As always each year, Huawei hosted its analyst event in April, with hordes of analysts descending on Shenzhen. Here are a few observations from the event:
In 2015, Huawei’s revenues grew by 37% to €61 billion and its EBIT grew by 34% to €7 billion, keeping the operating margin stable at just under 12%. Huawei’s strategy paid off across all of its divisions in 2015. Huawei’s Carrier Business pushed deeper into carrier transformation support and grew by 21% in 2015. Its Consumer Business operations entered the mainstream: The division grew by 73% in 2015, with Huawei gaining the No. 3 spot in the global smartphone league table. Huawei’s Enterprise Business is gaining traction and grew by 44% in 2015.
There are four distinctive aspects that go some way to explaining why Huawei keeps on outgrowing its peer group. First, Huawei’s heart beats in its R&D division, and most of Huawei’s top managers have come through the ranks of the R&D team. Second, Huawei benefits from strong internal collaboration and flexibility. Compared with other vendors, Huawei seems a lot less process-driven. Instead, Huawei seems to tolerate, even encourage, self-organization among employees — despite strict management hierarchies. Third, Huawei has a flexible and unconventional approach to customer experience. Huawei completes projects that overrun without overanalyzing whose fault it is. Fourth, Huawei is not listed and therefore not answerable to external shareholders. This gives it the freedom to experiment and take a long-term view.
At its recent analyst event, Ericsson outlined its strategy, product, and service ambitions. Ericsson remains the overall benchmark for network infrastructure vendors. The company has a leading market position in the growth segments of mobile broadband and network services and delivers a solid financial performance — despite the disappointing Q3 2012 results. Still, in my view, Ericsson has several challenges that it needs to address:
· The cloud strategy is built on a questionable assumption.Clearly network infrastructure is becoming more, not less, important for cloud-based solutions. Ericsson therefore assumes that carriers are well positioned to be cloud providers. But CIO perceptions suggest otherwise. CIOs tell us that carriers are far from the preferred choice for cloud-solutions (see Figure 9 in the “Prepare For The Connected Enterprise Now” Forrester report). Carriers therefore need help in addressing the potential of cloud computing. For instance, Ericsson’s cloud solutions ought to help carriers cooperate with cloud partners regarding embedded connectivity in devices and applications.
At its 2011 Analyst Event in Boston, Nokia Siemens Networks (NSN) outlined more details of its recently announced strategy review. In our view, the new focus NSN is taking is right. NSN is focusing on growth segments of the infrastructure market and will generate large savings from operating expenses and production overheads. In addition to its focus on providing the most efficient mobile broadband network infrastructure, NSN also highlighted the importance of customer experience management (CEM) as an integral part of its strategy.
NSN also provided more guidance on which market segments it no longer considers core. These include wireline, microwave, Wimax, perfect voice, and business support systems. Some of these, microwave and Wimax, it already spun off. NSN estimates that the overall revenue impact of its non-core disposals will total 10% of its current revenue base. The impact on profit will be less than 10%, as these non-core disposals are low-margin operations.
NSN believes that telcos increasingly demand end-to-end solutions from their equipment vendor partners. No equipment vendors can credibly deliver such end-to-end solutions on their own. Hence, NSN is positioning itself as an ecosystems manager for end-to-end solutions. As part of its innovation drive, NSN increasingly focuses on devising concepts for solutions rather than simply focusing on product upgrades. For instance, Liquid Net is a concept for network infrastructure design that supports a more efficient usage of underutilized infrastructure capacity based on a range of NSN products. Similarly, NSN places great emphasis on its CEM solution, which helps telcos to transform their services offerings by enhancing network-related features that affect customer experience and satisfaction.
Nokia Seimens Networks’ top management has finally pulled the emergency brakes, after months of unsuccessful attempts to find a buyer. Going forward, NSN will focus on mobile network infrastructure and the services market. All other areas are non-core and subject to disposal. We estimate that about two-thirds of NSN’s current portfolio will remain in this new focus area. NSN will retain an attractive product and services portfolio and innovative solutions, as for instance its Liquid Net offering. However, some elements, like convergence offerings, will be difficult to pursue credibly in the future.
In our view, the new focus NSN is taking is right:
NSN is focusing on growth segments of the infrastructure market. NSN aims to provide the most efficient mobile networks (including network outsourcing and sharing) to extract maximum value for telcos’ operations by developing intelligent network solutions and boost customer experience management.
NSN will generate large savings from operating expenses and production overheads. NSN targets savings of €1 billion annually by the end of 2013. NSN tries to achieve this goal be focusing on organizational streamlining, real estate, information technology, product and service procurement costs, G&A, and supplier consolidation. Despite good revenue growth in recent quarters, NSN’s revenues per employee remain well below that of Ericsson’s in 2010 and even lags Huawei’s. NSN’s plans to reduce its global workforce by 17,000, or 23%, will go some way to address this imbalance.