Service Provider Cloud

Huawei is failing to crack the cloud

Anyone reading Huawei's annual report for 2021 could be forgiven for thinking the Chinese equipment maker had already morphed into one of the world's largest public clouds. The word cloud is mentioned 297 times in a document just 192 pages long, often flanked by size-related adjectives and bold claims. "Huawei Cloud is the world's fastest growing major cloud service provider," boasts the Chinese company on page eight, dangling some big numbers to illustrate the point.

But no figure was given for sales, and it is probably no wonder. Four-and-a-half years since Huawei Cloud had its Chinese debut, it remains a runt next to the fat US beasts that dominate the international market. Any hope the cloud might help compensate for the drop-off in sales at Huawei's huge devices unit – or provide a Chinese counterweight to AWS, Google Cloud and Microsoft Azure – has so far been dashed.

Up-to-date numbers supplied by Synergy Research Group put Huawei's share of the global market for cloud infrastructure services at just 1%. "This has increased over the last couple of years, but it remains outside of the top ten," said John Dinsdale, chief analyst and research director at Synergy, in an email exchange with Light Reading. As he points out, the overall market has been averaging a year-on-year growth rate of more than 30% for the last four quarters. "Huawei has to grow substantially more quickly than that to improve its position in the cloud provider rankings."

'It goes somewhere up there.' Huawei recruits train at a data center in Guizhou. (Source: Huawei)
'It goes somewhere up there.' Huawei recruits train at a data center in Guizhou.
(Source: Huawei)

Its failure to do so in Western markets hardly comes as a shock. Some of the governments and telcos that previously soured on Huawei apparently feared its 5G products might enable China to spy on their countries or even cripple their networks. Other national authorities probably agreed with US hawks that a global 5G market dominated by a Chinese vendor was undesirable. Shutting Huawei out of 5G and then allowing companies to entrust it with their IT workloads and data would make zero sense.

Many organizations are likely to have self-policed to avoid any reputational backlash. As the world grows increasingly dependent on cloud infrastructure, data sovereignty is becoming a hot topic in mainstream news coverage. European companies already face criticism they are too reliant on US Big Tech. Cloud deals with Chinese rivals will not strike many as an acceptable alternative.

Geopolitical storms

For the same reasons, the heavy reliance of some European service providers on Huawei's technology is unlikely to have buoyed enthusiasm for local clouds. France's Orange, through a service called Flexible Engine, and Germany's Deutsche Telekom, with its Open Telekom Cloud, are known to have used the Chinese vendor's hardware and software for their own public clouds. Deutsche Telekom even identified Huawei as its main public cloud partner in its annual report for 2016, when the service was launched. Unsurprisingly, after the geopolitical ructions of the last few years, there was no reference to it in the 2021 report.

Nevertheless, both operators have largely pivoted to offering services in partnership with the US giants instead. "Ten years ago, when we started to invest in the cloud, we had this big ambition in cloud infrastructure," said Aliette Mousnier-Lompre, the new CEO of Orange Business Services, during a recent interview with reporters in Paris. "We've acknowledged that the market is clearly driven by those big American hyperscalers and that where we can bring value to customers is to accompany them in a multi-cloud strategy."

Synergy's data bears out the European decline. Since early 2017, the market share of European cloud providers – the biggest of which are SAP, Deutsche Telekom, OVHcloud, Telecom Italia and Orange – has dropped from about 27% to just 13% as companies have turned to AWS, Google Cloud and Microsoft Azure. Today, the US giants collectively serve about 72% of the regional market, according to Synergy.

(Source: Synergy Research Group)
(Source: Synergy Research Group)

The backlash against Huawei is one of three big problems for its cloud business, according to Dinsdale. "The worldwide geopolitical situation is a big barrier," he told Light Reading. "Huawei has made hardly any impact on the big cloud markets of the US, Western Europe and some of the major APAC countries. It is difficult to see that changing any time soon."

There is clearly a much stronger appetite for Huawei in its domestic market, where it has previously claimed to be one of the top cloud providers. Yet COVID-related restrictions and a downturn in the Chinese economy have slowed momentum this year. "The local Chinese cloud market got into a bit of a funk in the last two quarters after seeing some supercharged growth in the previous years," said Dinsdale. "There is no doubt the Chinese cloud market will bounce back strongly, but this doesn't help any Chinese cloud provider from improving its standing in the worldwide market."

Hurt by sanctions

The difficulty of obtaining US technology also appears to have upset Huawei's cloud ambitions. After US authorities restricted its access to US components and tools, Huawei sold off a server business reliant on Intel's x86 chips in October last year. Seeking alternatives, it appears to have channeled resources into its own Kunpeng processor, using designs supplied by UK-headquartered Arm. But with the recent tightening of US sanctions, even this could be at risk.

"Huawei, along with other Chinese cloud and data center companies, is having to work hard to get around restrictive access to underlying technology from US companies," said Dinsdale. "China has a strong pool of local technology vendors and associated R&D facilities, so in the fullness of time it could become more independent. However, in the short term, this is a very challenging situation."

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Outside China, Huawei has been able to advance in various emerging markets the US giants have been slow to enter. "Developed countries have multiple, redundant and competitive clouds," said John Strand, the CEO of Danish advisory firm Strand Consult. "This is not necessarily the case in emerging markets." Huawei and China Telecom already have multiple data centers in Africa and Latin America, he points out.

A website maintained by the International Institute for Strategic Studies, a think tank, features an interactive map showing the details of Chinese infrastructure projects overseas. Little icons hover above several African countries where Huawei has already set up data centers like Chinese technology outposts. Today, these and other countries in Asia, Latin America and the Middle East constitute "very small markets" in terms of cloud revenues, said Dinsdale. How fast that changes could determine Huawei's overall degree of cloud success.

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— Iain Morris, International Editor, Light Reading

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