Huawei at 21 begins the next phase of development in growing global market

Kevin Zhang: In today’s world globalisation is
the big trend. It is an unstoppable trend

Kevin Zhang speaks with the keen enthusiasm of a marketing man about what he believes Huawei’s image is in the eyes of telecoms operators. Zhang is a marketing man: vice president of global marketing at the Chinese manufacturer.

“Huawei is a telecoms equipment vendor that focuses on customers’ needs to help our customers succeed,” he says. “We believe that this is the image that our customers would like to see. And our expectation is to live up to this.”

The single most extraordinary fact about Huawei is that it is only 21 years old. In an era when many other telecoms equipment vendors have merged — Nokia Siemens Networks, Alcatel-Lucent, or Ericsson with Marconi — or, like Nortel, simply failed, Huawei has boomed.

The company is exactly as young as its home city of Shenzhen, created in 1988 as a special economic zone on the Chinese side of the border with Hong Kong, then still British-ruled. Today Shenzhen has a population of over eight million, about a million more than now Chinese Hong Kong.

And Huawei, having started in 1988 as an importer of PBX equipment, employs some 83,000 people, 43% of whom are in research and development.

So Zhang is perhaps right to be enthusiastic. “Look at our customer base, and we are serving 36 of the top 50 telecoms operators,” he says.

“And we have a broad product portfolio, covering wireless, wireline and IP data. We are the only vendor in the top three in all those three sectors.”

That means “we are well positioned for the future IP infrastructure”, says Zhang. “We have every reason to believe that in this transition we will reinforce our market position, confident we will become one of the market leaders.”

Zhang is based in Shenzhen, on Huawei’s campus that is as large as a small city, so big that there are traffic lights to regulate the traffic. It’s a spacious city, though, with wide roads, trees and plenty of grass, and a central lake around which staff can walk during their lunchbreaks.

The company recruits graduates from all over China. The successful graduates live in the city or in one of the company-owned apartments around the edge: apartments that look more like townhouses in suburban America than the concrete high-rises of Hong Kong across the border.

The complex, which is now eight years old, includes a data centre employing 2,000 IT people and an operations centre — nicknamed the “war room” — where staff monitor the company’s own networks and well as orders and production, plus deliveries to “the largest automated warehouse in China”, measuring 11,000 square metres, but employing just 35 people and some Oracle software.

Next phase

Huawei is moving on to the next phase of its existence. For most of the past few years it has been doing its best to get known among telecoms operators around the world, and has been communicating a message based on lower cost.

Now, having achieved the age of 21, it appears to feel that it is known by its customers. And it is ready to communicate a different message: one based on business case, not cost.

“There is a market segmentation developing,” says Zhang. Whether it is working in emerging markets or developed markets differently, “we need to deeply understand the customers’ needs and improve their competitive advantage in the marketplace”.

Their needs are different. “Developed markets are looking at broadband, mobility and convergence, but in emerging markets the main focus is expanding coverage of networks and reducing the total cost of ownership.”

For both markets, though, Huawei has been working on a mobile platform that can be modified to suit different needs, including 2G, 3G and eventually LTE. “We first worked on this with an operator in Europe in 2004 and now it is widely deployed across emerging and developed markets,” says Zhang. “We can offer different features with just a software upgrade for different geographies and services.”

Develop something in China for a European customer, and then sell it around the world. This leads to an observation about the global nature of the telecoms industry. “In today’s world globalisation is the big trend,” says Zhang. “It is an unstoppable trend.”

There are strong consumer demands for telecoms services around the world, “so the regulatory regimes of different countries are more and more open”, he notes. “There is competition in different markets and the question is, how do you meet end users’ demands and become more competitive?”

Viability

An operator, he says, answering his own question, “needs a partner with long-term viability and a strategic point of view. This is the larger picture of globalisation.”

With this strategy the company has “achieved significant progress in China, Asia, Africa and Latin America as well as in Europe and the US,” he says.

But what about the global economy? How has that affected Huawei’s strategy? In 2008 telecoms was not alone in being affected, he admits: “Telecoms operators were faced with an extreme challenge — reduce total cost of ownership, maintain business margin and maintain market share.” But telecoms “was less affected than other industries”, he notes. “Demand for telecoms is strong. In developed markets users are looking for fatter bandwidth and better services. Developing countries are looking for broader coverage. Overall the telecoms industry is better off in a financial crisis.”

Whatever the economic background, Huawei — though it is not quoted in any stock market — has reported strong figures, with sales of $23 billion in 2008, up 46% over 2007. “Emerging markets and the developed markets have both been big drivers,” says Zhang, who puts the growth rate in Europe at 42% and in North America at 58%. In 2009, the company expects sales to reach $30 billion, he says.

All of this in a telecoms market “that is relatively stable”, with an annual growth rate of only 3-5%.

“But the investment structure of the industry has shifted, with the transformation of the network from TDM to IP next generation technology. This will bring a lot of significant investment in access equipment and terminal sites.”

Network migration

So Huawei has formed relationships with operators just at the time that they are planning a migration to all-IP networks — companies such as BT, with it 21CN project, Vodafone, Deutsche Telekom and others, that are planning a network migration and want to reduce capex and opex at the same time. “They need innovative solutions to reduce total cost of ownership,” Zhang adds.

“All the major telecoms operators are initiating IP transformation strategies. This needs to be implemented in a phased approach.” Mobile operators are planning their moves from 2G and 3G towards LTE or 4G technology, again trying to keep capex and opex down, while fixed operators are looking at fibre to the premises.

“The technical complexity is increasing,” says Zhang. “How can we capture these opportunities? Only after we’ve answered that can we be successful.”

The idea, he says, is “to organise around customer needs and customer-centric innovations”, with unified single access — in the fixed area, evolving from DSL to optical, and in the mobile using a single radio access network that allows upgrades to LTE.

Behind all this is a huge load on research and development, with 10% of revenue and “nearly 40,000 of our employees”. The company now has 14 R&D centres, half of which are outside China — places such as California, Bangalore, Moscow and Stockholm — plus 20 joint innovation centres with customers.

All these R&D people are looking into the future, he says: “They need to look at the operators and see what they perceive the future world to be.”

The end user in four to five years will “want to enjoy convergence of communications anytime, any place”, says Zhang — using handsets, laptops and screens.

Meanwhile he believes that machine-to-machine communications will drive much of the traffic of the future.

It would be fair to say that the managed services side does not feature so highly in Huawei’s consciousness as it does in that of most of the western vendors: all three, Alcatel-Lucent, Ericsson and NSN now focus on services as well as equipment.

But, with a bit of prompting, Huawei does admit that managed services is something that it is developing.

“The revenue of Huawei’s managed services has increased annually by three to four times since we formally provided managed service in 2005.”

The company has worked on managed services with “50 operators in more than 40 countries”, including Bharti in Sri Lanka and Mobily in Saudi Arabia. “We have had successes in developed as well as developing markets,” says Zhang.

But this is an afterthought. Huawei is clearly an engineering-led company, proud of its R&D, of its huge R&D staff and the numbers of patents that they are registering. And that’s where it is scoring some undoubted successes in the industry. GTB