Huawei's Last Mile

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In 2014, Huawei won the crown with global sales revenue of RMB 288.2 billion (US$46.5 billion) and net profit of RMB 27.9 billion (US$4.5 billion), proving that its main channel strategy of focusing on big data pipelines is effective.

While giving Huawei 32 likes, we must see that the main channel Huawei has identified is being rapidly reconstructed. All basic networks will be dominated by IT architecture. The disrupted market requires more powerful hardware, flexible and intelligent software, and compatibility of heterogeneous devices. Huawei’s existing R&D and operation models will also face great challenges, and Huawei’s throne will usher in more challengers.

The keyword of Huawei's Analyst Conference 2015 was "ecosystem", and the new strategy was "service". It released the "ROADS" standard to update the traditional CT service experience, and announced that it would launch public cloud services in July this year, indicating that Huawei, with its keen sense of smell, has already started to lay out its plans and strive to become the leader of the new world.

Overall, Huawei has a good chance of success and will have no problem achieving a new high of US$70 billion in revenue in 2017. However, it still has to answer many questions on its way to becoming a company with the ability and courage to disrupt and innovate.

A realistic question is, why has Huawei's consumer business been able to rise in just a few years, while its enterprise business is still far from its goal despite huge investments?

First, let's look at why the enterprise business is so important. Huawei's rotating CEO Xu Zhijun said bluntly: Carrier business is the present, and enterprise network business is the future. In a few years, our carrier business will remain at a stable scale and will no longer fluctuate too much, so that BB's growth will mainly come from the enterprise business. However, the goal of the enterprise business is to reach US$10 billion in 2019 before discussing the future. Once it reaches a scale of US$10 billion, it will become the growth engine of BB business.

Yes, to maintain the high growth of performance, entering the enterprise business is Huawei's best choice. From a global perspective, the scale of the telecommunications market is basically hundreds of billions of US dollars. Excluding the United States, Japan and Australia, which are temporarily out of the market, Huawei actually has little room to fight bravely. In addition, the weakening profitability of operators will lead to a decrease in Huawei's profit margin, so the enterprise business with higher profit margins will determine Huawei's future.

Enterprise business is the touchstone for Huawei to enter the ICT world. Under the dominance of IT architecture, the infrastructure of operator networks and enterprise networks are becoming more consistent. Huawei's winning of the enterprise market also means that it will be indestructible in the rapidly changing operator market.

Obviously, Huawei's current lack of explosiveness in the enterprise network market is due to the inability to customize standards and achieve large-scale promotion. Compared with the telecom market, which is worth hundreds of billions of dollars, the enterprise market is worth trillions of dollars. Any company needs to cooperate with other companies and only occupy a certain link. Only by forming a strong ecosystem with itself as the center can it be possible to encircle users and devour other people's territory. In the terminal business, Huawei's rapid rise is also due to the fact that there are standards customized by Google. Huawei only needs to comply with them and optimize them better than others.

Cisco's monopoly advantage in the enterprise market also comes from its powerful underlying programming and chip technology, which has become the de facto standard in this market, resulting in every link having to be compatible with Cisco.

Huawei has a clear understanding of this. Ken Hu, President of Strategy and Marketing, said: "If you want to go faster, you should go alone. If you want to go further, you should go together."

In the past, Huawei did not need this capability. In the communications market, one product could go all the way, provide end-to-end solutions, and be compatible with itself.

In addition, enterprise network architecture requires the network to cope with a large number of business demands, unlike telecommunication equipment which has more intensive and repetitive applications. Therefore, the enterprise network architecture needs to be more intelligent, and an intelligent control layer should be built between the basic network and application services. This requires the accumulation of millions of basic codes, but Huawei currently lacks this in R&D models.

When this capability is applied to the operator networks after the Internet transformation, the degree of coordination required for core network billing and user management far exceeds the wireless and bearer networks that Huawei previously excelled in. It can be said that Huawei is not yet fully prepared in the IT field.

It must be admitted that Huawei has made great progress in IT capabilities and has strong strength in storage, cloud computing, servers, Ethernet switches and other sub-sectors. However, its subsequent innovation capabilities will be constrained by several key factors:

First, the reduction in the number of competitors in the telecommunications equipment market has reduced competitive pressure, resulting in insufficient source of innovation motivation; second, the competition for talent among Internet companies, which are surging in number and size, has brought difficulties to Huawei in terms of IT talent reserve and incentives; third, Huawei has failed to enter the US market, the base camp of IT innovation, and is unable to absorb innovative nutrients in a timely manner, nor does it have a new technology training ground comparable to its own.

In the final analysis, the path to becoming the best in this field is the most difficult basic research plus the most courageous and bold reform, and a bit of luck. Huawei has a R&D team of 76,000 people, and has invested more than 190 billion yuan in R&D over the past decade. Whether Huawei can lead the team and overcome the above difficulties remains to be seen.