Huawei Global Analyst Summit: Day One – Services in Support of Operators, Verticals and Revenues

Peter Jarich

Peter Jarich

When rotating CEO Erik Xu took time on the opening day of Huawei’s Global Analyst Summit to share his vision of where the vendor was going, a few messages were very clear. The “PIPE Strategy” would deliver the focus needed to keep Huawei from suffering under unproductive R&D sprawl. Being close to customers (consumer, enterprise, carrier) has been core to Huawei’s success and it will remain so going forward. Financial stability and success help set up Huawei to be the long-term partner operators are seeking.

Less straightforward was the message around services Huawei offers to its carrier customers and how its services portfolio fits into supporting new customer targets. To be sure, Huawei spent plenty of time talking about services and new market opportunities. Piecing these messages together, however, tells a bigger story.

– Services: Soon to be Huawei’s #1 Carrier Biz. In 2013, Huawei’s carrier business was its top revenue generator, accounting for 69.7% of its turnover. Within this business, wireless came out on top (32%), followed by services (31%). Looking forward, Huawei said it expects to see the services business grow 17% in 2014. TD-LTE builds in China should be good for its wireless business, but it seems unlikely that wireless will grow that fast for Huawei. In other words, services should be the top revenue generator in Huawei’s biggest business unit next year. For a company once seen as a low-cost “box dropper,” that’s a big accomplishment.

– Verticals: Next Best Customer Opportunity. For years, telecom vendors have talked up their ability to service the needs of large enterprises with network requirements akin to carriers. Some have talked about selling directly into vertical markets such as utilities, finances, government, etc. Some have talked about helping their carrier customers sell into verticals. Both groups are looking to verticals as a way to grow their businesses and hedge against falling service provider CapEx. Under the banner of “ICT convergence,” Huawei called out these vertical markets as a focus. Carriers will remain Huawei’s core customer base in the near term (and likely through the long term), but it would seem to hope that vertical markets will complement them more and more.

– Services + Verticals = Necessary. If the traditional story follows that telecom vendors can address vertical markets thanks to their hardware and software portfolios, then that story leaves out a key reality; without a solid services component, all of this falls flat. Systems integration services, in particular, will be needed for tailoring solutions to specific (diverse) vertical needs, combined with specific (diverse) carrier assets. Put another way, Huawei’s plans to target vertical markets would be a non-starter if its services business was not solid. Whether it is a happy coincidence or intentionally timed, the development of Huawei’s services business goes hand in hand with a focus on verticals.

To position a link between verticals and service assets as “necessary” does not imply sufficiency; services are one component of a vertical market solution, but not sufficient for success with these verticals. Since vertical solutions will incorporate carrier and enterprise products, one of the other necessary components will be coordinated go-to-market and solution engineering efforts. These efforts could be driven and supported by Huawei’s consulting and system integration arm. If Huawei intends to scale this side of its business (a good thing for Huawei and its customers, alike), it will need to productize vertical offers – and that is likely a job that reaches beyond the services business.

About Peter Jarich
Peter is Vice President for the Current Analysis Consumer and Infrastructure services. Peter and his analyst team monitor and evaluate activities in the markets for Consumer Services and Devices, Digital Media, Fixed Access, IP Services, Mobile Access, and Transport and Routing Infrastructure, Telecom Vendor Services, and overall coverage of the Mobile Ecosystem.

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