Huawei is just the end game of product life cycle. Maturity begets the birth of the lowest cost provider becoming the leader. The Chinese government sponsorship combined with an unlimited financing package all located in the lowest cost production country always ensures leadership at the end of the cycle. Moving to higher speeds and feeds with ever more integrated components is incremental. No company in Europe or North America can sustain product leadership incrementally once a market has become mature and commoditized. That is why IBM exited the PC market and is focused on services and solutions. Alcatel will become an excellent provider of equipment to the French market. The rest of the pack have a very slow death unless they change the game. Even Cisco is moving to solutions and services as they recognized long ago that they can no longer compete on product innovation.
US company - THRIVING - and I mean - THRIVING in a commodity business....Proctor and Gamble.
The real problem is not the commoditization of the products. It is the mismatch of R&D investment and risk for margin. Why SHOULD a company like ALU invest $100s of Millions of dollars without some surety of a return on investment? The problem is that the model has changed and most companies have not adapted. One that has....Cisco. They buy their high risk R&D. Why put an engineering team together and hope they come out with something good when you can just buy startups that can't get a channel going but have a good product?
Companies need to rethink their strategic model for the new situation.
Good people will start a new technology, start a new company, off-shore mass production at some earlier and earlier level of the product maturity benefitting some distant population and start the cycle all over again. It's not a bad cycle. I just think it's runing out of steam because a.) the global economy contracted and is still shrinking. The burden on the US in this game is disproportional and cannot go on indefintely even though every new Gov't program somehow does go on and on... and b.) US and European population grows dramatically with plenty of immigration. and c.) AMerican working class will get a voice against the immorality of the (albeit, strong minority) investemnt class and have the right administration to gain that voice now.
Of course companies will go under. Remember the bubble? Nobody protects US companies that don't build cars except... Dumb money that keeps bad companies alive... is drying up faster than ever in this climate.
I see change ahead, but not the ones prommised us (if ever so vaguely) this past election. This dynamic gets stood on it's ear in a few years.
Interesting that you mention IBM. Their mid-90's turn around really focused on eBusiness, and taking ownership of the IT infrastructure of corporations businesses, run it for less $ and pocket the difference. This was in reaction to the commoditization of the PC industry as delphi notes.
If you look at vendors like NSN, ALU and Ericsson, they seem to be doing a similar transformation. E/// notably took over Sprint's network and ~6000 employees in that multi-billion dollar deal. ALU suggested in their recent analyst call that most of their profits form deals in India (Bharti & Reliance) are coming from professional services not the equipment sales. NSN has actually attacked Huawei on this very point "NSN Services Chief: Huawei Years Behind" http://www.lightreading.com/do...
Is the future of telecom vendors running networks for their customers and the commoditization becoming non-issue? Service providers focussing on creating new services?
re: Huawei Aims for Optical CrownJust the opposite. European and NA companies should go under due to their lack of innovation. Good people will always find a job. Ben from Lucent to BT to Alcatel says it all. Your post is very much off base.
Good point about P&G, will have to look into them some more to understand their model better.
On Cisco, their strategy of getting a R&D multiplication effect out of investing seed capital in startups (many of which involve x-Cisco folks) is amazing. Instead of taking an adversarial attitude against people who want to leave and take the risk on a startup, they seem willing to nurture it. A really good approach which has served their strategic needs well (aside from that recent purchase of that video camera company which makes no sense to me... but time will tell). Their approach of only buying small companies is a good one, and I hope –for their sake– they stick to it. Big M&As have a very poor track record.
That said, Cisco is already a VERY healthy company with huge gross margins and more cash than anyone. How do you get there without that kind of war chest?
Is it no longer possible to win by having the 'best' product?
All I am saying is give peace...no that's not it. It is just that one has to adjust to conditions. The service thing might be good in the short term. I am just confused on how an equipment vendor is better at running a network than companies built to run networks. In the short term it might work, but in the long term (unless unions are being booted in the middle) the equipment vendor is going to have to migrate the carrier's network to new technology or the carrier is reclaiming its network. Not sure how that is going to work.
I think there are multiple paths for companies to grow and build profitably. The way they did it 10 years ago probably won't work.
You hit on the fundamental delta I see between the IBM model and E///, ALU & Co.: " I am just confused on how an equipment vendor is better at running a network than companies built to run networks."
IBM was running networks for people who were making cars, building planes, selling soap, loans, etc. It is easy to see how a company would rather focus on its core competency than IT.
Arguably a telco IS about the network, so it is harder to believe that they would let this go, but a couple things give me pause:
1) A famous saying from an telco employee that goes something like "We're not a network provider, we are a billing system." Which really is to say that a telco is about designing new ways to bill customers for new services in creative ways, not the underlying technology.
2) If the market is truly 'commoditized' then there is less importance placed on the hardware itself, and instead what value you create on top of it. If the future is any device connected wirelessly to a server somewhere running an application, then I could see the carrier becoming less interested in the pipes and rather creating the services that lie on top of it. The big problem with this concept is something called the Internet, but that is another story. The question then becomes, is it a competitive differentiator to have a network built one way vs. another?
I am totally on the fence about this strategy, which is why I discuss it, any enlightenment is appreciated.
It's interesting that you mention the focus on managed services. I see this as the telecom vendors' version of branding. It's not a consumer market, so the actual brand is less important, but trust and "soft" values are. Moving into managed services is definitely a way of avoiding the USD/Mbit discussion which western vendors will always lose. This is exactly the same motif as for the endless branding we have seen in the auto business for decades.
Managed services ties up the customer for a long time and it makes the operator dependent. And when it is time for contract renewal, the incumbent provider has a massive advantage. What are the odds that Sprint will dare to replace Ericsson when the contract has ended?
I think Ericsson has been very clever in their focus on managed services, which they started way ahead of the others. Frankly, I think they have strategically outsmarted their competitors once again. They were first with bailing out of TDMA, then CDMA, and then they correctly identified mobile wimax as a dead end. The chinese vendors do not have the trust and experience to win a managed services deal with eg Sprint, and now Ericsson have locked them up for years. The chinese vendors will compete fiercly for the pure box deals, leaving the smaller western vendors in a very difficult sitaution.
Huawei is just the end game of product life cycle. Maturity begets the birth of the lowest cost provider becoming the leader. The Chinese government sponsorship combined with an unlimited financing package all located in the lowest cost production country always ensures leadership at the end of the cycle. Moving to higher speeds and feeds with ever more integrated components is incremental. No company in Europe or North America can sustain product leadership incrementally once a market has become mature and commoditized. That is why IBM exited the PC market and is focused on services and solutions. Alcatel will become an excellent provider of equipment to the French market. The rest of the pack have a very slow death unless they change the game. Even Cisco is moving to solutions and services as they recognized long ago that they can no longer compete on product innovation.