Huawei CEO Ren Zhengfei and his senior colleagues liken their firm to BMW. Huawei needs to constantly adapt to remain relevant as new opportunities and rivals emerge, in much the same way as the auto giant is being directly challenged by electric car manufacturer Tesla.
But if Huawei is going to be disrupted by a startup, that threat won't come from the Chinese's giant's backyard.
China makes more telecom equipment than any other country, has thousands of experienced engineers, a huge domestic market, and a hyperbolic technology startup scene.
But none of those startups are making telecom networking equipment or creating a business primarily focused on network operators, while Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) clocked up $34 billion in sales of equipment and services to operators in 2013, close to a third of the global total.
Virtually all of the world's telecom startups, in hot sectors such as SDN, NFV, telco cloud, small cells, and smart antennas, for example, are in North America, Western Europe or Israel's so-called Silicon Wadi.
Interviews with analysts, industry executives, and VCs turned up just one recently formed, privately held supplier of operator networking solutions, seven-year-old Autelan, which sells carrier-grade IP WiFi to service providers and business.
The absence of aspiring telecom vendor startups is not because of a lack of interest in China or in Chinese hi-tech. Intel Capital , for example, one of the world's most successful corporate VC arms, has 314 startups in its portfolio, of which 25 are in telecom networking and 19 are in China -- but there is no overlap between those two sub-groups.
The pattern is repeated in other VC operations, foreign and domestic. DCM has 38 investments in China, but none is in its communications or infrastructure portfolio. Yet of its 44 Internet startup investments, 17 are Chinese. China-based outfits, such as AngelVest, China Equity Group, and China Broadband Capital, have all steered clear of comms infrastructure.
The prime reason for this disconnect is most likely the closed nature of the domestic services sector. China's 1.3 billion telephone users are served by just three telcos -- China Mobile Ltd., China Telecom Corp. Ltd., and China Unicom Ltd. -- whose priorities lean more toward continuity and building at scale than differentiation.
Milly Xiang, IDC China senior research manager and head of telecom practice, points out that the three operators put onerous qualification requirements on suppliers, such as company size and assets. Huawei and ZTE take advantage of that entry barrier to build out end-to-end solutions, she adds. They also have learned to "follow quickly in terms of the emerging areas such as small cells, really leaving limited opportunities to smaller startups."
Such an arrangement also gives the incumbent vendors massive market power.
One venture capital firm executive told Light Reading that Huawei in particular had attacked newcomers aggressively, often giving away their products for free, so no-one tries to break through any more. "After a while, no-one bothered. There are some really small players around mesh and indoor wireless, but that's about it," he said.
The absence of telecom networking startups contrasts with the fervor in the consumer and Internet markets, involving hundreds of well-backed firms and epitomized by the forthcoming Alibaba IPO.
While the size of the consumer opportunity dwarfs the carrier gear sector, that can also be said of North America and Europe, and yet they continue to foster startups in areas such as SDN or wireless-based fiber alternatives.
Telecoms infrastructure is not the potential bonanza it used to be but it still attracts money and talent. For example, DAS firm Mobilitie LLC last year raised $100 million to make Rutberg's list of top five funded startups. (See The Best-Funded Mobile Startups of 2013.)
There's an irony here. Huawei began selling security alarms and PBXs and bootstrapped itself into today's global powerhouse. But there is no path for the next Huawei: Entrepreneurial engineers laboring in research labs in Shenzhen or Shanghai are better off trying their luck in Silicon Valley or Boston.
For all China's ambitions to be a tech superpower, its industry structure ensures it is a technology follower in the one sector where it should be able to claim leadership.
— Robert Clark, contributing editor, special to Light Reading