Huawei eyes 15-20 percent growth in 2012

Chinese telecom equipment vendor expects this year's revenue to beat last year's, with Android mobile devices and cloud computing cornerstones of its long-term strategy, execs share.
Written by Kevin Kwang, Contributor
A clarification was made to this story. Read below for details.

SHENZHEN--Huawei Technologies has forecast it will grow 15 to 20 percent this year, faster than 2011 when revenue rose by 11.7 percent to hit US$32.3 billion. The company is targeting to gain market share in its core business units, and counts among its strategic advantages the control of its manufacturing supply chain.

The company expects growth to be partly driven by its new units, as it emerges from its current "transformational phase" to its longer term plan of becoming a US$100 billion company by 2020. When that happens, all three core business units--carrier network, consumer, and enterprise--are expected to contribute an equal share toward that sales revenue figure.

Scott Sykes, vice president of corporate media affairs at Huawei, told ZDNet Asia in an interview Tuesday that while its devices and enterprise business units were only created in 2011, the company has been heavily investing its resources into not just developing new products but intensively hiring employees to form the foundation for the two departments.

In fact, just under 30,000 new hires joined the company last year, and of that, 18,000 went to the new units as the Chinese company ramps up its organizational revamp, he pointed out. In 2011, it had also poured in 23.7 billion yuan (US$3.76 billion)--32.4 percent more than the previous year--into its research and development (R&D) efforts, in part to speed up the product development and time-to-market for the two newer units.

According to Huawei's financial report released Monday, the company reported sales revenue of 203.9 billion yuan (US$32.4 billion) in 2011, which was an 11.7 percent spike from 2010. However, net profit dropped 53 percent to 11.6 billion yuan (US$1.9 billion) last year.

"The downward spiral in the global economy, combined with other factors like political turmoil in some regions and exchange rate fluctuations, has impacted our company this past year," said Ken Hu, the company's deputy chairman and one of its three rotating CEOs, in the report.

Sykes added that the drop in profits could also be partly attributed to the additional investments made on getting the two new business units off and running.

Need for diversification
Huawei's need to diversify from its existing carrier network business can be seen in its slowing sales revenue growth. The world's second-largest network equipment provider saw sales climb by 5.2 percent year-on-year, after factoring effects of exchange rates, to reach 150.1 billion yuan (US$23.8 billion).

Eric Xu Zhijun, current acting CEO at Huawei, explained during a question-and-answer session held in conjunction with its global analyst summit here on Wednesday, that telcos' capital expenditure (capex), particularly on networking gear, was not likely to increase very much in the future and would impact the company's overall carrier network business.

There were two reasons for his prediction. Xu said that in certain markets such as China, where operators' existing infrastructure continues to have a high ceiling for growth in network traffic, there is no pressing need to upgrade their hardware.

Secondly, telcos are also banding together to form consortiums in order to have a better bargaining position to drive down procurement costs for such equipment. This can be seen in Europe, and can explain why profit levels of vendors such as Ericsson and Huawei have not been high, the executive explained.

Aspiring to be No. 3 Android handset maker
Asked what the company's plans are to make its presence felt more keenly in a mobile market it still has limited clout in, Sykes acknowledged that Huawei was new to the game and "needs to get better in every part of the business".

However, this did not stop him from stating that it aimed to be the third-biggest Android handset manufacturer globally in three to five years' time. This meant climbing up from its present position at eighth, leapfrogging competitors such as Sony Mobile and Motorola Mobility, and coming in just behind Samsung and HTC, he added.

In terms of key markets the company was eyeing, he said Europe continues to provide "plenty of opportunities", even as regional rivals such as ZTE and Panasonic plan to lay their claims on the region, too.

Within Asia-Pacific, Singapore, Australia, India, Indonesia, Japan, and Vietnam had been identified as the primary focus markets for Huawei to expand their presence in, the vice president said. Japan, for example, is an attractive destination because local consumers are no longer looking only at Japanese mobile phone brands, but at foreign alternatives, he pointed out.

Xu also pointed out during the Q&A session that Huawei will not need to resort to money-losing marketing campaigns to boost sales of its smartphones and other mobile devices, despite the competitive nature of today's market.

This is because it has control of the manufacturing supply chain, particularly in terms of chipsets, the acting CEO pointed out. The company's wholly-owned subsidiary HiSilicon Technologies, formerly known as ASIC Design Center of Huawei Technologies, now produces chipsets for the Chinese vendor's devices but it has no plans on selling these chips to third-party vendors.

"HiSilicon's chipsets are for use in Huawei products. We do not anticipate reselling these chipsets. We value our relationships with partners such as Qualcomm and Texas Instrument," clarified the company's chief marketing officer, Shao Yang, in a separate statement.

Gaining enterprise buy-in
On the enterprise end, David He, president of marketing for Huawei's enterprise business group, expressed similar positive growth sentiments. While the unit showed 50 percent growth to rake in US$1.5 billion in 2011, it has plans to bring in 10 times that amount in contract sales by 2015, he stated during a separate interview session on Tuesday.

To do so, he identified four core areas the group is looking to capitalize on: cloud computing and data center; networking; unified communications and collaboration (UC&C); and security.

Cloud computing, in particular, will form the cornerstone for Huawei's push into the enterprise space, just as Android is for its consumer business counterparts. He pointed out that cloud might be a relatively new product line for the company with less than five years of history, it will form the backbone of its "cloud, pipe, and device" strategy to provide IT services from the backend to frontend staff.

Elaborating further, Catherine Du, director of branding department at Huawei's IT product line, said the cloud services the Chinese company is offering lies in infrastructure and storage. For instance, by integrating storage, networking and server technologies, it can offer virtualized desktop infrastructure (VDI) services to its customers.

Zooming in on virtualization technology, she mentioned that Huawei has an ongoing partnership with Citrix to use its Xen hypervisor. That said, the company is also spending a chunk of its R&D allotment into developing its own hypervisor based on bare metal hypervisor. The bare metal hypervisor is equipment- and platform-agnostic, she explained, and can be used as the operating system for the various products it plans to offer to six key vertical industries: government and public sector; corporate; energy; power; transportation; and finance.

This hypervisor should be ready and available by the second half of the year, the director added.

The company's enterprise business group is also looking to preinstall certain apps on top of the infrastructure products it is offering, Du noted. These include data mining and high-performance computing (HPC) applications based on Hadoop that it is currently developing, which will be ready for testing by end-2012 and made available by the first quarter of 2013, she said.

Ultimately, Huawei's three-pronged approach toward diversifying its core business and establishing itself as a global multinational company of worth will rest on its heritage and strength of innovation, Xu pointed out.

This is why the company has earmarked another US$4.5 billion for its R&D arm in 2012 to support its business initiatives, and aim to achieve overall revenue growth of between 15 percent and 20 percent this year, he said. The executive declined to reveal the breakdown of its investments, though.

Kevin Kwang of ZDNet Asia reported from Huawei's Global Analyst Summit 2012 in Shenzhen, China.

Clarification: The article initially stated that Huawei will not lose money in its mobile devices business as it can recoup any possible losses through the sale of its chipsets to third-party vendors. Huawei has, however, clarified that the chipsets produced by HiSilicon will only be used in its devices and will not be resold to other device manufacturers. The story has been updated to reflect this.
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