Managing Partner Ray Mota talked to SearchTelecom.com Executive Editor Kate Gerwig about
Huawei, the Chinese telecom equipment vendor with a long-term global domination strategy and
under-the-radar enterprise networking aspirations. In part one on Huawei
and the Art of War, Mota discussed Huawei in terms of Chinese business culture and the
company’s long-term goals. Here Mota turns his attention to why network equipment vendors should be
very aware of Huawei’s moves in the telecom service provider market and Huawei’s plan to move into
enterprise networking under the radar.
Should carriers and vendors get beyond categorizing Huawei as the lowest-priced equipment vendor?
Mota: Thinking that Huawei is cheap is a mistake for carriers. In some parts of the network, Huawei gear makes a lot of sense, and in others it doesn’t. A lot of carriers are making the mistake of looking at the short-term capex investment, but they don’t understand the risk of customization and longevity.
Huawei wants to be the number one networking vendor period, for enterprises and service providers.
When Huawei structures a deal, in some cases, you’ll see it come in 30% to 45% cheaper than
anybody else out there. But carriers make the mistake of focusing on the initial price. Huawei does
a good job on lack of transparency, so you really don’t know the true cost of certain things
because everything’s bundled in. In the second and third year, you realize it’s more expensive than
you thought. People make the mistake of thinking Huawei is a low-margin company, and it’s not.
That’s the Art of War.Huawei is taking advantage of a certain lack of planning by a small number of
carriers that don’t know where they’re going to be in two years. Huawei goes in and says, ‘Why not
buy a Huawei network?’ For those guys, that advice makes a lot of sense. But in the long
term, they’re getting burned because when you look at how much black-box customization is needed,
that network is actually costing you more in a three-to five year cycle.
What do service providers think about Huawei?
It used to be the low-priced vendor, and there was a big technology gap in the past, but that gap is closing little by little. It has four or five LTE [Long Term Evolution] trials going on in North America alone. But it’s not penetrating in the intelligent part of routing. One of the surprises was how much optical penetration they have in North America. And because Huawei has access to capital from China Development Bank, they can offer credit terms that are outrageous. I’ve heard numbers like $500 million to billions, and that’s not folklore.
Are vendors afraid of Huawei?
Vendors are starting to realize that they discounted Huawei in the past and now take it more seriously. The question is, can you stop this elephant now? They know that certain carriers have no intention of using Huawei but use it to lower the overall margin of the deal. Then you have certain vendors like Alcatel-Lucent and Ericsson that do a tremendous amount of outsourced managed services and run entire networks in some cases. There may be a Huawei piece they’ve inherited, and it’s really early code, so the cost of managing it becomes more expensive than they thought initially.
Will Huawei branch out from telecom equipment to the enterprise market?
Huawei is actually coming out with a very aggressive enterprise strategy that it really hasn’t
announced to the world yet. It has a data center solution and a branch routing solution. But
another Huawei Art of War strategy is to understand that there are a lot of carriers in managed
services, and CPE
devices are becoming more commoditized from a managed service perspective. So Huawei wants to
offer a high-feature CPE device at a very low price. What does that have to do with the enterprise?
The point is that because the devices are getting so cheap, lots of carriers are putting CPE
devices out there from second- or third-source vendors in a managed service offering. The mindset
is that enterprises will have seen the CPE in the wiring closet, where it is branded Huawei. It’s
just like everyone knew who Scientific Atlanta was when Cisco bought it because they knew the name
from their set-top boxes. Huawei wants to go in under the radar, and it’s working on all of these
deals as a second or third source. And when they attack, people will know who they are.
Is Huawei’s plan global dominance?
Yes, absolutely. It literally has the intention of becoming the number one vendor for service providers. Huawei wants to be the number one networking vendor, period, for enterprises and service providers. When you have access to so much capital, you don’t have to care too much about short-term pricing. It’s a long-term investment.
Turn back: Read part one of the Q&A on Huawei, Chinese business culture and the Art of War.
This was first published in December 2010