Huawei is still a pipsqueak in the cloud

No government worried about Chinese espionage via Huawei's network products was ever likely to welcome the huge company as a cloud provider. If China's military could insert booby traps and spyware into Huawei's 5G software, entrusting it with data and important IT systems would be sticking-one's-head-in-a-tiger's-mouth folly. Across many of the wealthiest and most cloudified economies, this was always going to be a problem for Huawei when it positioned the cloud as a new growth story.

The other was access to US components. The world's data centers are heavily reliant on American tech. Intel and AMD dominate sales of central processing units (CPUs). The servers that house them come largely from companies like Dell and HPE. Sanctions risked cutting Huawei off from essential hardware. In late 2021, its sale of an in-house server business dependent on Intel's x86 technology seemed to highlight threats to its cloud ambitions.

The emergence of generative artificial intelligence (GenAI) is a more recent danger. GenAI's large language models (LLMs) have been trained mainly on the high-performing graphics processing units (GPUs) made by Nvidia, a company headquartered in Santa Clara. And restraints imposed under Joe Biden, the current US president, forbid Nvidia from selling its most advanced chips to China. As US hyperscalers have bundled GenAI products into their cloud offerings, Huawei has needed a competitive response.

Yet the Chinese vendor, defying some critics, began to break out its cloud computing revenues in 2022. That year, they came to roughly 45.3 billion Chinese yuan (US$6.3 billion), about 7% of total company sales. And when Huawei recently published its annual report for 2023, its breakdown of figures showed cloud-computing revenues were up 22%, to about RMB55.3 billion ($7.6 billion). Of Huawei's four largest business groups, cloud grew the most.

Big clouds get bigger

It may have found an answer to sanctions by investing in its own hardware. Back in 2019 – weeks after Meng Wanzhou, its chief financial officer and the daughter of company founder Ren Zhengfei, was arrested on fraud charges in Canada – Huawei unveiled a new chipset branded Kunpeng. Developed by Huawei's own HiSilicon business, it uses blueprints from Arm, a chip designer based in the UK. In slideware seen by Light Reading, Huawei pitches it as a CPU alternative to Intel.

Through HiSilicon, Huawei has also worked up a potential alternative to Nvidia in Ascend, a family of AI chipsets. At this year's Mobile World Congress event in Barcelona, executives drew attention to Pangu, Huawei's response to the foundation models built by Silicon Valley giants and their protégés. Pangu was trained on data held by and available to Huawei, but not on the data of Huawei's own telco and enterprise customers, insisted Philip Song, the chief marketing officer of Huawei's carrier business, during a press conference.

Nevertheless, despite these various efforts, Huawei remains a minor player in a global cloud market still dominated by AWS, Google and Microsoft. What's more, their market power has only grown in recent years. According to recent data from Synergy Research Group, the three big US companies had a 67% share of the cloud market (meaning infrastructure-as-a-service, platform-as-a-service and hosted private cloud services) in the final quarter of 2023. Back in the same period of 2018, their combined share was just 57%.

Huawei is not even among the top seven cloud providers, according to Synergy, and Oracle, the smallest of that seven, had a fourth-quarter market share of only about 2.5%. Huawei's relative insignificance becomes immediately apparent when its cloud business is measured against AWS. Last year, the world's biggest cloud provider made almost $91 billion in revenues, dwarfing Huawei by roughly $83.4 billion. And while revenues at Huawei rose $1.3 billion in 2023, AWS added another $10.7 billion in sales.

John Dinsdale, the chief analyst and research director of Synergy, puts Huawei's share of what has been a rapidly growing international market at just 1%, saying most of its successes have come in a few less cloud-developed countries, including China. "Huawei has been doing quite well in its local market and has been growing much more rapidly than the two market leaders, Alibaba and Tencent," he said via email. "It has also made an impact in a few other markets dotted around the world," he added. Those include Brazil, Indonesia, Mexico, Thailand and South Africa.

Long way behind

Despite its claims about its position in China, Huawei also continues to rank "a long way behind the leaders," said Dinsdale, noting that its market share in the country is now just into double figures. As for the world's ten largest cloud markets, "its presence is almost negligible outside of China," he said.

How Ascend and Pangu measure up against Nvidia and the LLMs built by Microsoft-backed OpenAI is unclear. Huawei is not attempting to compete against Nvidia as a chip vendor. In that respect, it looks more like a US hyperscaler investing in silicon for its own cloud. Yet AWS, Google and Microsoft have remained huge Nvidia customers despite their in-house activities. That largely explains Nvidia's dramatic growth, with sales up 126%, to about $61 billion, and net income soaring 581%, to almost $30 billion, in 2023. Those fat margins point to a dearth of capable competition.

In countries that still have a choice between Chinese and US technologies, Huawei may struggle unless politics enters the fray (anti-Americanism could feasibly drive governments and companies toward it, for instance). Its research-and-development budget – about $23 billion last year – vastly exceeds what traditional rivals like Ericsson and Nokia spend. It looks far less impressive alongside the $27.2 billion that Microsoft spent in its last full fiscal year.

Before the edifice of globalization began to show serious fractures, Huawei had exploded onto the telecom scene and eclipsed many of its western rivals in their own backyards. Without major political upheaval, its chances of doing the same thing in the cloud are remote.