Huawei Global Analyst Summit 2018

Dan Bieler
Principal Analyst
April 27, 2018

Huawei hosted its annual Analyst Summit in Shenzhen, China, recently. As in 2016, Huawei reported strong financial growth in 2017. Revenues were up 16%, EBIT by 19%, and cash flow from operations by 96%. Revenue growth was driven primarily by the consumer and enterprise divisions, up by 32% and 35%, respectively, while the carrier division saw revenue growth of 3%. The operating margin remained stable at 9.3%, although this is below previous years. R&D spending stayed at a high 15% of revenues.

Huawei’s strategy is to enable digital transformation with ICT infrastructure and intelligent devices. It plans to do so by building ubiquitous connectivity; developing open, trusted cloud platforms; creating a better experience with broadband; and growing an experience-centric device ecosystem. As part of its operational transformation, Huawei combines digital business transformation with customer experience management and digitized operations. My main observations during the Summit were that Huawei is:

  • Embracing AI to improve its products and solutions. For Huawei, AI is primarily about improved user experiences and decision-making support. The firm believes that AI is still at an early stage. However, Huawei sees great potential for AI to generate new business insights, because by 2025, it expects a data utilization rate of 80%, up from 10% in 2016. Huawei foresees a coming of age for AI due to more powerful computing capacities, growing network bandwidth, improved storage possibilities, and increasingly similar platform architectures.
  • Realistic about the potential for 5G. 5G is unlikely to turn into a gold mine for network equipment vendors. Huawei made several comments regarding the potential for 5G as an IoT network infrastructure, which is in line with my position on 5G. Many IoT use cases will not require 5G but can be served with a broad selection of infrastructure technologies. Moreover, while the 5G frequency in the 900 MHz and 1800 MHz spectrum is in the hands of telcos, the 2 GHz spectrum is accessible to anyone, including OTTs, potentially posing a risk for telco IoT ambitions.
  • Pushing autonomous networks and pervasive connectivity. Autonomous “self-driving,” self-optimizing, “self-healing,” and “automated” networks promise telcos resource savings and power savings as well as improved operational and maintenance efficiency — in addition to new features. These types of networks will be the focus area for Huawei in the coming years. This promises a new momentum for businesses — in addition to better broadband connectivity to push the usage of mobile cloud-based applications.
  • Driving its IoT platform activities. Huawei’s IoT sales pitch comes from a big data and analytics angle; it pitches IoT from the top down rather than as a technology pitch aimed at IT teams. Huawei provides IoT cloud services, Connected Vehicle, in addition to its IoT platform OceanConnect but is not in the business of selling IoT devices. Huawei’s IoT approach is based on a partner strategy. The OceanConnect approach is to remain open, and the firm is ready to cooperate with other IoT platforms to support IoT use cases.
  • Boosting its customer centricity. To be fair: Huawei has always been good at placing the customer at the center of its activities — often simply by throwing manpower at problems until they are “fixed.” Today, Huawei’s understanding of customer-centric innovation primarily focuses on products and network components, architecture design, and cloud business models. In the years ahead, it will be the practice of customer journey mapping that will set leading technology vendors apart. We see that Huawei is making progress in this direction by embracing design thinking, already having launched its digital engagement enablement platform DEEP.

The coming years will pose new challenges for Huawei. China remains critical for Huawei, growing revenues by 29% in 2017 — and as a result, pushing up its share of total revenues from 45% in 2016 to 51%. However, revenue growth in all other regions slowed significantly in 2017: In EMEA, revenue growth slowed from 23% in 2016 to 5% in 2017, in Asia Pacific from 37% in 2016 to 10%, and in the Americas from 13% to a negative 11% over the same period. By itself, this does not yet signal a crisis ahead — and as a private business, Huawei does not have to worry about pressure from external shareholders — however, it signals that Huawei’s go-to-market model must change.

The carrier division is likely to grow at single low-digit rates at best. The consumer division is likely to come under pressure from a systemic slowdown in the smartphone segment — as recent sales data from Apple and Samsung seems to indicate. This means that the enterprise division will have to increasingly act as a growth engine for Huawei. In the enterprise division, the big themes will be issues such as IoT-enabled solutions and intelligent-asset and network-based services. This raises new challenges.

Forrester survey data indicates that for digital transformation projects, the CIO is the sole decision maker in only 17% of projects. In nearly 80% of the cases, business-line managers are getting involved in the decision of what technology solutions to buy.

For Huawei, this means that it is facing an increasingly complex multi-stakeholder environment. These people often will not understand the traditional engineering sales pitch that Huawei has perfected and that worked so well in previous years. Shifting its go-to-market approach to reach business leaders and addressing their — and their customers’ — requirements will be Huawei’s biggest challenge in 2018 and beyond. For CIOs, this means that they must push Huawei to demonstrate how Huawei’s technology and services can translate into relevant business outcomes for them.

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