Huawei is still celebrating overtaking Samsung to become the world’s number one smartphone maker for the second quarter this year, but that might be short lived. The global sales numbers were driven by the phased coronavirus recovery of Huawei’s and Samsung’s respective key markets—China versus the U.S. and elsewhere. But when it comes to sales numbers, the latest analysis gives Huawei cause for serious concern, writes Zak Doffman.

Market researcher Canalys has now released its European sales analysis for that same quarter, finding that not only has Huawei shrunk again—down 17%, but, much more worryingly, domestic rival Xiaomi has grown faster, up 65%, knocking Huawei down to fourth place in a region that has been the heartland for its international expansion. The two Chinese rivals sold similar unit numbers in Europe—a serious win for Xiaomi.

Europe is now a battlefield for Huawei. It had been struggling to successfully launch its new flagship devices to a consumer base that has shown a rigid reluctance to say goodbye to the familiar Google software and services Huawei has now lost. Added to that, the more recent US restrictions on Huawei’s supply chain have also impacted its 5G sales in Europe, which had seemed fairly resilient to US pressure.

As I’ve reported before, Xiaomi is a serious threat to Huawei’s established overseas markets, with the much smaller manufacturer having decided to replicate Huawei’s recipe—quality devices for less, without any of the same restrictions that have hit Huawei. This Chinese land grab has proven incredibly successful for Huawei, and now looks like it could do the same for Xiaomi.

Huawei doesn’t yet have an answer to Xiaomi. Its acceleration of Huawei Mobile Services, its alternative to Google’s GMS, remains a work in progress. And while the Chinese giant has gone to great lengths to help users restore devices to normality—its Petal Search app finder, for example, there’s little need for consumers to compromise.

As reported by my colleague David Phelan, Huawei next flagship is about to emerge, with details now circulating online. Absent a shocking change of tactics by the US, the Mate 40 will be impacted by the same issues that have damaged Mate 30 and P40 sales outside China. Huawei has compensated for this loss of revenue by increasing sales at home to a staggering 46% market share, ironically at there expense of Xiaomi and other domestic rivals. But that can only go on so long. Last year, Xiaomi grew its overseas revenues faster even than Huawei shrunk its own.

Talking of the Chinese smartphone market, there was some more good news for Huawei in its home market this week, with reports that its established user base has now overtaken the Apple iPhone. But, again, domestic success cannot sustain Huawei’s thirst for smartphone growth over the long term—it needs the HMS bet to pay off. Meantime, Xiaomi has a huge wide open market to play for.

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