Original URL: http://www.theregister.co.uk/2013/04/24/huawei_enterprise_dragon_plans/

Hidden dragon Huawei: 'We’re making increased efforts at transparency'

Can the telecoms kit maker make it big in biz IT?

By Phil Muncaster

Posted in Mobile, 24th April 2013 11:04 GMT

Huawei sent out a clear signal to its competitors in the global enterprise IT market on Tuesday with predictions of stellar growth for the vendor’s smallest business group over the next five years to reach revenues of $10bn by 2017. But analysts are sceptical about its chances of becoming a genuinely disruptive alternative to the likes of industry veterans Cisco, HP and IBM.

First the headline-making predictions, which came during various keynotes and press briefings at the Chinese tech giant’s global analyst summit in Shenzhen attended by El Reg.

Enterprise business group president William Xu said his division would reach worldwide revenues of $2.7bn, a whopping 45 per cent up on 2012 figures of $1.9bn (£1.2bn). Last year, in turn, was up 25.8 per cent on the figures from 2011, so it’s clear this part of Huawei’s business is growing pretty rapidly – more than any other in fact. To put it in perspective, Huawei’s bread-and-butter carrier business grew only 6.7 per cent last year, while the consumer group, which includes the rapidly growing device business, fared better at 8.4 per cent.

It’s clear that Huawei expects its enterprise group to take an increasing amount of the responsibility for corporate sales growth in the future, as the carrier infrastructure biz slows. The firm’s corporate controller CT Johnson revealed at the event that Huawei expects the share of overall revenues from carrier network sales to drop from 73 per cent to 60 per cent up to 2017.

There have been some questionmarks over the accuracy of some of these bold revenue estimates, however, after a previous claim that the enterprise business would hit $15bn by 2017 was revised down to $10bn. EPG president William Xu said the disparity was down to the habit of the enterprise group in its early days of using “contract sales” rather than total revenue for its business estimates.

“From 2011-12 the enterprise business was in a phase of start-up, so there have been adjustments in planning … and how we grouped accounts,” he said. “Small businesses often use contract sales figures to look more attractive. Now we have a requirement that all figures are recorded as sales revenue.”

So where does Huawei expect to make all this cash? Well, unsurprisingly, the vendor is strongest in its core area of networking kit – this part of the enterprise business aims to generate $1.4bn of the $2.7bn total for 2013.

The enterprise IT unit is fastest growing, however, aiming for a 65 per cent increase this year to reach $600m, flogging cloud and datacentre infrastructure, while unified comms aims to bring in a shade less ($550m), tapping Huawei’s strength in the network space. Its security and storage capabilities, meanwhile, were significantly enhanced after it bought out Symantec from the pair’s Huawei Symantec JV last year.

As with other parts of this sprawling technology giant, organic growth through heavily R&D-backed innovation is a core tenet, with R&D spend rising to over 13 per cent of total revenue last year. Xu was also at pains to stress the importance of co-operation with industry partners and building open, standards-based products that can easily slot into enterprise systems.

The firm has also managed some big name customers in the two years since the enterprise group was officially launched: building a cloud-based Universal Distributed Storage (UDS) system for number crunching on a giant scale at CERN, and a Huawei T-Series-based storage system for the world’s biggest utility – State Grid Corporation of China.

Forrester analyst Bryan Wang told The Reg that Huawei excels at making good quality kit at an attractive price. “With that, they will have good chance to grow in most of the enterprise product segments they are playing. Servers, storage and UC are classic examples,” he added. “With their legacy carrier network expertise, making enterprise routers and switches is also rather easy for Huawei, especially in terms of large scale and high end products. They are at the same level as Cisco or Juniper in that space.”

However, reaching that $10bn figure by 2017 will be a real challenge for Huawei, according to IDC analyst Ian Song. “Even in the dramatic growth mode it’s in, its key market is still the home one and there’s only so far you can grow in China,” he told El Reg. “It’s showing great traction in emerging markets but that’s not where the money is in the next few years. It has to penetrate developed markets.”

The United States is unlikely to feature among those developed markets anytime soon either, after exec vice president and one of Huawei’s three alternating CEOs Eric Xu claimed the firm is “not interested in the US market anymore”. Aside from being named as a national security risk by that high profile congress report last November, the firm could be affected by a new US bill which effectively prohibits certain government agencies buying tech from any vendor thought to be “owned, operated or subsidised” by the People’s Republic.

Now Xu’s comment may have been more aimed at the carrier networks business but it will certainly have huge implications for the enterprise business, given that he also claimed the two “are very related to each other”. Either way, the fall-out from Huawei’s treatment in the US and to a lesser extent Australia, India and other hostile countries is a problem for the firm.

UK.gov CIO-turned-Huawei-man: A 'systemic change' is coming

Convincing risk-averse CIOs of the safety and security of its kit will be an on-going issue, although Huawei has a big hitter on its team in recruiting former UK government CIO John Suffolk as its global cyber security officer.

It doesn’t help either that stories of security vulnerabilities in USB modems, routers and other kit emerge from time to time, especially when the firm is criticised for its poor incident response capabilities. To be fair, Suffolk has promised “systemic change” within Huawei, so something is being done, but in the meantime any security problems will reinforce the negative perceptions of the biz which perhaps some of its global rivals have not faced on the same scale.

Huawei's corporate controller CT Johnson also made efforts at the analyst summit to reassure enterprise customers across the globe that the firm is also trying to answer criticism, especially from US lawmakers, that its opaque corporate governance makes it difficult to determine what role if any the Chinese government plays behind the scenes.

“Being a vendor of network infrastructure means people outside of Huawei want to know what’s going on inside Huawei,” he said. So we’re making increased efforts at transparency and openness…It’s something you’ll see more of going forward.”

Compliance, security and regulatory woes aside, however, IDC’s Song claimed Huawei needs greater clarity in its enterprise product portfolio, and around which offerings are home-grown Huawei products and which are the result of partnerships, as per the Symantec JV.

“The story it’s trying to push is still a work in progress and the solutions are a little confusing, in the naming and overall message they want to deliver to clients,” he said. “Huawei is also very hardware-centric in its messaging. It needs to attach multiples to the hardware it sells through consulting, services and maintenance. The dynamic of the datacentre is changing and hardware margins are getting thinner and thinner.”

As to whether Huawei can do the unthinkable and achieve market-leading success in consumer, carrier and enterprise segments, even Eric Xu admitted in his keynote it will be a challenge, if not a downright “miracle”.

Forrester’s Wang claimed enterprise customers will be the key to achieving this miracle, arguing that Huawei still needs to put more effort into making its channel programs more attractive, as well as "localising" expertise, and improving its vertical capabilities – something it has traditionally not had to do with a carrier business legacy.

IDC’s Song added that there was a “healthy level of scepticism” amongst the analysts attending in Shenzhen this week of Huawei achieving a 45 per cent CAGR in its enterprise business.

“The technology is sound and the enterprise business is barely two years old. IBM and Cisco were not as prolific when they were at this stage,” he said.

“But the ICT market itself is growing at only 4-5 per cent. Huawei has to be the number 2 or 3 player in almost all the product markets it plays in. The challenge here is how does Huawei get customers to switch from Cisco, EMC or HP. Pricing play, yes. But what else?” ®