Is Huawei Suffering Middle-Aged Spread?
Huawei famously has an ingrained habit of rotating its CEOs, but one sometimes wonders if other positions at the Chinese equipment giant are treated in the same way. Years of attending Huawei events have taught this correspondent never to expect to meet the same executive twice, even if the job descriptions do not change with the same regularity.
The company is certainly not short of employees queuing up for the next big opportunity. They congregate at its international events like a mass of traveling sports fans, whooping and applauding when new gadgets are unveiled. Rival vendors Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) might bring one or two assistants to an interview with a senior executive. Huawei Technologies Co. Ltd. turns up with five. Frequently, it's hard to figure out what function some individuals serve.
Now that's a question more of us will face as technologies like machine learning and artificial intelligence take off. But is Huawei's apparent bloat any kind of problem? According to its last annual report, the company had more than 170,000 employees in 2015. That's 60,000 more than it employed in 2010. In other words, its workforce has grown by more than 50% in just five years.
Handily, revenues have grown even faster. In fact, using today's exchange rates, they have gone up from about $27.3 billion in 2010 to as much as $60.8 billion in 2015. As Huawei has expanded into the handsets market, continued to grow its carrier networks business and begun driving into the enterprise sector as well, it has taken on new staff while boosting efficiency. Annual sales per employee have risen from about $248,000 in 2010 to $358,000 last year. (See Is There No Stopping Huawei?)
Contrast that with Ericsson, which employed exactly 116,281 members of staff in 2015 and turned over revenues of about $24.7 billion. Unlike Huawei, the Swedish company no longer has a handsets business, or much of an enterprise one, but its employee numbers have also grown through expansion into areas like IP networks and TV -- often through takeover activity. Back in 2010, employee numbers were about 29% lower, at just 90,261.
Sadly, for Ericsson, sales haven't risen at anything approaching the same kind of trajectory. Based on today's exchange rates, Ericsson made about $22.5 billion in revenues in 2010, which means they have grown by about 10% since then. Accordingly, annual sales per employee have fallen from about $249,000 to $212,000 over the same period.
Ericsson has been trying to slim down, but it has struggled to shed weight speedily and cost effectively. The need to replenish its workforce with employees skilled in emerging technologies has made the situation worse. It is like the fat man in the park, turning in the occasional jog before gorging on sweets in the supermarket. (Ed: I write this as a fat man who runs very slowly, if at all, and enjoys the odd cake.) (See Nokia Forecasts Sales Decline in 2017, Shares Fall and Ericsson Swings to First Net Loss in 4 Years.)
So is Huawei the fit fatso, who crushingly tears past you despite the excess baggage thanks to a few well-conditioned muscles? Certainly, the company's bulging R&D resources are seen to give it a major advantage over its Western rivals. As for other parts of the business, they will face little scrutiny while Huawei continues to outpace the market.
Even if it doesn't, Huawei may find it much easier to offload staff than Ericsson or Nokia. For one thing, it is a much younger organization without the same legacy. Nor is it headquartered in the heavily regulated labor markets of Western Europe.
Where Huawei matches up less impressively is against even younger firms, steeped in software, and with a hardware-light take on our technology future. Google (Nasdaq: GOOG) has about 62,000 employees and generates $74.5 billion in annual revenues, giving it a revenues-per-employee metric of $1.2 million. Facebook has fewer than 12,700 members of staff and made roughly $17.9 billion in revenues last year. That's more than $1.4 million per worker.
This is not comparing like with like, I hear you cry. Huawei's a weight lifter. Facebook does track and field. Yet disregarding Google's much-publicized plans to put its Google Fiber project on ice, both Internet companies are becoming increasingly active in the network equipment and services sector. (See Google Fiber Hits Pause Button, Scales Back.)
Even more pertinent, perhaps, is the fact that a number of leading service providers have expressed a desire to bring new suppliers into the fold as they embark on software and virtualization projects. Some of those companies are merely startups with a handful of employees, but they claim their technologies can substitute for those of the world's biggest players. If one of those companies can strike a mega deal with an Orange (NYSE: FTE) or a Deutsche Telekom AG (NYSE: DT) -- even if in partnership with a systems integrator -- Huawei may find itself under a bit more pressure to shape up.
— Iain Morris, , News Editor, Light Reading