TAIPEI -- China's Huawei Technologies is stockpiling components and seeking to expand its supplier network to ensure its largest ever smartphone launch goes smoothly despite the simmering U.S.-China trade war.
The company is expected to unveil its new offerings -- including a foldable, 5G-ready handset -- on the eve of Mobile World Congress, the biggest mobile networking industry event in the world, which kicks off on Monday in Barcelona.
Foldables and 5G will likely be major themes at the MWC as Chinese companies like Huawei, ZTE, Xiaomi and Oppo showcase their latest developments in these areas and aggressively expand their footprints overseas.
Huawei, the world's No. 3 smartphone maker by shipments just behind Apple, is widely expected to unveil its latest premium P30 handset on Sunday, as well as its first experimental smartphone with both 5G capability and a foldable organic light-emitting diode screen in a challenge to market leader Samsung Electronics.
While many other smartphone makers are reportedly scaling back orders amid a general industry downturn, Huawei appears to be doing the opposite. Camera lens providers Sunny Optical and Largan Precision have seen orders from Huawei increase 30% on the year this quarter, sources told the Nikkei Asian Review. The smartphone maker is reportedly incorporating more advanced camera features into its new handsets.
Novatek, the world's biggest provider of display driver integrated circuits, Chunghwa Precision Test Tech, which provides core processor testing services, and fingerprint chip designer Goodix have all seen demand from Huawei pick up since the end of last year despite the overall dip in the smartphone market in 2018, Nikkei has also learned.
According to sources familiar with Huawei's plans, the company has also asked its procurement team to explore more potential suppliers than in recent years.
"Previously Huawei worked only with the top-tier suppliers that Apple also uses, but now it is more open to qualifying more suppliers to give itself some buffers and alternatives should it one day be banned from using American-made components," a source familiar with Huawei's internal strategy said.
In January, lawmakers in Washington introduced a bill aimed at banning chip exports to Chinese companies that violate U.S. sanctions and export control rules, citing Huawei and ZTE by name. This follows U.S. moves to tighten controls on the export of advanced technologies to China, including microprocessors and artificial intelligence.
Hon Hai Precision Industry, better known as Foxconn, is also busy assembling the Chinese tech giant's mobile phones, as well as its network equipment. This business could partially offset the lackluster iPhone demand, sources familiar with the situation told Nikkei.
2019 could be a landmark year for Huawei, as many market watchers predict it will for the first time overtake Apple as the second biggest smartphone maker.
Huawei also plans to demonstrate its latest 5G networking solutions at the event, which are priced on average 30% below those of its smaller rivals, Ericsson and Nokia. Huawei is the top maker of telecom equipment, accounting for some 28% of the global market last year, but it has faced a concerted effort by the U.S. to shut its technology out of Western and other markets. The company sees the MWC as a chance to engage with global operators and potentially counter that campaign.
"We have already secured 30 commercial contracts, 18 of them in Europe," Yang Chaobin, president of Huawei's 5G product line, said at a media briefing ahead of the conference.
The 5G wireless communication standard promises faster data transfers with low latency, paving the way for autonomous driving, mobile livestreaming, remote surgery and other innovations.
Despite U.S. pressure to shun Huawei, allies such as the U.K. and Germany have indicated they might not ban the Chinese company from their markets.
At the same time, Huawei is taking steps to safeguard its operations from any fallout from the trade tensions with the U.S. and to allay supplier fears.
The company invited executives to visit its campus during the recent Chinese New Year holiday to show them how its engineers were working around the clock to prepare for the new product launches, people familiar with the matter said. Most of its supply chain is made up of leading electronic parts makers, and Huawei is keen to prove to them that it is committed to -- and confident in -- its new products, sources told Nikkei.
"I was a bit worried previously when I found that so many countries were considering blocking Huawei at the request of the U.S.," said one of the executives who took the tour. "But my personal experience there was that I met a group of talented engineers who showed incredible passion and confidence to their work."
Many other Chinese tech companies are also looking to drum up interest at the MWC.
ZTE, China's No. 2 telecom equipment maker, plans to make a comeback at the event. It will be the company's first international show since it was forced to cease operations for several months and reshuffle its management after the U.S. accused ZTE of violating sanctions on Iran and banned it from using any American technology.
ZTE, like Huawei, plans to unveil a 5G smartphone in Barcelona. It will host a 5G summit on Monday to promote its network equipment business, with executives from chipmakers Qualcomm and Intel, as well as key operators such as Telenor of Norway and Telkomsel of Indonesia, among those invited. However, its smartphone market share plunged from 2.3% in 2017 to 0.7% for 2018 amid the U.S. ban, according to IDC data. Its share of the telecommunication equipment market also almost halved to roughly 7% in 2018 from a year ago.
"For the telecom equipment sector, the Chinese government will help ZTE to at least secure some contracts from the domestic market ... so we expect it could at least regain some shares this year," said Remus Hsu, an analyst at Market Intelligence & Consulting Institute. "Meanwhile, it will also target some regions such as Southeast Asia that America has little say about."
Xiaomi, the world's No. 4 smartphone maker, is known for its more affordable products and a wide range of connected devices, including wearables and smart speakers. The company made its MWC debut at the 2018 event, and entered European markets such as France, the U.K. and Italy that year. In Barcelona, it will unveil the international edition of its new Mi9 and a 5G edition of its Mix 3. Co-founder and CEO Lei Jun said on a blog post this year that Europe will be is his company's "key focus" as it expands globally.
In January, co-founder and President Lin Bin released a video online showing a prototype of a phone that can be folded in three, transforming it from a tablet-sized device to a compact phone. The company has not announced an official launch date for a foldable handset.
Oppo, the world's No. 5 smartphone maker, will kick off its appearance at the MWC with a demonstration of its camera and 5G technology, but does not plan to announce any new devices. Oppo confirmed it will introduce a 5G phone this year and has filed patents for the technology but, like Xiaomi, has not said when.
Huawei and Xiaomi were the fastest-growing smartphone vendors in the European market between October and December, with shipments rising 56% and 62%, respectively, on the year, according to market consultancy Canalys. "The U.S. administration is causing Chinese companies to invest in Europe over the U.S.," said Canalys analyst Ben Stanton. "The likes of Huawei and Xiaomi bring price competition that has stunned their rivals as they use their size against the smaller brand in Europe." For all of 2018, Chinese vendors as a whole saw their share of the European market rise 27%, the research company said.
Huawei did not respond to Nikkei's request for comments.
Nikkei staff writer Lauly Li in Taipei contributed to the report.