Growth slows, but Huawei’s ambition remains unbounded

At its eighth global analyst conference (April 27–29), Huawei articulated four overarching messages: (1) Huawei is a global company based in China, not a Chinese company; (2) Huawei’s 10% growth in 2011 will come from devices and enterprise, not its carrier infrastructure business; (3) Huawei’s new enterprise business is focused on the merging of communications and information technology in the “cloud”; (4) Huawei has moved beyond its box business to solutions and services.

Huawei’s five-year results, including 29% revenue, 57% operating profit, and 49% cash flow CAGRs, are enviable. Its devices, enterprise, and cloud strategies take Huawei in new directions; several years will be required to judge results. To be successful, Huawei must prove it can build solution partnerships; break open the US market; derive market differentiation from its unsurpassed product breadth and vertical integration (components, terminals/devices, infrastructure, services); grow services and solutions; and continue to demystify its inner workings.

Huawei’s globalization progresses apace, but still more openness needed

The message that “Huawei is not a Chinese company, but a global company” was not new, but that it continues to progress was evident through its many non-Chinese spokespeople and the facts and figures offered, e.g.: its many R&D centers outside China, its steady hiring of “top gun” experts in North America and Europe, and its leadership roles in various global standards organizations.

Huawei has grown to become the number two infrastructure vendor (behind Ericsson) as it has learned the ins and outs of international R&D, sales, and marketing.

And yet, doubts remain, particularly in the US. If it wants to truly crack open this major market, Huawei will have to submit to additional scrutiny of its products, processes, and practices. Its February “please investigate us” open letter indicates that it is confident of passing any audit to which it would be submitted.

Targeting devices and enterprise as growth drivers reflects Huawei’s abundant ambition

Huawei encapsulated its modest (for Huawei) 10% growth strategy for 2011 as “expand in devices, lead in networks, establish in IT solutions.” Focusing on “all-IP” and expanding services will be key to strengthening its carrier business. A side trip for analysts to its new 12-building, 10,000-person Beijing R&D campus made Huawei’s IP ambitions concrete (no pun intended).

But Huawei’s real ambitions lie in devices and enterprise/IT. It has big plans to grow its device business, including smartphone, dongle, tablet, and set-top boxes, and to establish a consumer brand. Its nascent enterprise/IT business, which it claims already comprises 10,000 employees and $2bn in revenue and spans government, energy, transportation, and finance, is meant to significantly increase its addressable market.

Establishing a global consumer brand, expanding into enterprise/IT, and consolidating its position in carrier networks give Huawei three very different sets of customers to woo and competitors to fend off, which may be too ambitious, even for Huawei.

Huawei’s cloud strategy is surprisingly detailed

Huawei’s cloud strategy, comprising hardware (compute, storage), software (virtualization, distributed file system, database management), and services (“cloud in a box”), was a well-kept secret. Huawei’s overwhelming barrage of claimed cloud capabilities included a platform, “SingleCloud,” integrated content distribution networking and caching, and policy and charging control. Huawei highlighted the use of cloud-based storage and computing for its 10,000-person Shanghai R&D operation as early proof of its capabilities, noting energy savings, better data security, and faster inclusion of new employees as benefits it has accrued. (See also “Huawei puts its head into the cloud.”)

Huawei is “Single-”minded in its solutions and services strategies

Huawei is expanding the breadth of its service business ($4.7bn, 17% of corporate revenues, 29% growth in 2010). Huawei has moved beyond “product-attached” services into managed services and “learning and development solutions” that provide competence consulting, knowledge transfer, and certification services faster than Ovum expected. Furthermore, in addition to expanding its service offerings, to deliver on its end-to-end solutions ambitions Huawei is breaking down barriers between product groups that can impede collaboration and executing on an extensive platform strategy.

Its platform strategy, dubbed “Single,” comprises platforms shared across multiple technologies within a domain and across domains. (See “Huawei and ZTE: young, hungry, and ready to compete on innovation” for more detail.) For example, its SingleFAN platform spans fixed access network technologies, SingleRAN spans radio access technologies, and so on, while SingleOSS manages products across domains. Internal benefits of Huawei’s platform strategy should include expertise-sharing, lower cost through reuse, and quicker time to market, while customers – if they buy into an end-to-end Huawei network – should benefit from networks that are less-expensive to own and operate. The company’s profitable growth, coupled with its relatively low R&D spend (8.9% of sales), are indicators of an efficient development organization.