China's Huawei Technologies Co Ltd has taken sales of its low-price Honor brand of smartphones to 20 million from 1 million in just one year, hitting pay dirt with the disruptive online-only strategy it copied from smaller upstart Xiaomi Inc.
Given the early signs, Huawei executives hope to emulate the phenomenal growth of Xiaomi, which broke into the global top five in just a few years - a success not likely to go unnoticed by the growing ranks of low-cost Chinese smartphone makers.
But analysts say the low-cost strategy has fanned the price wars and thin profit margins prevalent in China, and that its spread could affect margins at all makers.
Honor brand president Jeff Liu said industry transition to an online sales strategy was inevitable given the competitive pricing, afforded by reduced distribution expenses that would otherwise make up 30 per cent of handset costs. "E-commerce is massively changing the traditional channels for the smartphone industry, and we needed to go in that direction too," Liu said in an interview in Beijing, where he unveiled the Honor 6 Plus smartphone last week.
Honor handsets dropped the Huawei name last December and have since been marketed and distributed independently of Huawei-branded phones. They are sold in countries ranging from Belgium to Brazil, primarily via marketplaces such as those of JD.com Inc in China and Flipkart Online Services Pct Ltd IPO-FLPK.N in India.
The brand makes up a quarter of Huawei's 2014 shipment goal, and in the third quarter, helped the Shenzhen-based telecoms equipment maker pip Xiaomi to the number three spot in global market share, according to data from Gartner.