October 26, 2012
During Huawei’s 2012 EMEA Analyst Event in Amsterdam, Huawei emphasised once again its commitment to Europe and its dedication to innovation. With sales of $3.8bn, 7,300 staff, around 800 of which are in R&D, and 10 R&D centres in Europe, Huawei has positioned itself as a leading provider of network infrastructure in the region. The main themes that we picked up during the event are:
- Its carrier activities are increasingly dominated by software. Huawei emphasises the role if IT and software as a core focus area of its carrier network infrastructure activities, which still account for 74% of sales, going forward. Softcom, Huawei’s strategy to drive software defined networking and to move towards a flatter network architecture, is central to this transformation. By 2017, Huawei aims to generate around 40% of its network infrastructure revenues from software-related activities. The central goal of Softcom is to decouple applications from hardware in the network infrastructure and to integrate multiple operating systems into one cloud-based operating system. To succeed, Huawei needs to attract top IT expertise. Its partnerships with leading universities and research organisations like Fraunhofer-Gesellschaft go some way.
- Its enterprise activities are too product-focused. In 2011, Huawei sent out an ambitious note regarding its intentions to enter the enterprise market segment (see my recent blog post), which account for about 4% of sales. This year, we got the impression that Huawei is not reaching all the goals it had set itself for its enterprise activities in Europe. And we are not talking about financial targets. Rather, we believe that Huawei finds it tougher than anticipated to enter the enterprise market. Branding remains a clear obstacle for Huawei in the enterprise segment. And despite the 100% indirect channel strategy, Huawei needs to create a greater awareness amongst end user businesses to succeed in the enterprise space. To advance its European enterprise ambitions, Huawei needs to move from product-focused messaging to more services- and solutions-focused messaging. We believe Huawei should team up with dedicated and sector- and geographically focused IT services and systems integration firms. We see the midsize segment as the most promising for Huawei’s offerings.
- Device activities do not fully exploit the relative weakness of the competition. The launch of Windows 8 could prove a real opportunity for Huawei. We believe users who demonstrate an interest in the new operating system, Windows 8, might be equally inclined to give a new device a chance, even one without a strong consumer brand. However, no Windows 8 device was shown, although Huawei signaled support for the first wave of Windows 8 phones (via its Ascend W1 device). Moreover, a central part of its device activities is its aim to reduce the reliance on third-party suppliers. Hence, Huawei is pushing on with its own chip manufacturing activities.
Huawei remains an extremely technology-focused provider, much in the tradition of traditional engineering technology businesses like Siemens. In order to reduce the risk of costly price and margin wars in the pure hardware segment in the years ahead, Huawei urgently needs to improve its understanding of true business needs and demonstrate clearly how it can develop solutions that address these needs. Above all, Huawei ought to embrace a culture that views failure as part of the innovation process. If Huawei manages to do this, builds a trusted ecosystem of focused partners and strengthens its brand in the enterprise and consumer segments, it has good chances to gain significant traction for its main growth segments despite the recent report by the US House Intelligence Committee.