Huawei Expects Dip in Networks Contribution
Huawei's current acting CEO Eric Xu certainly knows how to put on a show. The two top takeaways from this year's Huawei annual analyst summit, held in Shenzhen this week, are: while other vendors are struggling, the Chinese firm is in the sweet spot; and Xu has staying power.
Let's take Xu's performance first. He held forth candidly for close to two hours on everything from the CEO succession and politics, to open source and R&D investment. He doesn't hold back, labeling the constant questioning about the Snowden leaks as "tiresome," and warning that Huawei's devices unit had to come "down to earth." (See Huawei Boss Tells Handset Team to Sober Up.)
But he has reason to be ebullient. Huawei Technologies Co. Ltd. is hitting its numbers, and its diversification strategy appears well on track. All units posted growth in 2013 as it clocked up 239 billion Yuan Renminbi (US$38.3 billion) in revenues. (See Huawei Pumps Up Its Profits to $3.5B.)
It has achieved a CAGR of 13% during the past five years, and believes it can maintain that over the next five to become a $70 billion-a-year company.
Over that time, the vendor expects the contribution from its traditional network equipment business to decline in favor of services, enterprise, and devices.
Xu said the carrier network division, now accounting for 70% of sales, could decline to as low as 50%. Within that group, services -- currently the second-largest segment -- will almost certainly overtake wireless networks to become the biggest single revenue source in its core business.
The services segment, which grew 22% last year and is forecast to hit 17% this year, is tracking in the path of other global vendors, some of which earn more from services than selling network gear, Xu said.
Huawei is also expecting its three-year-old enterprise group, now generating annual revenues worth around $2.5 billion, to become a $10 billion business by 2018. Its handset group is already the number three worldwide in smartphones and represents nearly a quarter of the company’s business.
What ties these together is the company's "pipe strategy," or anything that drives network bandwidth. "Where there is data flow, that is our business," said Xu. "We will not touch content and applications."
He and other execs repeatedly struck two themes the company has identified as growth drivers.
The first is connecting the two-thirds of the world that aren't yet online, which plays to Huawei's strengths in networks, devices and emerging markets.
The second is enabling the coming "IT transformation" of business and consumer behavior. "With the increasing penetration of the Internet, IT is actually reshaping different industry verticals and our society," said Xu.
In telecom, for example, that means reforming BSS to deliver a better experience. It also refers to technologies such as SDN, which Xu believes can substantially improve O&M in mobile backhaul and large backbone networks.
Other technologies attracting Huawei's attention right now are multi-carrier access, 400GE core routers, and fixed access copper networks.
During the next decade, Huawei's headline R&D focus will be 5G, for which the firm has already set aside $600 million for initial R&D. Xu thinks 5G networks and terminals could be available as early as 2020. (See Huawei CEO Pledges 5G R&D Investment.)
But the one area where Huawei is easing back is in building a global brand to support its handset business."When it comes to branding we will take a different path from other companies," Xu said. "We won’t spend a lot on campaigns. We will trust in word of mouth."
— Robert Clark, contributing editor, special to Light Reading