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Huawei smartphones: where Hollywood meets Silicon Valley

The logo for Chinese phone maker Huawei hangs above their booth on the first day of the Consumer Electronics Show (CES) in Las Vegas January
The logo for Chinese phone maker Huawei hangs above their booth on the first day of the Consumer Electronics Show (CES) in Las Vegas January

By Melanie Lee

CHENGDU, China (Reuters) - Guo Ping, deputy chairman of Huawei Technologies Co Ltd, the world's fifth-largest smartphone maker, reckons the Chinese firm's phones are unbeatable in terms of hardware, and pours water on market distinctions between high- and low-end models.

Huawei, probably better known as a leading telecoms gear maker under fire from U.S. politicians over its potential links to the Chinese state, is looking to drive sales of its consumer devices, but is hobbled by not having effective consumer retail channels. Traditionally, it co-brands its devices with carriers.

In an interview on Friday, Guo told Reuters he sees this changing as Huawei shifts from focusing on the technology in its devices to better understanding consumers' tastes and perceptions.

"In some ways, (designing) a smartphone is in the middle of Silicon Valley and Hollywood," he said. "Silicon Valley represents technology - and smartphones need strong technology - and the Hollywood aspect is about experience and perception."

"It's like your beloved pet, you can't leave it. This is how we think about Huawei's consumer brand. It needs to be between Hollywood and Silicon Valley," he said on the sidelines of a business conference in Chengdu in southwestern China.

The consumer device push comes at a critical time for Huawei's telecommunication equipment business, which ranks behind Sweden's Ericsson in terms of market share and faces greater scrutiny from governments worldwide.

Just as Huawei tries to convince the West it's a safe company to do business with, a British parliamentary committee report on Thursday slammed the way in which ministers were not fully informed about a multi-billion pound deal for Huawei to supply equipment to BT Group Plc in 2005.

Huawei, founded in 1987 by Ren Zhengfei, a former People's Liberation Army officer, has repeatedly denied it has links with the Chinese government or military and has said it receives no financial support from the government.

MAKING A SPLASH

Huawei expects sales of its consumer devices to increase to $9 billion this year from $8 billion last year, and predicts it will ship around 60 million smartphones - double last year's total, when the consumer business group brought in 22 percent of the group's total 220 billion yuan ($36 billion)revenue.

By 2017, almost all mobiles sold in China will be smartphones - about 460 million of them, according to research firm IDC said - as increasingly wealthy consumers opt for more feature-filled phones.

To get a bigger slice of that market, Huawei needs to improve its brand image, analysts say, to compete with Apple Inc and Samsung Electronics, aspirational brands that draw devotees to product launches and see fans queue for hours for the latest gadgets.

"Most of the time they only deal with telecom operators so they are not so familiar to deal with the retail distributors," said Huang Leping, a Nomura analyst based in Hong Kong. "In terms of industrial design they have improved but I think the biggest obstacle is brand awareness, consistency and quality given they are very new to non-Chinese consumers."

An Interbrands 2012 "Best China Brands" report did not include Huawei even in the top-50. Computer maker Lenovo Group, China's second-largest smartphone maker, ranked 15th, and last month enlisted NBA basketball star Kobe Bryant to market its P780 smartphone in China, where the game has a huge following.

Guo isn't too fazed by that, and believes making better phones will lead to better sales.

"We don't have a requirement to be of a certain (brand) ranking, but we believe that if we do (the devices) well, it will have a good outcome in itself," he said.

Huawei's branding push comes after years of churning out lower-end smartphones. Going upmarket could plump up margins.

"Consumers are pretty smart," said TZ Wong, an IDC analyst. "Once they see a lower price, they might have some doubts, but once they find it's good value for money, that's where brands such as Huawei have a chance to make a mark."

Guo doesn't see the smartphone world in such simple terms as high-end or low-end, and sets his bar at simply delivering what consumers want in a phone - such as waterproof models.

During the interview, he placed two Huawei smartphones on the table and asked: "Are these high-end?" He then dropped one phone into a bowl holding candies and poured water over it.

"On the technology front we have a lot of breakthroughs. I don't know low-end or high-end. We just care about satisfying customer needs," Guo said.

(Additional reporting by Lee Chyen Yee in HONG KONG; Editing by Ian Geoghegan)

(This story corrects Guo's title in first paragraph)

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