“THE last time there were so many people down by here, the Rolling Stones were in town.” So declared one of those attending an unusual gathering this week in a vast auditorium along the shores of Shanghai’s Huangpu River. The music was blaring, the coloured lights flashing and the ceiling shimmering, but this was not another rock concert. Astonishingly, the enthusiastic throngs—10,000 squeezed into the venue and another 13,000 joined in via streaming video—had gathered for a technology conference.
The gig was organised by Huawei, a Chinese maker of telecoms equipment, which used the occasion to unveil a new business strategy. As they strode across the stage in front of a video screen nearly as wide as a football pitch, Huawei’s bosses declared their aim of making their firm the world’s leading information-technology (IT) company. In the first stage of this, Huawei plans to increase its sales of servers, storage and other data-centre equipment by a factor of ten by 2020. Last year such products brought in only about $1 billion of Huawei’s total revenues of $39 billion.
It is an audacious goal. It pits Huawei against such titans as IBM, Cisco and HP—innovative giants with deep customer relationships and comprehensive offerings that Huawei cannot yet match. Then again, a decade or so ago Huawei faced a similar challenge in telecoms equipment and has grown to become one of the world’s dominant vendors. It has also become big in smartphones. Evan Zeng of Gartner, a consulting firm, says Huawei starts with an edge in China’s fast-growing market, where state-owned firms favour domestic suppliers. That said, it has some strong local rivals, notably Lenovo and ZTE.
Bryan Wang of Forrester Research, another consulting firm, says Huawei is taking on this daunting challenge because the telecoms-equipment market has become saturated and is set to grow only sluggishly. The IT business is also crowded. But it is a far bigger market than telecoms equipment, and Huawei, since it has such a small share of it, has enormous scope for growth.
In an attempt to keep the company nimble, Huawei recently introduced a system in which three of its bosses take turns, six months at a time, at being the chief executive. Guo Ping, who is in charge at the moment, argues that the telecoms operators that are now his firm’s main customers are embracing cloud computing, so it makes sense for Huawei to make sure it can provide all the gear they need to do so.
Second, Mr Guo argues, the long-predicted convergence of the telecoms and IT businesses is finally happening. The switching of telecoms and internet traffic will no longer require so much of the costly, specialist hardware that Huawei now makes. Increasingly, the job will be done by software, which will run on cheaper, standard IT equipment—what is known as “software-defined networking”. Huawei is seeking to get ahead of this disruption of its core business by being a disrupter itself.
There are good reasons to think Huawei may be up to the challenge. As a privately-held company, “its managers don’t have quarterly pressure, and can invest for the long term,” notes Mark Gibbs of SAP, a German software firm that works closely with Huawei. Ryan Ding, Huawei’s head of product development, recalls that his firm stuck with its efforts to penetrate the markets for routers and LAN switches—two important bits of telecoms gear—despite losing money on each for more than a decade. Likewise, this year it is pumping $600m, or more than half of its entire revenues from IT products, into researching future ones.
Huawei is a proven innovator entering a bloated industry, ripe for change. Its bosses speak clearly and compellingly about what innovation is for: not to win Nobel prizes, or plaudits in the media for the “coolness” of its products, but to create value for customers. To this end, Huawei stations armies of engineers at 28 “joint innovation centres” at customers’ sites around the world. “My guys don’t just ask the customer what he wants: they go to the field site together, do the installation together, and figure out together how to increase efficiencies,” boasts Mr Ding.
The American and European giants of IT have been put on notice. Mr Wang of Forrester says Huawei has already shown it can deliver a potent combination of price, service and customisation. That is why he feels sure it will disrupt the IT business just as it did with telecoms.
via Huawei: The great disrupter’s new targets | The Economist.
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