Analysis: Huawei takes to the open ROAD

Huawei has implemented a strategy based on its view that the digital age will be driven by a real-time, on-demand, all-online, DIY, and fundamentally social user experience, writes IDC Australia's Hugh Ujhazy

In 2014, Huawei generated CNY 288,197 million (US$46.5 billion), a year-over-year (YoY) growth of 20.6%. Of that, Huawei invested over 14% of its revenue back into research and development. The company is organized around three major business units consisting of carrier networks, consumer, and enterprise.

In an effort to maintain its growth momentum and challenge existing players in its key markets, Huawei has adopted an open cooperation model as its core strategy along with a desire to improve value to its customers across all three lines of business.

This year, investments in collaboration with partners will also increase fourfold compared with 2014. Three additional goals for the coming year revolve around focus on service, improvements in management efficiency, and Internet of Things (IoT).

Although almost 70% of Huawei business is derived from its carrier customers, both enterprise (27.3%) and consumer business (32.6%) demonstrated a double-digit growth YoY.

Huawei's enterprise business unit provides ICT networking, infrastructure, and services to the company's telecommunications and enterprise customers. The enterprise unit's offerings are made up of enterprise networking, enterprise wireless, datacenter infrastructure, cloud computing, and unified communications and collaboration (UC&C).

Overall, Huawei's global revenues in 2014 remained heavily weighted toward the AP and EMEA markets. Even though 15% of overall revenue came from the Americas in 2014, showing an improvement over 2013, much of this came from Central and South Americas, providing tremendous growth potential in the lucrative North American market if Huawei can overcome its China heritage and brand awareness challenges in that region.

Taking the open ROAD

A keynote by William XU, chief strategy marketing office at Huawei's 12th Annual Global Analyst Summit last month discussed the challenges brought about by the new industrial revolution and the changes wrought in Huawei's strategy as a result of that transformation.

The fourth industrial revolution is a digital transformation being driven by ICT. Huawei produces a global connectivity index report on an annual basis. In 2014, the report has been expanded to cover over 50 countries and encompass over 90% of global gross domestic product (GDP), 75% of world population.

The study assessed supply and demand for connectivity across four dimensions — availability, bandwidth, affordability, and ease of use. It also extended to 38 indicators to cover the ICT sector, including datacenter, ecommerce, and egovernance factors. The study ranked Singapore as number 3 among developed countries. China was in the middle of developed countries, ranking 20th overall, but ranked second in the developing economies.

The study found out that a 20% increase in ICT investment increases overall GDP by 1%. Huawei also noted that by 2025, the company expects to see over 100 billion connections globally, of which 55% will be applied to industry and enterprises, 22% to consumer-facing smart lifestyle, and 18% to drive smart homes.

In the face of these numbers, Huawei has implemented a strategy based on its view of the ultimate user experience — that the digital age will be driven by real-time, on-demand, all-online, DIY, and fundamentally social user experience. This is summarized as ROADS and its components are as follows:

• Real-time — 24 x 7 delivery over sufficient bandwidth for the task with zero or minimal wait time

• On-demand — services bandwidth can be customised to meet user needs

• All-online — all devices can be always online

• DIY — customized apps and services to meet the needs of the user without intervention from a third party. It satisfies the define-our-own-network requirements model

• Social — for those who cannot afford to live in a world without social network

The ROADS strategy affects Huawei's view of future networks and drives a series of changes in its approach to developing and delivering ICT solutions.

• The new network architecture must be cloud datacenter centric. Huawei's Service-Driven Distributed Cloud Data Center (SD-DC2) defines the company's awareness of the need to support management and orchestration across multiple interconnected datacenters, based on the needs of the service that is being delivered.

• The future network must be based on the cloud datacenter. This view points to the fundamental awareness that the cloud and network are inherently interdependent.

• The network should be flexible and capable of elastic scaling. To support the demands of a software-defined compute and storage layer, the network should be flexible and capable of elastic scaling. Since it is unrealistic to build one huge physical datacenter to deliver all services, workloads need to be distributed across geographically diverse datacenters, but connected into one or more logical datacenters from a management perspective.

Huawei's network architecture entitled SoftCOM has been developed in recognition of the complicated existing carrier architectures that were highly inflexible. The architecture adopts both SDN and network functions virtualization (NFV) technologies based on open standards to deliver open, flexible, and highly customisable networks.

• There will be an explosion of clouds. There is an increasing number of public and private clouds resulting in hybrid cloud strategies for most enterprises. Huawei envisages solutions that support both private and public cloud across one architecture, allowing migration across public and private clouds.

• The new technologies require new operational models. Huawei's Telecom OS recognizes that the carrier network must be as open as cloud and other digital offerings. The Business Enablement Suite (BES) supports third-party applications, is open to partners, and offers customized business environment while delivering the on-demand and DIY aspects of the ROADS vision.

In implementing the ROADS strategy, Huawei recognizes the need to adopt an open, collaborative strategy to work with industry experts, carriers, and providers. It is already active in strategic alliances like ONOS, Open Daylight, and OPNFV.

Future outlook

For the carrier business, the company will continue to focus on global traffic hubs, information technologies, and the building of its services capabilities. This will not solely be a journey for Huawei, but also for its partners to transform their service offerings from problem solving, to one of life-cycle management of services. Huawei aims to be the industry leader and carriers' preferred partner in their transformation journey.

Read more: Fastrack goes virtual for networking

In the enterprise space, it will leverage its technologies strength especially around cloud computing. The enterprise unit is targeting an expansion in its partner and developer ecosystems, to drive the construction of value-added applications to sit across its various platforms.

Huawei is hosting the first Huawei Developer Forum in October 2015, targeted at app developers, ISVs, systems integrators (SI), consultants, as well as IoT partners, to encourage ecosystem-based innovations.

To support this, investment in partners is planned to increase fourfold over 2014, with strategic alliances with leading application providers (SAP presented a keynote on this cooperation) and industry-focused cooperation with upstream and downstream partners.

For consumer, Huawei is focused on the long-term development of its offerings and the delivery of profitable growth as opposed to scale. A stated commitment to improve the customer experience is leading to plans to roll out 70,000 Huawei branded stores worldwide by 2018, with half of that number outside China.

Finally, to support the rollout, Huawei is aiming to both attract and retain talent with increases in headcount and additional spend on employee benefits.

Overall, Huawei has stated a goal of reaching US$70 billion in revenue by 2018, only three short years away. This requires almost a doubling of existing revenue, with the majority of that revenue coming from growth in the enterprise sector.

Challenges of existing network equipment suppliers and IT suppliers will be significant, as achieving such a number will require sustained YoY performance improvements. Given previous year's performance numbers, this target looks sustainable, but with the carrier market offering's slower growth and the consumer market becoming saturated in the smartphone space, gaining sufficient traction in the enterprise space may be challenging.

Huawei's SDN solutions are firmly based on the open standards (OpenStack, OpenFlow, and OPNFV) and they have been involved in the development of an open network operating system (ONOS) in conjunction with academic institutions like Berkley and MIT.

While all these moves can be seen in a positive light, Huawei is still perceived as a provider to developing markets and a low-cost provider globally. This long-term perception, starting from the service provider segment, has influenced perceptions in the enterprise space.

In Australia, Huawei has equipment in place across some of the major network providers, offering solutions to drive their core network. Huawei's desire to expand its penetration in carriers is demonstrated by its Telecom OS, combining on-demand and self-service solutions for open source software/business support system (OSS/BSS) lines of business.

Such a solution competes against OSS/BSS providers like AMDOCS, Ericsson, and others. Challenging embedded OSS/BSS solutions are a difficult sell, but Huawei's offering of a telco-focused Big Data and analytics (BDA) solution may be a path to success in this area.

Having developed an extensive knowledge base and analytics data structure, Huawei points to successful implementation of analytics in telcos in which time to solution is measured in weeks rather than months or years. Their solution circumvents the traditional extensive mapping and data transformation steps that normally characterize these projects by offering packaged capabilities, albeit focused on Huawei equipment.

Similarly, Huawei's penetration in the enterprise segment (one which the company recognizes as a key to its continued growth) is minor compared with its market competitors. It also lacks the extensive partner and distributor networks enjoyed by dominant players like Cisco, HP, and Juniper. That said, Huawei has worked hard to build portfolios of hardware and software to compete product to product with those players.

Maintaining its growth trajectory will be founded upon realizing the following goals:

1. Expand brand awareness to move from a perception of "low-cost" provider to "high-value" partner'

2. Achieve growth in the partner and reseller go-to-market strategies, especially in key markets such as North America

3. Formalize relationships with developers to build app ecosystems in key areas such as cloud services, UC, and WiFi/mobility

4. Create a more open R&D model to leverage innovations into cloud, social, and core carrier business areas

5. Foster the development of a broader services portfolio outside of China

IDC's essential guidance

Huawei will continue to grow as a viable ICT solution provider to enterprises and carriers. The reasons for this growth are related to significant IT investments and the transformation of Huawei from network equipment provider to full ICT solutions provider.

The adoption of the ROADS strategy and the delivery of solutions founded upon it will be key to building long-term, viable partnerships with enterprises, carriers, and service providers.

IDC agrees with the vision that coalesced at the analysts' event, even though Huawei's ambition to present a view of every nook and cranny of its portfolio made the pace and content of the three days somewhat breathless. However, IDC is heartened by the constructive attitude that permeated from both the presentations and the informal discussions.

While all who spoke from Huawei recognized the scale of the challenges to technology, operations, processes, organization, and business models, there was also a conviction that these hurdles are surmountable with mature and committed leadership as well as healthy collaboration among SPs, vendors, partners, and customers.

Huawei's management team showed confidence in their ROADS strategy and its ability to build the necessary service and distribution models to bring the strategy to fruition in the market. From what we heard at the analyst event, it seems that Huawei is in alignment with its customers on the tasks ahead.

Enterprises and service providers looking for an ICT partner should consider the following:

Huawei's product portfolio especially in the cloud and wireless LAN arenas are extensive, backed by a commitment to open standards and a solid R&D investment strategy.

Customers should discuss the relevant product road map and look at services components that are/can be wrapped around Huawei's product.

Huawei can leverage its expertise in cloud computing, enterprise networking, mobility, video, and unified communications and collaboration (UC&C) solutions — and further build out its partner base — to ultimately help enterprises and SPs in addressing the demands for flexible delivery of solutions to their customers globally.

Hugh Ujhazy is research director, telecommunications, at IDC Australia.

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