New Products, New Channels, Over 30% of the Market: 10 Charts on How Chinese Phone Brands Are Doing in Europe

Reporting from MWC

Spotlights and cameras ringed a glass box so tightly that nothing could get through, and people held out their phones, trying to get a clear shot of the marvel inside. Security guards kept pushing back lenses about to touch the glass: “Please do not touch!”

Inside the case stood the Huawei Mate X, the folding-screen phone Huawei had just unveiled. Its bent OLED screen flickered with its own promotional video, and a line of text beneath the glass read, “The world's fastest 5G folding phone.”

5G and a design unlike anything else — at the world's biggest telecom show, where phones are the main attraction, that is everything a company could hope for.

A few meters away, Samsung's folding phone, the Galaxy Fold, was sealed the same way inside a thicker, tighter glass case, dressed up with an elaborate lighting display.

Both phones were unveiled in late February, priced at roughly 13,000 yuan (Samsung) and 17,000 yuan (Huawei), but neither was available right away. Samsung's would ship in April, and only in limited quantities. Huawei was vaguer still: mid-2019.

On February 25, in Barcelona, Spain, the annual Mobile World Congress (MWC) opened as scheduled. More than 100,000 attendees streamed through long corridors into a vast, 120,000-square-meter venue packed with 2,400 exhibitors.

Begun in the 1990s, MWC is a gathering meant to promote industry exchange and trade, where mobile carriers, phone makers, suppliers, and software and internet service providers show off new technology and launch new products.

Samsung and Huawei had the two largest phone booths at the show, and between them they owned the highlight moments of MWC's opening day. The two folding phones sat in the most prominent spots in the main hall, separated by a bustling main aisle. Inside and outside the venue, physical ads for the Huawei Mate X and the Samsung Galaxy S10 covered the walls, the ceilings, and even the badges hanging from attendees' necks.

But Cristina Sabarreiro, attending the show for the first time, hadn't gotten around to a close look at Samsung's and Huawei's folding phones — she'd spent the whole morning at Xiaomi's booth. The day before the show opened, Cristina, who is Spanish, and 19 other Xiaomi fans (“Mi Fans”) from around Europe arrived in Barcelona. Xiaomi had arranged hotels and a bus for them and invited them to the launch event for its 5G phone.

Cristina is a software engineer who likes tinkering with phones, but she doesn't like the iPhone. “I like to try a new phone every year,” she told QDaily. Rather than spend 1,000 euros (about 7,600 yuan), she'd rather buy something cheaper and replace it more often — “Xiaomi strikes a good balance between price and quality.”

That is how the idea of “value for money” traveled to Europe with Xiaomi — though not everyone there knows it.

An Orange (France Telecom) employee from France who asked not to be named told QDaily that Huawei is the Chinese phone company the French know best. “I know Xiaomi and OPPO, since I work in this industry. But ask my parents — they'll definitely know Huawei. Xiaomi, not necessarily.”

Orange is France's largest telecom carrier. Its chief operating officer, Stéphane Richard, said in an interview last December that Huawei is their most important partner: “Refusing to work with Huawei would not help European carriers become more competitive or more innovative.”

At Orange's orange booth, Huawei phones served as demo units for various 5G technologies, and there was a Huawei Mate X here too, also encased in glass.

Vodafone, another European telecom giant, carries even more of Huawei's imprint. At MWC, besides the folding phone that served as a kind of mascot, Vodafone showed off a 5G community built with Huawei and deployed right in Barcelona, and the 5G base station hanging high above the hall was Huawei's too.

Since 2013, Cristina has bought four Xiaomi phones. The latest, a Mi Mix 2, cost 365 euros (about 2,780 yuan). Consumers like Cristina are winning Chinese phone makers new users in Europe, and more of them every year.

Last year, phone shipments in the European market fell 4% year over year. Alongside that gloomy figure came good news for Chinese makers: of the 197 million phones Europeans bought last year, 32% were Chinese brands.

In 2018, Samsung remained the phone brand with the largest share in Europe, though its shipments fell 10% year over year to 61.6 million units. Apple fell 6%, to 42.8 million units shipped. Right behind Apple was Huawei, whose shipments grew 54% year over year — just 300,000 units short of Apple's total. Fourth and fifth place went to Xiaomi, newly arrived in Europe, and Nokia (HMD Global), making a comeback there.

This was the result of a series of aggressive market strategies.

Over the past two years, Huawei has repeatedly chosen Europe for new-product debuts — the Mate 20 launched in London in 2018. MWC isn't normally where Huawei launches phones, but this year it brought the Mate X.

OPPO also held a large launch event in Barcelona, though without a finished product to show. In 2018, OPPO launched the Find X in France, entering the European market for the first time.

Xiaomi opened more Mi Home stores; by the end of 2018, it had nearly 50 Mi Home locations across Europe. Timed with MWC, Xiaomi announced a new plan to reach 150 stores across Europe by the end of 2019.

Chinese phone brands are moving often and taking big booths, even as their total number shrinks — Gionee and Meizu both used to exhibit at MWC, but this year only Huawei, Xiaomi, and Lenovo bought large booths.

Entering a new market is not easy. Europe resembles China in one respect — it is a mature phone market where people are willing to pay more for a phone. Compared with India and Southeast Asia, where the game is high volume and thin margins, Europe gives Chinese phone makers more of a chance to actually make money.

But Europe is also very different.

Europe Is a Market Split in Both Buying Habits and Sales Channels — Especially for Phone Brands

Europe is made up of 44 countries, each with its own economic level, culture, and history. The continent's land area is roughly the same as China's, but its total population is only half of China's.

Its phone market, accordingly, is about half the size of China's too. And unlike China, where the standard move is a single big launch event, Europe's market is too scattered for that.

For Chinese phone makers, Western Europe, with its concentration of high-spending consumers, means a higher average order value and stronger purchasing power. Unlike India, where they have to fight for share with low-priced products, this is the place where they're most likely to turn a profit.

The global smartphone market is shrinking, and Europe is no exception. By growth rate, Europe's decline last year was close to the global average, though better than China's. But factoring in population and upgrade cycles, Europe's situation isn't so rosy either.

Last year Europeans bought 197 million smartphones, 14% of global shipments. Against Europe's 456 million smartphone users, that means only about a third of European phone users upgraded last year. By comparison, Chinese consumers bought 397 million smartphones, and against China's roughly 672 million smartphone users, that is close to half the population upgrading.

In Western Europe, the market with the strongest purchasing power and the largest pool of potential buyers, Huawei's 2018 shipments grew 41.1% year over year, and Xiaomi's grew 415.1%. Samsung and Apple, meanwhile, fell 14.6% and 7.5% respectively.

That last figure is deceptive. In 2017, Xiaomi's shipments in Western Europe were under a million units, and Huawei's were only 18.6 million — the sky-high growth rates owe a lot to how small the base was. It is also worth noting that even though shipments fell substantially for both Samsung and Apple, their revenues dropped by only 1.2 and 1.3 percentage points. Both companies priced their new phones at record highs last year, and the rise in average order value partly offset the drop in shipments.

One thing that can't be ignored: Europe's two camps, Eastern and Western Europe, have very different phone markets.

Treat the EU as a single entity and it generates 22% of the world's wealth, making it the largest economy after the United States. Western Europe accounts for 54% of Europe's population. In economic output, the eurozone's GDP was nearly $20 trillion in 2017, and the UK, France, Germany, Spain, and Italy together made up 64% of that.

So there is also a wide gap in purchasing power between phone users in Western and Eastern Europe. According to GFK data, the average selling price (ASP) for smartphones in Western Europe is $446.7 — higher than in either the U.S. or China. In Eastern and Central Europe, the ASP is $249, below even China's $335. This average selling price is not what consumers pay at retail; it is the price at which phone makers sell to carriers and distributors.

All of this puts Chinese phone makers in a market unlike the one at home. But the bigger challenge is the carriers.

Carriers Are Still Europe's Main Phone Sales Channel — and They Still Subsidize Handsets

European carriers pour subsidies into phone sales.

Unlike the Chinese habit of buying an unlocked phone outright online or in a store, most European phone users buy their phones from a carrier and sign a service contract at the same time. To make sure customers keep using their service, carriers usually offer only monthly payments. But add it all up, and it still tends to come out cheaper than buying an unlocked phone at retail.

QDaily visited three major carrier stores in Spain, and in none of them is a phone's original price easy to find. It is very much like the U.S. market a few years ago — carriers highlight “0 euros” on the price tag, then tell you the phone is free if you sign up for a plan. U.S. carriers, their margins hollowed out by Apple, have stopped doing this, but in Europe it continues.

Carriers make it cheap to walk out with a phone, which is why the carrier channel accounts for 50% of European phone retail, other offline retail 40%, and online retail only 10%.

European buying habits mean a phone brand can't break into this market just by putting up a website and opening stores. Whether it can strike partnerships with local carriers, and what position it gets in a carrier's future promotions, both shape how much it sells in Europe.

Samsung and Apple have been in the European market for years and work with most carriers. Take Vodafone, the European telecom giant: the front page of its UK website features 12 recommended products in three tiers. The top tier has three Samsung phones and a discounted third-generation Apple Watch. Scroll down and there are two iPhones and two Huawei phones. Scroll a bit further and you see one Samsung, one Huawei, one Nokia, and one Palm (a startup bought the rights to the brand name and made a small Android phone that closely resembles an iPhone).

On the website of Orange, another European telecom giant, a search turns up 117 Samsung products, 54 Apple products, 10 Huawei phones, 2 OPPO phones, zero vivo phones, and zero Xiaomi phones.

Huawei and OnePlus are the only two Chinese brands whose international websites let European consumers order directly. But unlike OnePlus's direct-sales model, Huawei sends buyers who click “buy” to a local carrier's online store or to Amazon — so it still runs through a third-party channel in the end. The international websites of the others, like Xiaomi, OPPO, and vivo, have no buy button at all; they are pages for showing products. All of these websites lead with the newest flagship, typically priced about 100 to 300 yuan above what the same phone costs in China.

Take the Huawei Mate 20 Pro: it sells for 794.55 euros on Amazon France and 699.9 euros in Orange's online store. Its official price in China is 5,399 yuan. Converted, Orange's price works out to about the same. The Xiaomi Mi 9 starts at 3,299 yuan in China and sells for 449 euros in Europe — a bit over 100 yuan more. The OPPO R17 Pro sells for 4,299 yuan in China and 599 euros in Europe, more than 200 yuan above.

Carriers have been the main channel since smartphones first took off in Europe. In 2007, Apple released the first-generation iPhone and brought it to Europe. Apple had no stores at all in Europe then, and opened its sales channels purely by partnering with a few telecom giants in each country. That year it signed exclusive sales agreements with the Spanish mobile carrier O2, with Deutsche Telekom — a subsidiary of T-Mobile — and with France's carrier Orange. German citizens living near the French border were even willing to cross the Maginot Line to buy an unlocked iPhone in France for $250 less, then go home to Germany to get a SIM.

European carriers back then were willing to sign agreements with Apple before they had ever laid eyes on an iPhone. Today, Apple and Samsung still hold most of the channel resources at Europe's telecom giants.

The Chinese Companies Doing Best in Europe Are Still Huawei and Xiaomi — Especially Huawei

In Europe, every country has its own dominant carriers, and they differ from country to country. Their effect on sales is enormous.

QDaily picked the five most populous countries each in Eastern and Western Europe and tallied which phones the leading carriers in those ten countries were pushing hardest.

Huawei gets an average of 9.3 recommended phone models per country. Honor, which concentrates on Russian carriers in Europe, has 8 recommended models, and it shows up on the recommendation lists of 8 carriers across 5 countries — the second-highest count among Chinese brands, after Huawei.

This matches what we saw in the stores.

At the entrance of a Vodafone store, a round table displayed the 10 best-selling phones — 4 were Huawei, 2 were Xiaomi, including Huawei's high-end Mate 20.

Orange was a different picture. Samsung, with its newly launched S10 series, took the most recommendation spots; Huawei had 4 models in relatively secondary positions, and unless you brought it up yourself, staff wouldn't offer a Huawei phone first.

Carriers in Western and Eastern Europe push different models. In Western Europe, Apple and Samsung flagships show up more often, while Eastern Europe leans toward low- and mid-range phones, with a concentration of very small brands — Alcatel, Asus, Crosscall, Nokia, Moto — fading names that wouldn't get a recommendation spot even in China.

The iPhone tends to appear more often in the recommendations of the second- and third-largest carriers in Western European markets, while the top carrier in each market leans toward Samsung and Huawei. From this we can infer that those two have put more money into their sales channels.

Apple still can't be ignored in Western Europe, but in the five Eastern European countries, Russia aside, it is essentially absent from carrier recommendations.

Across the 12 carrier channels, the iPhone 8 ranked higher in recommendations than the iPhone XR. That is more evidence of the iPhone XR's failure, and it means Apple's “new mid-range” positioning fell flat in Europe too. Against the iPhone 8, the price advantage of low-cost Chinese phones is a little smaller.

Beyond the carrier channel, Chinese brands need their own websites and stores even more than Apple and Samsung do. For many Europeans, Huawei and Xiaomi are unfamiliar names — they don't know how to pronounce “xiaomi,” and have no idea where “huawei” came from. These newcomers have to spend far more on marketing to be remembered.

On the whole, though, Huawei remains the strongest Chinese brand in Europe.

In the fourth quarter of 2018, Samsung held 28.7% of the European market, followed by Apple at 26.0% and Huawei at 23.6%. The rest — Xiaomi, HMD, and others — each held less than 10%.

The geopolitical crisis has so far had little effect on Huawei's phone business in Europe. Huawei is bound tightly to Europe's carriers: they need Huawei's infrastructure, and Huawei needs their channels to sell phones.

Huawei entered Europe early, and its 2018 shipments came close to Apple's because it had spent years laying track. Starting in 2005, Huawei gradually built partnerships with carriers including BT, Orange, Deutsche Telekom, and Telefónica. Today, clicking “buy” on Huawei's international website brings up shopping channels including Orange, Worten, O2, Vodafone, BBVA, Carrefour, and Amazon.

Xiaomi moved later, and its results are noticeably worse. Across the 10 countries, Xiaomi had recommendation spots for only 6 phone models on carrier websites or in carrier stores. Apart from Italy, they were concentrated in Eastern European countries, and 4 of the 6 were Redmi phones. OPPO and vivo each had just 1 phone in the count — which amounts to no carrier recommendation at all.

Last year Xiaomi first got its phones into third-party retailers such as MediaMarkt, Fnac, Carrefour, Amazon, and A.S. Watson, and began working on the carrier channel. In May 2018, Xiaomi partnered with Li Ka-shing's Hong Kong-based CK Hutchison Holdings, selling Xiaomi devices through the group's telecom companies in Austria, Denmark, Italy, and elsewhere.

For now, though, Xiaomi's sales in Europe rest mainly on its own Mi Home stores.

In a mall a few hundred meters from the MWC venue, we found a Mi Home store. Wood-grain counters, red signage — almost identical to a Xiaomi store in China. The difference is that the European Mi Home sells mostly phones; there aren't many Mijia smart products such as rice cookers and vacuum cleaners.

More precisely, Xiaomi's sales run on cheap, low-end phones. According to store staff, Xiaomi's best sellers in Spain are the Mi A2 and the Redmi series, priced at 150 to 200 euros. POCO is another name Chinese consumers don't know — in fact it is a Xiaomi series made only for overseas markets, priced around 300 euros.

In 2018, Xiaomi opened its first retail store in Paris, a five-minute walk from the Georges Pompidou Centre. A year later, it opened its largest store in all of Europe on the famously expensive Champs-Élysées. Others have done the same: OPPO held a launch event at the Louvre in Paris, vivo sponsored the World Cup in Russia, and Huawei partnered with the Lithuanian Basketball Federation and sponsored a summer concert series in Greece.

But This Is Still Apple and Samsung's Home Turf

The 2018 numbers show Huawei's European shipments trailing Apple's by just 300,000 units. Is that a problem for Apple? Yes — but probably not a big one.

Last year, the iPhone XR sold poorly worldwide. But even in a European market with lower GDP per capita, such as Spain (last year's figure was $28,156.82), the Apple model carriers pushed hardest was still the iPhone Max. That gave Chinese Android makers an opening to offer relatively cheap phones.

But Apple's footing in Europe is solid. Over the past three years, Apple has sold nearly 650 million iPhones worldwide, with annual sales growth hovering around 0%, even as its user base grew from over 700 million to 1 billion. Users aren't leaving — Apple's experience, brand, and sheer inertia still hold them.

DeviceAtlas found that iOS phones still hold a larger share than Android in the UK and Germany. In Spain and France, Android has passed iOS, but most of the phones on the list of consumer favorites are still various iPhone models.

Apple and Samsung remain the two most-watched brands. Google search trends for the two have risen and fallen over five years, but the pair has consistently held the top two spots, and in the five Western European countries they have stayed above the Chinese brands throughout.

At two Barcelona stores run by the carriers Orange and Movistar, we also saw the iPhone XS Max and the Samsung Galaxy in a handful of ad spots.

Europe's iPhone users, like America's, simply lack a reason to upgrade. Among all the phones in use in the UK, France, Spain, and Germany, the largest shares belong to the iPhone 6 and iPhone 7.

Apple's user base is very stable. Even as iPhone sales fell in Europe, the number of iOS users in the UK rose rather than dropped, up 4.69%, to 56.59% of all mobile users in the country. In the U.S., despite weak iPhone sales last year, iOS's share edged up half a percentage point too, to 43.7%. This is part of why Apple is working to shift its revenue from selling hardware to providing software services.

Apple has no foundation for a services business in China, because China has Tencent and Alibaba. But Europe is like the U.S.: Apple's ecosystem runs deep here, and Chinese phone makers, for all their fast growth, haven't pried it loose.

So if Chinese brands' share is growing, whose is shrinking? Dominic Sunnebo, global director of the mobile consumer index at Kantar, said Chinese brands' growth in Europe hurts the smallest brands most.

“Sony, LG, and Wiko are being hit disastrously, because their selling strength has always been in the low-to-mid price tier. To hold that ground, these brands have to watch their competitors on the marketing front. Xiaomi usually avoids expensive traditional media and prefers a social-media offensive. Its success shows that bigger marketing spending doesn't always buy a bigger voice.”

Between April and June 2018, Sony sold just 2 million phones worldwide; from July to September the number was worse, 1.6 million; in the last quarter of 2018 it was 1.8 million. Sony blamed falling sales in Europe, Latin America, and the Middle East. The company, along with LG, Wiko, and others, splits roughly 10% of the European market.

“Faced with Huawei and Xiaomi pushing into Western Europe, Samsung's and Apple's revenues still fell by only 1.2 and 1.3 percentage points in 2018,” Dominic Sunnebo said. That, he added, is “impressive.”

So what Chinese phone makers are taking is share of the Android market outside Samsung. In the words of Xiaomi senior vice president Wang Xiang, Xiaomi's arrival gave Europeans, who were paying an average of 400 euros for a phone, a cheaper option.

The Huawei Mate 20 Pro is priced close to the iPhone 8 in Europe, but phones like the Mi 9 and the OPPO R17 Pro still come in about 300 euros below the iPhone 8 — let alone below Samsung's and Apple's newest models. Right now, Huawei, Xiaomi, and OPPO are pushing their latest flagships in Europe, and by our calculation those are typically priced 100 to 300 yuan above the Chinese price, which means more room for profit.

That could change as Chinese brands push further into Europe and marketing spending rises. In 2018, Canalys analyst Lucio Chen said Xiaomi and Nokia were both running at a net loss in Europe — squeezing margins as thin as possible to move volume. For the sake of long-term growth, both will certainly adjust their strategies, and the market still has plenty of variables ahead.

But in the End, Google Takes Most of the Value in Europe's Phone Business Too

Two things were everywhere at MWC: 5G and Google.

5G was the topic everyone brought up, and no booth was without it.

Google stood out partly because of a band of “sprites” moving through the venue. The “sprites” were 25 temporary staff hired by Google, in white coats and white knit caps, holding up phones and introducing people to Google Assistant, Google's smart voice assistant.

Google had no booth of its own, but its white-clad Google Assistant “sprites” were stationed at Xiaomi, Huawei, Nokia, and other brands.

In parallel, Google works with phone makers to build Google Assistant into their phones, so Google takes part whenever a user sends a text or books a restaurant.

Phone makers have no way to escape Google's control. Unlike Android in China, the overseas Android ecosystem depends on the stock system and on Google's search, email, browser, and app store services — the very services that are a revenue source for phone makers in China.

Xiaomi's best-selling series in Europe, the A2, is in fact part of the Android One program and runs stock Android.

And in Europe, the strict market that produced the GDPR, Google both helps and hurts phone makers a great deal.

Last October, the European Commission ruled that Google may not require phone makers to bundle apps such as Chrome and Search.

Google then reached an agreement with the EU to stop giving Android phone makers the full set of Google services for free. To use Google's service framework (GMS), makers now have to pay Google — from $2.50 to $40 per phone, depending on screen pixel density and country. For lower-end products, that is most of the net profit: Xiaomi's gross margin in the third quarter of 2018 was only about 5%.

The charges haven't started yet, three phone-industry people at MWC confirmed to QDaily. But even with the EU breaking up Android's bundling, it is hard to imagine Chinese makers' own internet services beating Google in a fair fight in Europe.

Chinese brands will keep moving into Europe and taking more share. But Apple, Samsung with its screens and flash memory, and Google with its Android monopoly still hold this market's profits.

Cover image, illustrations: Zhou Shaohong

Charts: Feng Xiuxia, Zheng Shuya

Data: Luo Cong