Led by record demand for the iPhone 6 and iPhone 6 Plus, Apple's (NASDAQ:AAPL) recent handset growth has been nothing short of stellar. Yet Chinese handset maker Huawei is growing even faster still.
In the first six months of the year, Huawei's smartphone shipments rose 39% on an annual basis, compared to about 38% for Apple. In the second quarter, Huawei's shipments rose more than 48%, compared to about 35% for Apple. Admittedly, this comparison is somewhat disingenuous -- Huawei sold only half as many smartphones as Apple -- but it does serve to highlight the growing competition Apple faces in China, an increasingly important market.
The third-place gap grows
Huawei emerged as the world's third-largest smartphone manufacturer in the second half of 2013. In the quarters since, it's continued to cement its position, outgrowing its rivals even as competition has intensified.
Last quarter, according to research firm IDC, Huawei shipped nearly 30 million handsets. That's a far cry from the 47.5 million iPhones Apple shipped and significantly less than the 73.2 million handsets Samsung (NASDAQOTH: SSNLF) shipped, but nearly 70% more than Xiaomi and 85% more than Lenovo, the fourth- and fifth-largest smartphone vendors.
Huawei's growth has been fueled by its lineup of ever-powerful flagships. Its current flagship, the Ascend Mate 7, boasts a 6-inch HD screen, powerful processor, 13-megapixel camera, 4100mAh battery -- putting it on par with Samsung's Galaxy Note 4. Yet it retails for around $450, a fraction of the price.
China is Apple's second-largest market
Most of Huawei's sales come from its home market of China, though management attributes its recent success to growing European and Middle Eastern demand.
According to IDC, Huawei was the third-largest smartphone vendor in China during the first quarter, shipping 11.2 million handsets. Apple and Xiaomi were both ahead, but only slightly, shipping 14.5 million and 13.5 million units, respectively.
China is an increasingly important market for the Cupertino tech giant. Last quarter, Apple's Chinese-related revenue rose 112% on an annual basis, far more than any other region (its second-fastest growing region, Asia Pacific, enjoyed only 26% growth). China is now Apple's second-largest market, behind only the Americas, and generates nearly 30% of Apple's revenue.
China has become so important to Apple that management has had to field questions relating to the country's recent economic turbulence. During Apple's last earnings call, CEO Tim Cook downplayed the volatility in the Chinese stock market, and reiterated Apple's long-term commitment to the region.
We remain extremely bullish on China and we're continuing to invest. Nothing that's happened has changed our fundamental view that China will be Apple's largest market at some point in the future...the equity markets have recently been volatile. This could create some speed bumps in the near term. But to put it in context...despite that volatility in the Chinese market, they're still up 90% over the last year, and they're up 20% year-to-date, and so these kind of numbers are numbers I think all of us would love...Also, the stock market participation among Chinese household is fairly narrow. And the stock ownership is very concentrated in a few people who put what appears to be a smaller portion of their wealth in the market than we might. And so I think ...that this worry is probably overstated...We have the pedal to the metal on getting to 40 stores mid next year.
Traditionally, Samsung has been viewed as Apple's chief rival in the smartphone market, but as China rises in importance, other vendors, including Huawei, must be considered. Huawei faces many of the same challenges as Samsung -- its use of the Android operating system separates its handsets from Apple's iOS-powered iPhones -- but Apple shareholders should keep an eye on Huawei's growth.