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Huawei And Shenzhen: A Tale Of Two Successes
- Apr 24, 2018 -

Last week, I visited Shenzhen, China, for the first time to attend HAS 2018, Huawei ’s annual analyst summit. I’ve been to many other cities in the country, including Beijing, Dongguan, and Shanghai, and while each has their own unique appeal, I found Shenzhen to be different. In Mandarin, the city derives its name from “shen,” which means “deep,” and “zhen,” which means “irrigation ditch”—aptly named, given its heritage as an agrarian, rural market town along the Kowloon-Canton Railway. Shenzhen has long been a center of manufacturing, but over the years it has also become a vibrant and growing hub for start-ups and entrepreneurs. Formally established in 1980, it’s a relatively young city (younger than me!). The first of six Special Economic Zone (SEZ) cities (in which China allowed a free market economy to foster foreign collaboration), it’s grown from 30,000 in 1980 to an astounding 16 million residents today—an impressive statistic by any measure.

Huawei has grown alongside the city over the course of the same time period. Founded in 1987, Huawei recently surpassed Ericsson to become the largest provider of telecommunications equipment in the world. As Huawei approaches nearly $100B in revenue, it is becoming a globally recognized brand. After spending time with the company at HAS 2018, I would like to share my thoughts and perspectives on some of the areas that I cover as a global telecommunications analyst.

So it’s not all about 5G?

Huawei divides its interests into three core business units: carrier, enterprise, and consumer. Looking back at 2017, the company reported relatively flat earnings for its carrier unit, which includes the wireless infrastructure that powers current 4G LTE and future 5G networks. However, both enterprise (which includes wired and Wi-Fi networking solutions) and consumer (which includes handsets, PC, and tablets) both grew by over 30%. Those are tremendous achievements, considering global PC sales are anemic and enterprise networking is becoming a crowded space.

I also found the opening comments made by Eric Xu, current rotating CEO for Huawei, to be quite interesting. He downplayed the company’s focus on 5G, claiming that beyond faster speeds and lower latency, there is a lack of compelling use cases relative to 4G. I don’t entirely agree with that statement, and I’ve written about 5G uses cases if you care to read about them here. The chairman spoke instead to the growing importance of AI and multi-cloud to eliminate human error in the carrier and enterprise spaces.

Could the diminished enthusiasm for 5G be related to the company’s relatively flat recent financial performance in that sector? Perhaps, but automation is key to reducing error and improving network performance. From the time I’ve spent with operators, large carriers, and enterprise companies, I’ve learned that automation is a slippery slope. Operators and carriers fully embrace automation to ensure high quality of service and reduce subscriber churn and loss to competitors. Enterprises, on the other hand, are reluctant to fully automate and prefer to relinquishing control slowly, out of fear of any negative business impact. It’s an interesting dynamic and one Huawei will need to navigate differently to be successful.