Battle between Huawei and Xiaomi is too close to call

Huawei has borrowed one or two moves from Xiaomi's playbook in order to keep pace with the most valuable tech start-up on the planet

Chinese telecoms giant Huawei expects 2014 sales revenue to be somewhere in the region of $46bn, according to CEO Ken Hu.

The Shenzhen-based company saw a 40% increase in phone shipments last year, thanks in no small part to its low-price Honor brand of smartphones.

While this is all well and good on paper, Huawei has a major cloud hanging over its head in the form of up-and-comer Xiaomi.

Less than two years old, Xiaomi has achieved the unthinkable by becoming China’s largest smartphone maker and the third largest on the planet, behind only Samsung and Apple. The start-up’s key to success has been budget smartphones targeted at the Chinese market, an online-only strategy and incredibly tight margins. A regulatory filing showed Xiaomi's operating profit margin was just 1.8%.

Valued at $45bn, the Beijing-based company has been named the most valuable tech start-up in the world.

Huawei’s has been forced to emulate Xiaomi’s business model, adopting an online sales approach with the Honor brand and reducing profit margins.  

In this closely fought race between the two Chinese giants, Huawei does have an ace up its sleeve; a presence in developed markets and a range of high-end devices. Consumer division chief Richard Yu explained to reporters recently that the Honor brand could effectively act as a gateway drug, introducing wealthier consumers to the Huawei product range.

"If Huawei wants to survive, we have to win in developed markets like Europe, a high-end market," Yu said.

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