After growing 11.3% in 2011, Huawei Technologies Co., Ltd., is projecting top line growth of 15-20% in 2012. This is an aggressive estimate in light of the company’s carrier network division, which grew at just under 3% last year while representing 73% of the company’s total sales. Clearly, it seems that the Chinese vendor is looking to its other, smaller divisions to drive growth going forward.
However, the company also expects its consumer business group to grow at a similarly high rate year-over-year for 2012 (it earned an impressive 44% in 2011). This places the onus on Huawei’s enterprise business group to make up the difference required to meet the company’s overall growth targets.
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The trick, then, becomes growing a $1.5 billion a year business fast enough to generate the nominal sales growth needed to increase Huawei’s overall top line by 15%. Per the chart below, Peter Jarich, service director for Current Analysis pointed out that, “If we take Huawei’s suggestion and assume devices growth stays constant and then assume that carrier networks grows at or below its 2011 rates, the enterprise group needs to grow by at least 70% in 2012 for Huawei to hit its targets.”
Source: Current Analysis
Although aggressive, Huawei said it has ambitions to grow the enterprise group to a $20 billion a year business by 2016. If it can achieve this growth, then the growth rates shown on the chart above would certainly not be out of line with Huawei’s internal expectations. If anything, they might be a bit low.
The potential problem with all this is that history does not paint a bright picture for Huawei’s enterprise growth ambitions. Jerry Caron, VP of research at Current Analysis, commented that “there is an impressive list of telecom equipment vendors – Siemens, Nortel, Ericsson, and many others – that tried to target the enterprise market along with the carrier market to less than stellar success. Of course, Cisco is a force in both enterprise and carrier networking, but Cisco started in enterprise and then moved into carrier.”
When asked about Huawei’s growth ambitions, Caron noted that the company wants to become a $100 billion business in the future and that this would be impossible if it operated only within the carrier infrastructure market. “Huawei, therefore, is going after the enterprise and consumer markets with everything it’s got.”
Huawei has the challenge of facing the combined issues of differentiation and the fundamental trend in enterprises toward a blend of cloud and premises-based infrastructure. Eventually, cloud networking play in Huawei’s favor against incumbent technology suppliers such as Cisco, added Caron.
Cloud
Indeed, moving to the cloud-based model could help Huawei to target enterprise business. The emergence of cloud architectures for both carrier and enterprise networking are creating potential synergies for Huawei that its competitors didn’t have. Huawei’s carrier networking pedigree could make it attractive in the enterprise arena.
Even so, large enterprise networks began to share commonalities with carrier networks well before the cloud. And, even now, the market tends to segment the capabilities needed to support cloud architectures according to “carrier clouds” and “enterprise clouds.” This implies a specialized set of enterprise-specific competencies that Huawei could be challenged to demonstrate vis-à-vis the likes of IBM, HP, and other enterprise giants, many of whom also can lay claim to some degree of telecom carrier network expertise.
SWOT analysis
What are Huawei’s greatest assets as they seek to grow the Enterprise group to be nearly as large as the Carrier Networks Group?
Jerry Caron: Huawei has a tremendous amount of R&D resources to drive differentiation in the enterprise market. The company also has strong relationships with service providers, particularly in emerging markets, that could provide key partners as the worlds of enterprise technology and managed service converge through a shared interest in cloud offerings.
What are the greatest obstacles that stand in the way?
Caron: Huawei will be challenged to build a network of channel partners to enable it to grow at the fast rate it wants to. The company also must find a way to differentiate its solutions in the marketplace through innovation, not just on price.
What advice would you have for the Huawei’s as it seeks to grow its enterprise group rapidly?
Caron: Huawei should find one or several areas to provide compelling differentiation to establish a reputation for technology leadership.
What advice would you have for Huawei’s enterprise competitors in competing against Huawei?
Caron: Competitors should assume in their planning that Huawei will succeed to some degree to gain market share, especially in emerging markets and in Europe. The company seems determined to grow its enterprise business and has required resources to achieve at least reasonable success in the short-term.
