a large market. And if you get really good at serving the bottom end of the market, you have the chance to creep up.