Huawei Smartphone Centre Should Give Nokia Chills

Huawei , the largest telecoms equipment vendor with a rapidly expanding presence in the handset market, announced it plans to double its European workforce and will invest to create a research and development (R&D) facility in Finland. The new R&D facility will focus on developing and optimising user interfaces (UIs) for both Google 's Android operating system and Windows Phone 8. BMI believes Huawei's investment has strategic value by capitalising on agglomeration of developers and smaller tech firms around Nokia 's headquarters - giving it access to a pool of human capital to raise its technological capacity. We believe the move is symbolic of the threat Huawei poses to Nokia and other handset vendors as it continues its expansion in the smartphone market.

Volume Dictates European Expansion
Annual Western Europe Smartphone Shipments ('000 units)

Huawei has been expanding into the smartphone market as it diversifies from its roots as a vendor of telecoms infrastructure. It has already achieved considerable success with its line of devices both in its home market in China and in low- to- middle-income markets with mid-range and value devices utilising the Android OS. For instance, Huawei reportedly captured 45% market share of the Kenyan smartphone market in 2011 with its sub - US$100 Ideos X1 phone. However, it is also targeting the higher end of the market with quad-core devices that are viable substitutes for the flagship devices launched by smartphone market leaders such as Apple , Samsung , HTC , Nokia , Sony and Motorola .

BMI believes that investment in an R&D centre in Finland will increase Huawei's technological capabilities in a cost - effective manner, boosting its competitiveness at the high end of the smartphone market. Huawei plans to invest EUR70mn over five years to establish its R&D centre in Helsinki, hiring 30 staff initially, with plans to hire 70 further staff over five years. Over the same period , it plans to double its total European headcount to 14,000 across its 11 R&D centres . The announcement also reveals that Huawei is diversifying its smartphone products into a new ecosystem, Microsoft 's Windows Phone, although it is yet to launch a device .

The decision to locate in Helsinki, just 15 miles from Nokia's headquarters in Espoo, will allow Huawei to take advantage of the agglomeration of developers, engineers and other telecoms specialists around the Fi n nish giant. With Nokia's troubles in recent years , there is an underemployment of this local human capital - enabling Huawei to cost - effectively tap into resources for the development of UIs for high-end smartphone devices. Given the recent experience of the likes of Nokia and Research In Motion , we consider Huawei's cost - efficient upgrade in te chnological capacity positively - where firms can often lose sight of such concerns in a high - growth phase.

BMI believes this investment, along with its wider European investments , will help it to gain market share in the device market. Huawei already has a reputation for good - value , high - quality handsets, which we expect to improve over the coming years as it invests in improving the user experience, branding and relationships with local operators and developers. This will enable it to expand its share of the Western European smartphone market, for which shipments are forecast to continue increasing through to 2017 , with volumes similar to Asia and North America. The combination of investing in R&D for the high - end market, local position to support developer and operator relationships and ecosystem diversification - adding to its traditional cost advantages - pose s a serious challenge to existing vendors, BMI believes. Nokia is most likely to feel the chill as it continues to struggle and now faces increased competition in the Windows Phone ecosystem , on which it has staked its future .

This article is tagged to:
Sector: Telecommunications, Consumer Electronics
Geography: Finland, Finland, Finland, Finland

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