Huawei Slips to No. 2 in Smartphones as Samsung Reclaims Lead

By Dan Strumpf

Huawei Technologies Co.'s reign at the top of the global smartphone market was short-lived, a sign that U.S. efforts to curb its supply chain might be starting to hurt the Chinese company.

The Shenzhen-based tech giant fell to second place in global smartphone shipments during the third quarter of the year, slipping back behind Samsung Electronics Co., according to International Data Corp., a market research firm. Huawei's world-wide shipments fell by 22% in the third quarter, the largest year-over-year drop in smartphone shipments for the company on record, according to IDC. Huawei had climbed to No. 1 in the previous quarter.

The decline is an indication that the U.S. restrictions on sales of chips and other components to Huawei are taking a toll on Huawei's consumer-gadget business, the company's largest source of revenue. Virtually all component vendors without a license from the U.S. Commerce Department have been effectively blocked from selling parts to Huawei since Sept. 15, forcing the Chinese company to rely on stockpiled components to build its devices.

Overseas buyers have been turning away from Huawei devices this year -- partly due to the economic toll wrought by the coronavirus pandemic outside of China, but also because U.S. restrictions mean its devices can no longer run Google's popular smartphone apps.

Huawei's smartphone sales had been buoyed by a buying spree in China, but recently, even its domestic performance has been suffering: Sales fell more than 15% in the third quarter, according to IDC.

Huawei has been slowing down its distribution of devices to stores, so as not to run down its inventory too soon, said Will Wong, an analyst at IDC, citing its research into distribution networks.

"What we're seeing is that they intentionally slowed down their pace," Mr. Wong said, "If they can last longer in the market, this can give confidence to consumers and to the supply chain as well."

A Huawei spokesman disputed IDC's conclusion, saying that the company isn't deliberately slowing phone shipments.

"Huawei is actively fulfilling its channel orders normally," the spokesman said. "Any suggestion that we are restricting channel supply is misinformed."

The company has repeatedly denied U.S. assertions that the company's products pose a national-security threat, the reason cited by the Trump administration for targeting Huawei.

Huawei executives have warned that restrictions imposed by the Trump administration this year on the company's ability to buy chips and other parts pose a threat to its business. Guo Ping, Huawei's deputy chairman, last month said, "Survival is the goal."

To be sure, quarterly shipment data offers only a limited window into company performance, and smartphone sales fluctuate throughout the year.

Earlier this month, the company unveiled its latest flagship product, the Mate 40, which it expects to boost demand. The company has said that it would likely be the last device to be sold with its self-designed Kirin chip, and executives said that the company is looking for solutions to the shortfalls in its smartphone supply chain.

Several chip suppliers have revealed that they have applied for licenses from the Commerce Department to resume shipments to Huawei, and a small number have received them, according to people familiar with the matter. Among them, Samsung's display manufacturer received approval from the U.S. to sell certain types of smartphone panels to Huawei, according to a person familiar with the matter.

Other parts suppliers disclosed a bump in sales to Huawei in the period leading up to Sept. 15, as the company stockpiled chips and other parts. A Samsung executive told investors on Thursday that the company saw "urgent orders" placed by Huawei in the third quarter, boosting sales.

The company was still the No. 1 vendor in China in the latest quarter, with more than 40% of the overall market, according to Canalys, which released data also on Friday.

Write to Dan Strumpf at daniel.strumpf@wsj.com

(END) Dow Jones Newswires

October 30, 2020 09:18 ET (13:18 GMT)

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