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Posted by Henry Dewing on May 9, 2012
Henry Dewing with Dan Bieler, Katyayan Gupta, Tirthankar Sen, and Bryan Wang
Buldings on Huawei's Headquarters Campus in Shenzen, China
- Huawei continues its drive for more financial openness and transparency. In an effort to shed the image of a secretive non-listed company, Huawei provided detailed information about its financial and operational performance. In 2011 Huawei grew revenues by 12% to reach US$32.4bn and EBIT by 9% to US$3bn. The main regional growth was registered in Latin America, while a 9% cash margin was the result of their investment levels – particularly in the enterprise space. These financial figures paint the picture of a company that is still enjoying strong growth and sufficient free cash-flow to fund its expansion and innovation.
- Huawei places main growth emphasis on enterprise business and device business. These market segments represent a potential target market with a combined value of about US$1.7 trillion, compared with the carrier equipment market value of about US$150 billion. Huawei is building up the pressure in the enterprise business and device space. Huawei repeatedly pointed out the early-stage nature of its activities in these areas. It even felt as if Huawei consciously played down its ambitions in order to downplay expectations. However, of course, expectations regarding Huawei’s enterprise business and device activities amongst market observers are high. It is expected that Huawei’s financial performance will improve as the enterprise business group starts generating larger revenues in the coming years.
- Enterprise Business opens up huge opportunities. The Enterprise Business division was set up only in 2011, reported sales of about US$1.6bn and has about 20,000 staff up-to-date. The core product areas for its enterprise push are networking solutions, security offerings, unified communications and collaboration (UCC), and cloud data centers. The publicly stated vertical focus is on the public sector, power and energy, finance, retail and transportation – including large enterprise to SMB. In 2011, the two largest contributors were the public sector and the SMB segment with more than 50% revenue share. Huawei is leveraging cuurent and past successes in delivering solutions directly to large enterprises to drive growth. Huawei offers a complete set of enterprise networking products including routing and switching, servers, storage, security, virtualization, and professional services. Huawei’s storage solutions include NAS and SAN technologies sized to meet the needs of SMBs for large public cloud deployments.
- Unifed Communicatiosn and Collaboration is Core. UCC activities form an important part of the enterprise solutions. Leveraging its experience in enterprise voice when it was started back in 1987 as a PBX reseller, Huawei has developed a set of sophisticated enterprise-wide UCC solutions branded eSpace. eSpace, comprises UC and IPT solutions including SIP session management, IP telephony and mobile clients able to provide horizontal enterprise communications solutions or integrate with contact centers and conferencing solutions. Moreover, Huawei offers a range of telepresence solutions from high-end to room-based solutions. In total, in 2011, Huawei shipped 1,500 telepresence endpoints, making them a major vendor of this solution category. Going forward, Huawei’s UCC activities focus on delivering solutions to industry verticals, including e-learning as well as mobile-banking. Huawei also provides video-bridging solutions to bring together Huawei and other vendor endpoints into scheduled multipoint meetings and ad-hoc point-to-point calls. The Bank of Northeast of Brazil, which has adopted Huawei’s UCC solutions for their IP Contact center as well as for bank employees, is a Huaweis success story using mobile UCC on Blackberry and desktop IM and presence solutions. Another customer of Huawei’s IP Contact Center is China Merchants Bank, whose 2,000 agents handle 200,000 calls per day. Leveraging Huawei’s carrier experience, it is able to offer large enterprise and public sector customers with proprietary transport and radio communication networks. It has already demonstrated its capability with government, railway, and energy exploration companies.
- In a highly competitive market, Huawei has to move swiftly in its GTM.Today, Huawei has three broad routes-to-market targeting the enterprise users. Huawei’s own direct sales channel delivered 35% of their revenue in 2011, certified channels with 47% share was the largest contributor and finally their long standing carrier partners delivered 18% of the revenue. Further, the certified channel model is divided into Global OEM Partners, Value Added Partners (VAP), which caters to large enterprise accounts and a two-tier distribution model for the SMB segment. The company plans to have around 1-2 distributors per country. There are four things Huawei needs to focus on:
First, branding should be the key focus: a major focus for Huawei this year should be to invest on creating value for its brand and products. Not only will this strengthen the brand value which is currently lower compared to other competitors but also help its channel partners to see value in their relationship with Huawei.
Second, Huawei needs to create value for channel partners: with a shrinking channel partner community and facing established channel relationships with competing vendors, Huawei needs to talk more than just margin and growth when it recruits partners.
Third, Huawei should focus on the SMB segment which will be key: In line with its strategy to target the emerging markets, Huawei needs to focus on the SMB segment as strategy to quickly gain market share and foothold in a market. The SMB installed base, will help them target other segments in that country.
Fourth, Asia is an important market: Asia Pacific (other than China), with its large SMB presence, can be highly lucrative market for Huawei. With its HQ in China and manufacturing base in this region, Huawei has cost and cultural advantage in this market.
- Huawei must strengthen its go-to-market strategy for its enterprise business. With more than 40% of Huawei’s current business coming from China, Huawei has to continue to fine tune its go-to-market model, bulding channels integrations and solutions architecture capabilities to swiftly penetrate markets other than China.
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