Chinese handset giant Huawei has bold ambitions: the firm hopes to sell more smartphones than Apple (NASDAQ:AAPL) by 2019. And it's well on its way. The firm was the third-largest seller of smartphones last quarter, according to research firm IDC, shipping 27.5 million handsets on a global basis. Apple shipped nearly twice as many, but Huawei's growth was far more impressive, and the company is slowly closing the gap. As Huawei expands into additional markets, particularly the U.S., it could provide some tough competition in the years ahead.
Aiming for No. 1
In an interview back in February, Huawei's CEO Richard Yu told CNBC that the company wanted to be the second-largest smartphone vendor in the world within three years. Even more ambitious, by 2021, it hoped to be the largest. To do so, it would have to leapfrog both Apple and Samsung (NASDAQOTH:SSNLF), which have consistently held the top slots for the last several years. In the first quarter of 2016, Samsung shipped nearly 82 million handsets, while Apple shipped just over 51 million.
Huawei came in a relatively distant third. But unlike Apple and Samsung, it experienced strong growth on an annual basis, with shipments rising 58.4% from the first quarter of 2015. Both Apple and Samsung, in contrast, saw their smartphone shipments fall on a year-over-year basis. Notably, Apple saw its shipments decline 16.3%.
Huawei courts Chinese and European consumers with affordable Android handsets
Huawei's recent success has been fueled by its smartphone strategy: The company offers powerful Android handsets at affordable prices. Most Americans aren't familiar with the company or its products, but Huawei's flagships often sport impressive hardware and innovative features (like its Mate S was the first Android phone to offer pressure-sensitive features on par with Apple's 3D Touch technology) that make them attractive to consumers in other markets. Meanwhile, its budget phones are sold at rock-bottom prices, but boast more than adequate internals.
Huawei's Honor 7 is a typical phone for the company. It retails for around $400, and packs a 5.2-inch display, speedy processor, fingerprint scanner, and 20-megapixel camera within its metal frame.
The combination of high-end specs at inexpensive prices has allowed Huawei to dominate the Chinese smartphone market. In the third quarter last year, Huawei overtook Chinese rival Xiaomi as the top seller of smartphones in the Middle Kingdom. But Huawei's success hasn't been limited to its home market. Also in the third quarter of 2015, Huawei emerged as the second-largest seller of Android smartphones in Europe behind only Samsung, according to research firm Kantar Worldpanel.
Major challenges lay ahead for Huawei
To achieve its targets, Huawei has been expanding into new markets: Earlier this year, it began selling some of its products to American buyers through Amazon.com.
But Huawei still faces significant challenges. In 2012, Congress labeled the company a threat to U.S. national security. A report from the House Intelligence Committee said the company, which also sells telecommunications equipment, was working as a spy for the Chinese government. That decree didn't cover Huawei's handsets, but the allegations could damage Huawei in its attempts to win the trust of American buyers.
Moreover, the Android market is highly competitive, and Huawei could find itself pressured by one of many other fast-rising vendors. Last quarter, Chinese firms OPPO and vivo emerged as the fourth- and fifth-largest sellers of smartphones globally, up from relative obscurity. Huawei itself emerged from almost nowhere in recent years to take the third spot, displacing Xiaomi (once seen as a major threat to Apple and Samsung) in the process.
Still, with its 8.2% global market share, Huawei has emerged as the definite third player in the smartphone market. It remains to be seen if the company can actually overtake Apple or Samsung, but it's certainly going to try.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.