Huawei turning to enterprise and devices for growth

This article was authored by Joseph Waring, and was originally posted on telecomasia.net.

The key takeaway at Huawei’s analyst (and media) day last week is the company’s acknowledgement that the heady days of double-digit growth for its carrier network biz (representing 73% of total revenue) are over, and that its enterprise and consumer device groups will be the growth engines going forward.

Telcos’ retail revenue in developed Asia-Pacific markets, where mobile penetration is well over 100%, is set to fall 0.4% annually over the next five years. According Analysys Mason, overall annual revenue is expected to fall from $217 billion to $213 billion during the period.

In light of that forecast, Huawei sees its carrier business growing just 6% per year over the next five years, by which time the group will account for only 60% of turnover. Last year it grew by 6.7%.

The enterprise group last year increased 26% to just under $2 billion and is expected to expand 45% this year. By 2017 is will account for 15% of total sales (up from 5% last year) while the consumer group will grow to represent a quarter of its business.

Its three-prong approach is something the other major network equipment players aren’t exactly in a position to push (except for perhaps its neighbor ZTE). But even rotating CEO Eric Xu conceded that becoming a market leader in all three segments would be a challenge if not “a miracle”.

And future growth certainly won’t come from M&A. Xu pointed out that the company has relied on organic growth because it is not a listed company, so its ability to raise capital is more limited, but noted that “we will consider purchasing smaller firms with strategic value.” He ruled out a stock listing in the near future.

Within its carrier network group, the outlook, however, is far from pessimistic. Li Sanqi, CTO of its carrier business group, said many sectors had a strong upside, with LTE equipment growing 300% last year, managed services up 63%, CEM up 43% and cloud equipment/services rising 32%.

A final note. Interesting that Huawei was forced – by the “liberal” interpretation by some media of a comment by Xu – to issue a statement clarifying its position in the US. Given the realities its carrier network business faces, a spokesman said, “it would be very difficult for the US market to become a primary revenue source or a key growth area in the foreseeable future.”

Xu’s comment “we’re not interested in the US market” somehow got interpreted to mean it is “pulling out of the US” (TechCrunch) and “has given up its quest to conquer the market” (FT).

Even though Li told the media gathering later in the day that the US is not a focus now, seems no one bothered to ask for clarification on exactly what “not interested” means.

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Categories: Other Posts · Telecom Equipment