Going rogue at CES 2018: Is Huawei a 21st century Dell?

Does the Chinese smartphone giant really need carrier participation to be successful in North America?
Written by Jason Perlow, Senior Contributing Writer on

At CES 2018 this week, buried among the myriad of product previews from the various consumer electronics companies, was the news that Chinese smartphone giant Huawei was not able to successfully consummate an agreement with US mobile carrier AT&T to launch its devices in 2018, as it was previously speculated.

Read also: Huawei Mate 10 Pro's US launch promoted by Wonder Woman Gal Gadot

In December of last year, Huawei's consumer business president, Richard Yu, disclosed in an interview that Huawei's phones would be selling on US carriers in CY18.

The company itself never bragged of a direct carrier partnership, but industry analysts believed that AT&T was going to be the launchpad for such a venture.

While this is certainly a disappointing setback for the company, I don't think this is the end of Huawei's US aspirations. In fact, the battle for smartphone market domination has only just started.

The US Android smartphone market is indeed dominated by established brands such as Samsung, LG, Motorola, and Google, but the industry is still ripe for significant disruption. Most of these devices are still relatively expensive, particularly at the flagship feature level, which can range $600 and up, especially for "phablet"-type devices with 5.5-inch OLED FHD+ screens and larger.

Traditionally, these phones have been sold by carriers because of their high acquisition cost. Smartphones at US carriers used to be subsidized, with pricing dependent on signing service contracts that were typically two years in length.

The practice of locking wireless service customers into contracts has now ended, which leaves consumers the ability to migrate between carriers without significant termination penalties, providing their handset equipment is compatible.

However, the price of the phones is now amortized over the course of a two-year period instead, unless they are paid for, in cash, up front. There is also typically a fee to unlock the phone from its carrier of origin, which itself can be expensive.

Huawei, through its global value brand, Honor, is causing significant disruption already, because it is able to manufacture and sell quality carrier-unlocked handsets for as low as $200.

Read also: Eight reasons the Huawei Mate 10 Pro is good for business | Best cheap smartphones: $300 (or much less) | AI will transform smartphones into 'intelligent phones': Huawei | Huawei Mate 10 Pro review: A feature-packed flagship with extra AI

Huawei is able to do this because it owns most of its intellectual property related to the components it uses in its devices.

Using any number of contract foundries, it deploys its own brand of ARM-based semiconductors via its fabless HiSilicon business rather than buying these components on the open market using designs from Qualcomm or Samsung, which make up the balance of the Android smartphone industry.

The downside of this is that because it doesn't license these chip designs and related intellectual property, it also lacks compatibility with CDMA-based mobile networks, which is a carrier technology effectively locked up by Qualcomm.

Even Samsung, which has its own ARM-based Exynos SoC designs that it directly manufactures via its own fabs, has to use Qualcomm-based designs (which it also manufactures) in order to work with all the major carriers in North America.

In the US, that means Huawei's phones won't currently work on Verizon and Sprint, which leaves only AT&T and T-Mobile and smaller regional/prepaid carriers, like MetroPCS, Cricket, and Boost Mobile, as potential partners -- unless it decides to buy baseband chips from Qualcomm, as Apple does with the iPhone.

iPhone XS Max cost too much? Great smartphones in every price range

So, if it can't sell phones at a major carrier, what is Huawei to do? The answer is clear: Direct sales.

Carrier exposure is certainly preferable, but I believe it is possible for Huawei to go at it alone and still be successful.

It can do it on Amazon, at big box retailers, and also directly from its own site at HiHonor.com. It can buy commercial TV airtime and advertising on the web. The game is far from over.

In fact, I would say that Huawei has a strong precedent for success when going up against established players.

You see, there was a far smaller, scrappier rogue technology company back in the 1990s that faced and overcame very similar challenges: Dell.

Wait, Dell? As in "Dude, you're getting a Dell?" As in today's giant Dell Technologies? Who sells massive volumes of product at Costco and every big box retail store in the world? Yes.

In the late 1980s and early 1990s, the personal computer industry was very similar to the situation that Huawei faces today. PCs and servers were largely sold via the channel -- in other words, brick and mortar resellers, or VARs.

Dell was going up against the big boys like Compaq, HP, and IBM. It had little or no presence in the channel, as resellers were under tremendous pressure from the big guys to sell product in order to maintain their channel partner status.

Dell's tactic was to take out big ads in print publications like Computer Shopper and PC Magazine and to offer their products mail order through telesales.

By being more agile and responsive than IBM, HP, and Compaq -- and other channel-only firms that are now industry footnotes -- and allowing customers to custom configure their systems rather than relying on fixed SKUs, Dell built itself up to be a multi-billion dollar company and giant that it is today.

Huawei is already a gigantic company. It is already very successful in many other global markets as well as its domestic market in China. It has tremendous economies of scale capabilities in manufacturing.

Most importantly, it builds a solid product, which it has proven it can price extremely competitively.

Its only shortcoming is lack of carrier partnerships and its guilt-by-association with the Chinese government, which is currently fueled in the US by partisan politics-induced discrimination and overblown security paranoia.

Computer Shopper and PC Magazine and many of the trade rags are long gone. Print journalism is an anachronism, particularly in the technology industry.

But, today, we have much better avenues for brand promotion -- Amazon and web ad networks, just to name a few. The company could easily throw $100 million in ad revenue toward such a marketing effort and its Honor phones could very quickly become a household name.

Based on its current plans with Wonder Woman actress Gal Gadot and its US rollout of the flagship Mate 10 Pro, this sounds exactly like what the company intends to do.

Huawei can competitively bundle other things it makes, such as rapid chargers, power bank batteries, IoT products, and Wi-Fi access points in order to sweeten the deal.

I also think the company should explore putting out a low-cost Android tablet using their Kirin 970 SoC, since that would have no carrier dependency at all with a Wi-Fi only offering and would be a fairly low-resistance way for consumers to experience their technology.

"Hey, I'm getting a Huawei." You can steal that slogan, Mr. Yu (别客气) Talk Back and Let Me Know if you are too.


    Verizon-Huawei pact reportedly hit by political pressure (CNET)

    A possible deal to sell the Chinese phone maker's new Mate 10 Pro in the US isn't sitting well with some in Washington, DC, Android Police says.

    Huawei CEO: Lack of US carrier support a big loss for you (CNET)

    Huawei addresses the controversy over a failed deal to have AT&T sell its flagship phone at its CES keynote.

    Is Huawei a threat to US national security? (TechRepublic)

    Telecommunications giant Huawei's rapid expansion has prompted fears in the U.S. national security establishment about cyberespionage threats emanating from China. What do IT pros think? Voice your opinion in the poll.

    7 charming robots at CES 2018

    Editorial standards