Huawei Dwarfs Ericsson, Nokia on R&D Spend in 2017

Iain Morris

Huawei’s recently published results for 2017 show the scale of the challenge for Ericsson and Nokia, with the Chinese vendor investing more than two and a half times as much in research and development (R&D) as each of its major Western rivals.

Having promised earlier this year to invest between $10 billion and $20 billion annually in R&D, Huawei Technologies Co. Ltd. revealed at the end of March that R&D expenses rose to $13.8 billion in 2017 from about $11.8 billion the year before. (See Huawei Commits Up to $20B for Annual R&D, Fleshes Out AI Pitch.)

Despite broader cost cutting at Ericsson AB (Nasdaq: ERIC), the Swedish kit vendor also made a sharp 18.4% increase to R&D spending last year, but this boosted the figure to just $4.5 billion, a mere fraction of the investments Huawei is making.

Nokia Corp. (NYSE: NOK) spent the higher sum of $5.2 billion across its entire business after making a very slight reduction to R&D spending between 2016 and 2017.

Following several rounds of consolidation, and the emergence of the Chinese as a serious force in the telecom industry, the three giant equipment makers now dominate today’s global market for network products and services.

Yet each company faces its own challenges in early 2017 as well as a slump in customer spending: After several years of heavy investment in 4G and fiber-optic networks, some of the world’s biggest operators have recently been able to cut expenditure on network deployment.

Sales at Huawei’s carrier business group, which accounts for about half of its overall revenues, edged up just 2.5% in 2017, to around 298 billion Chinese yuan ($47.4 billion), after growing nearly 24% in 2016.

Thanks to a much stronger performance at its enterprise and device-selling consumer business, Huawei was able to report a 16% rise in overall sales, to about RMB604 billion ($96 billion), while its net profit was up 28%, to roughly RMB47 billion ($7.5 billion).

But the company’s non-carrier business appears to be under growing threat from protectionist measures in the US, where government authorities say they are worried that equipment from Chinese companies like Huawei and ZTE poses a risk to national security.

Major US operators have already been warned off buying gear and services from the Chinese vendors. Earlier this year, a smartphone deal between AT&T Inc. (NYSE: T) and Huawei fell apart under pressure from US authorities, according to mainstream press reports. Best Buy, Huawei’s biggest retail outlet in the US, is now planning to stop selling phones and other devices from the Chinese vendor, say reports. (See Best Buy to Drop Huawei in Another Blow to US Ambitions – Report.)

That move comes after President Donald Trump unveiled plans to impose tariffs on Chinese imports worth about $60 billion each year. (See Trade Warmonger Trump May Slap Tariffs on Chinese Tech – Reuters.)

The US concerns stem partly from fear that China is now poised to race ahead of the US in technology areas like 5G and artificial intelligence (AI), both of which could become integral to products and services across numerous industries.

Huawei has indicated that it will spend about $800 million this year on 5G, a next-generation mobile technology that promises faster connection speeds and reduced “latency,” the delay that occurs when sending signals over data networks. (See Huawei's $800M 5G Budget Piles Pressure on Ericsson, Nokia.)

It is also ramping up investments in AI. The Chinese vendor is due to unveil an AI-enabled compute platform called Atlas this year and has also developed a system called Wireless Intelligence for automating processes in 5G radio networks.

“Over the next 10 years, Huawei will continue to increase investment in technological innovation, investing more than $10 billion back into R&D every year,” said Ken Hu, Huawei’s rotating chairman, in a statement accompanying the recent results. “As we look to 2018, emerging technologies like the Internet of Things, cloud computing, artificial intelligence and 5G will soon see large-scale application.”

Next page: 5G hopes

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User Rank: Light Sabre
4/5/2018 | 3:58:51 PM
Re: Huawei R&D spending
Restrictions on Huawei in the U.S. predated Jan. 20, 2017. FYI.
User Rank: Blogger
4/5/2018 | 12:03:35 PM
Re: Huawei R&D spending
You're right that Huawei's R&D is world-class but not world-beating. Yet.

Ericsson's management is wise to recognize the connection between R&D investment and long-term revenues and margins. I've come to regard a 15% R&D to sales ratio as table stakes in the telecom game.

Iain focused on Huawei's two remaining full-line Western competitors. I would note that most of Huawei's strongest technology competition is from smaller but still well capitalized specialists in vertical markets: ADC and Calix in access, Ciena in transport, Samsung in radios. Also, note that with the disaggregation/white box movement, hardware/low-level software value creation is moving down the food chain to the component/subsystem level: the likes of Qualcomm, Broadcom and Acacia.

That certainly raises questions about the long-term viability of the horizontally integrated vendor business model.
Gabriel Brown
Gabriel Brown,
User Rank: Light Sabre
4/5/2018 | 6:42:35 AM
Re: Huawei R&D spending
In wireless, and mobile networks generally, Huawei now has world class R&D. Its closest competitors know this and respect it -- it would be corporate disaster to think otherwise -- and its customers know this.

I don't think it's streets ahead of the other world class research shops, however. It is in the mix and is making progress. As I mentioned down thread, one issue is how well focused and efficient this R&D is.

In this context, it's interesting to note Ericsson's big increase in R&D. This is something the new(ish) CEO talked about right from the start of his turn-around role. The thing to watch, IMHO, is how focused this investment is on wireless and mobility and how Ericsson can turn it into products and customer deployments.
User Rank: Light Sabre
4/4/2018 | 5:02:13 PM
Re: Huawei R&D spending
Huawei is like the other team's star player that you hate, but know he deserves to win because he works harder than anybody else in the game


Works harder? Also cheats, steals other companies IP too, right? Why the hell do Chinese need other companies to share their IP if they want to do business in China? Why??? 

Past Presidents did not say a word, shame on them. 
User Rank: Blogger
4/4/2018 | 1:36:31 PM
Re: Flawed analysis
These are all publicly traded companies. R&D to Sales ratio is included in their quarterly reports.
User Rank: Blogger
4/4/2018 | 1:33:41 PM
Re: Huawei R&D spending
Credit where credit is due.

Huawei has thrown a lot of money at bringing their internal R&D capabilities up to world-class standards. As I've mentioned before, they've been hiring up rockstar engineers from their competition, usually folks who had been foolishly discarded in a round of indiscriminate layoffs or corporate political shenanigans. I have specific individuals in mind here. These senior folks have been bringing the junior folks in Shenzen up to speed, and it shows. Have a look through the 3GPP archives, or the OFC conference agenda, and count the number of Huawei authors.

Huawei is like the other team's star player that you hate, but know he deserves to win because he works harder than anybody else in the game.
User Rank: Light Beer
4/3/2018 | 8:17:06 PM
Flawed analysis
Surprised that this is even an article. It has no analysis on rnd intensity of any of the companies involved. 6/10% in rnd intensity is an industry benchmark. Saying Huawei spends more on rnd VS others is a bit like saying India is richer than Singapore. It has no meaning unless specific segments are compared and % rnd spend of total revenues in those segments looked at. Of course there's no data to back that analysis and therefore the analysis finds safety in numbers by quoting press releases. Sad to see this in a tech article??
User Rank: Lightning
4/3/2018 | 8:07:01 PM
Huawei R&D spending
The fact is that Huawei is known all over the world not for its innovation, but for stealing intellectual property and technology from other companies. I wonder how much of this so-called R&D budget of 10-20 Billion will be used for stealth operations to reverse engineer and steal from other companies.
User Rank: Light Sabre
4/3/2018 | 3:37:21 PM
Re: The solution

And you forgot Solar....


User Rank: Light Sabre
4/3/2018 | 1:32:17 PM
Is LightReading the official news outlet/spokesperson for Huawei??
Is LightReading the official news outlet/spokesperson for Huawei? Lightreading and especially the author of this article seems to publish lot of stuff on Huawei, as if trumpeting achievements of Huawei. 
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