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Huawei on the road to $100 b in revenue by 2020
Huawei on the road to $100 b in revenue by 2020
Huawei on the road to $100 b in revenue by 2020
Huawei on the road to $100 b in revenue by 2020
Huawei on the road to $100 b in revenue by 2020
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Huawei on the road to $100 b in revenue by 2020

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Six months after Huawei declared its intent to achieve $100 billion in revenue by 2020 through diversifying its market position across telecom, devices and enterprise, TBR believes the company is on …

Six months after Huawei declared its intent to achieve $100 billion in revenue by 2020 through diversifying its market position across telecom, devices and enterprise, TBR believes the company is on track to achieve this goal. Momentum is building despite evidence of slowing telecom sales caused by economic and government obstacles in EMEA, India and the United States.
This analysis briefly describes what Huawei must do to achieve $100 billion in sales by the end of this decade.

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  • 1. TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C . TBR SPECIAL REPORT Despite telecom speed bump, Huawei stays on track to reach $100 billion in revenue by end of decade Chris Antlitz, Networking & Mobility Practice Analyst (chris.antlitz@tbri.com) Sept. 11, 2012Six months after Huawei declared its intent to achieve $100 billion in revenue by 2020 throughdiversifying its market position across telecom, devices and enterprise, TBR believes the company is ontrack to achieve this goal. Momentum is building despite evidence of slowing telecom sales caused byeconomic and government obstacles in EMEA, India and the United States.This analysis briefly describes what Huawei must do to achieve $100 billion in sales by the end of thisdecade. Huawei’s three key objectives are:  Build a Cisco-like ecosystem model in the enterprise networking market supported by strong global channel sales and low prices to beat Cisco at its own game.  Leverage the combination of the open Android UI model, R&D and low prices to rapidly and consistently gain mobile device market share.  Maintain competitive investments in telecom infrastructure while continuing to build services business and remain second only to Ericsson in market position.Incumbents beware: Huawei aims for the enterprise networking and mobiledevice marketsLeaders in the enterprise networking space — Cisco, IBM, HP, Juniper and Avaya —and leaders in themobile devices space — Apple, Nokia and Android OEMs — should take notice because Huawei has setits sights on these markets and is poised to take a substantial amount of market share from incumbents
  • 2. TBRover the next decade. Huawei, best known as a leading telecom infrastructure vendor, is aggressivelyexpanding into new markets to reach its internal goal of $100 billion in revenue annually by 2020.TBR believes that Huawei — despite slowing growth in its core telecom infrastructure business, whichcomprised nearly 79% of revenue in 2011 due to market saturation and the firm being prevented fromdoing business with large operators in the U.S. — will attain its coveted $100 billion revenue goal by theend of this decade by branching out into new markets such as enterprise networking and smartphones.Huawei will apply its aggressive pricing tactics and strong R&D investment, which together helped thevendor establish a dominant position in the telecom infrastructure market, to these new markets tohasten its transformation into a leading global ICT solutions provider.TBRTBR HUAWEI PROJECTED REVENUE AND YEAR-TO-YEAR GROWTH $100,000 $80,000 In USD Millions $60,000 $40,000 $20,000 $- 2011 2012 Est. 2013 Est. 2014 Est. 2015 Est. 2016 Est. 2017 Est. 2018 Est. 2019 Est. 2020 Est. Telecom Infra, Software and Services Enterprise Networking Mobile Devices Linear (Revenue Trend Line)S OURCE: TBR ESTIMATES AND HUAWEIAttaining this goal requires maintaining a 14% CAGR through 2020 and generating more than threetimes the $31.6 billion the company earned in 2011 within nine years’ time, but TBR believes Huaweihas a sound plan and the appropriate resources to succeed.Huawei in Enterprise: David among GoliathsSince entering the enterprise market two years ago, Huawei has attained an impressive $1.4 billion inrevenue and an order book that exceeds $3.8 billion. These results demonstrate Huawei’s determination www.tbri.com pg. 2
  • 3. TBRto access new markets and its ability to execute in a quick and decisive manner. The company has abroad portfolio spanning routers, switches, security, UC&C and data center. It also offers a range ofprofessional and support services. Though much of the company’s initial success is confined to itsdomestic China market and the surrounding APAC region, Huawei is gearing up to make waves in theWest and other emerging markets starting this year.Huawei will begin to encounter resistance in enterprise as it branches out into Western markets, whereheavyweights such as Cisco, IBM and HP dominate enterprise networking. To compete against theseleviathans, Huawei will focus on undercutting them on price. With a company like Cisco achieving grossmargins in the low 60% range and operating margins in the low 20% range, there is plenty of room forHuawei to come in with more aggressive offers and take market share. As highlighted in its approach totelecom infrastructure and devices, Huawei’s number one priority is to grow market share and thenfocus on margins once it has established itself as a leader in the market.Since Cisco controls two-thirds of the global enterprise market, Huawei must take market share fromthis competitor to attain its enterprise goal. Huawei is building a go-to-market framework similar to thatCisco uses, using partners to access SMB and small enterprise and using direct sales with largeenterprise. Huawei is enticing IT firms to resell its equipment by offering attractive signing bonuses andproviding highly competitive incentive plans. By sharing more of the profit with resellers the company iscertain to pique the interest of even the most adamant loyalists to Cisco and other incumbents.Within three to five years Huawei hopes to have 100% of its enterprise sales come from the channel.Huawei is taking a “high touch plus value” approach to drumming up new business. This model entailsHuawei doing the initial courting of customers and then bringing in partners to handle theimplementation of the projects. This approach gives Huawei more control over the client and allows thecompany to be more intimately aware of its customers’ needs.Huawei is positioned to avoid the pitfalls encountered by close competitors Ericsson, Nokia Siemens andAlcatel-Lucent. These firms have all failed in their efforts to break into the enterprise market in ameaningful way, by focusing on mass production of hardware and approaching enterprise via thechannel rather than fully adopting the direct sales route. Huawei’s approach differs from incumbenttelecom vendors because vendors are trying to scale up one-off, C&SI projects around telecom and ITconvergence. Scale, lower prices and a partner ecosystem are the key ingredients needed to successfullywin in the enterprise and Huawei has all three of these components.Huawei in Mobile Devices: Climbing the leaderboardNo market has experienced more upheaval as of late than the mobile device space. With long-timeleaders Nokia and RIM fading from relevancy as Apple and Android OEMs successfully ride thesmartphone wave, the entire landscape has been altered now that smartphones have taken centerstage. Huawei has long been a maker of inexpensive feature phones and its presence was largely www.tbri.com pg. 3
  • 4. TBRconfined to emerging markets. However, the entrance of Android and a big push to expand intodeveloped markets has provided Huawei an excellent opportunity to jump on the smartphonebandwagon.Android and Huawei are a perfect match because Huawei can marry its competitive advantage inmanufacturing and sourcing low-cost hardware with Android’s free, yet industry-leading softwareoperating system. The result is a competitive device at a price that is typically lower than rival offerings.TBR believes Huawei will continue to experience strong growth in its mobile device segment, propelledby its shifting sales mix, which is moving toward high ASP smartphones. Huawei sold 55 million phonesin 2011, placing it as the sixth largest handset manufacturer in the world, up from ninth place in 2010.Going forward, Huawei’s strategy of flooding global markets with Android smartphones at sub-$200prices —a market segment currently underserved yet most affordable for the mass market — will gainsteam in coming years as it expands its sales channel to more Tier 1 operators and establishes its brandwith consumers in developed markets. With most other smartphone vendors focused on bringing high-priced, premium devices to market, Huawei will carve out a niche for itself and become ubiquitous insmartphones by 2020.Huawei in Telecom Infrastructure: Reverting to the mean in a maturing businessIn the past decade Huawei has grown from an obscure vendor, confined to supplying the Chinesemarket, into a globally dominant leader. In 1H12, for the first time in its history, Huawei hit a speedbump whereby its telecom infrastructure growth rate was significantly below targets due to theworsening environment in EMEA and a slowdown in China. This speed bump indicates Huawei is startingto encounter a ceiling in telecom infrastructure, evidenced by its normalizing growth rate, which isgetting closer to the industry average. TBR forecasts Huawei’s Carrier Networks segment will grow 5% in2012 and will continue growing at a low-single-digit rate through 2020.Though Huawei will continue to aggressively increase telecom market penetration, TBR believes thecompany is starting to ease up on its aggressive pricing tactics and charge more industry-standard ratesfor its equipment, which will ease pressure on Alcatel-Lucent and Nokia Siemens. Undercutting rivals onprice has been very successful in EMEA, but now that operators are feeling more comfortable with usingHuawei as a key supplier there is less need to aggressively price products. Operators now view Huaweias a provider of competitive technology at a reasonable level of quality at a value price.Thus far, Ericsson has been the only network equipment vendor to successfully compete against Huaweiand protect its market share. The same cannot be said of close rivals Alcatel-Lucent and Nokia Siemens,which have both been devastated by Huawei’s entrance into EMEA and growing footprint in APAC.Ericsson’s success comes from its industry-leading services business, which is leveraged to lead inbusiness engagements and then pulls in equipment and software to satisfy customers’ needs. This go-to-market approach, coupled with a push to increase sales of high-value, high-differentiation services likeC&SI and managed services, has helped Ericsson keep Huawei at bay and retain its customers. Though www.tbri.com pg. 4
  • 5. TBRHuawei tries to mimic the successful services model enjoyed by Ericsson and continues to invest heavilyin global service delivery facilities, tools and personnel, the unit lacks the critical C&SI capabilitiesrequired to properly win these customer engagements.Closing Thoughts: Obstacles to successThough Huawei has the ingredients and determination for success, there will undoubtedly be hiccupsalong the way:  Huawei will continue to struggle to get traction in the U.S. and India due to national security concerns.  The company faces strong price competition from crosstown rival ZTE, another Tier 1 telecom vendor that has similar growth aspirations and a willingness to compete on price over profitability to gain market share.  Huawei faces tough entry into developed markets for its enterprise equipment as Cisco et al. are adaptable and will try to differentiate by offering solutions-based pricing and climbing the innovation ladder.  Firms that supply enterprise networking equipment have strong balance sheets and are able to dwarf the resources and cash to which Huawei has access.  Channel partners will be hesitant to conduct business with Huawei for fear of jeopardizing their longstanding arrangements with incumbents.Technology Business Research, Inc. is a leading independent technology market research and consulting firmspecializing in the business and financial analyses of hardware, software, networking equipment, wireless, portaland professional services vendors. Serving a global clientele, TBR provides timely and accurate market research andbusiness intelligence in a format that is uniquely tailored to clients’ needs. TBR analysts are available to furtheraddress client-specific issues or information needs on an inquiry or proprietary consulting basis.TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.©2012 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other publicsources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable orresponsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is notand should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value,purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact TechnologyBusiness Research, Inc. for permission to reproduce. www.tbri.com pg. 5

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