Huawei and ZTE – goals beyond telecom

MELBOURNE, AUSTRALIA: Huawei’s and ZTE’s raw ambition, eagerness to try new things and willingness to fail, support goals for the year that go beyond telecom.

The theme of Huawei’s analyst conference last month was “We see beyond telecom,” indicating its clear effort to build from its strong telecom base to penetrate adjacent sectors. This encompasses a move back into enterprise switching and routing, development of appliances for home networks and customized terminals, a range of professional services, and helping customers develop secure and open application storefronts.

In addition to Alcatel-Lucent, Juniper and others are also pitching this to carriers. What’s behind this, Huawei says, is its aim to help service providers owning pipes to turn them into “golden pipes” (more profitable ones) by linking them into higher-margin services layered on top, as well as at the edges, of the network with customized home networking devices or smartphones/tablet computers.

“Huawei has the right technologically creative and ambitious spirit to enter these adjacent markets, but it is a fairly big risk,” said Matt Walker, Principal Analyst. “The cast of competitors in these new areas – Apple, Google, Microsoft, and a long list of electronics companies in Korea and Japan – is big, fierce, deep-pocketed, and highly innovative. But if Huawei wants to achieve its targeted 20 percent revenue growth in 2010, it will need to make progress in these new markets.”

ZTE’s more cautious telecom-focused strategy may in the end prove more sustainable. Actually, ZTE is doing many of the same things on terminals, services, and applications as Huawei but on a more ad-hoc customer-driven basis.

“Its goals for 2010 are more narrowly focused, and lower-risk: it wants to increase its penetration in Europe with tier-1 and -2 carriers; continue leading in emerging markets and China; and have a breakthrough in the North American market. It announced a small one last week , with a CDMA carrier in Canada”, adds Walker, based in Thailand.

“The difference in goals stems in part from the companies’ different market positions,” comments Walker. “ZTE has similar or better capabilities on the terminals side compared with Huawei.” ZTE also offers professional services (which brought $622 million in revenues in 2009), has low-end data switching and routing products that could support an enterprise push, and has built up a software and value-added services capability that could possibly support an application-focused push. But Huawei is bigger in all of these areas.

Despite long odds, Huawei has developed a good reputation for innovation and is now a widely known brand in many western markets. While Huawei doesn’t sell directly to consumers (usually), it is covering a lot of the same footprint, with the set-top box, tablet, and smartphones. Given this record of success, Huawei believes now is the time to venture beyond telecom in search of growth.

The dynamics of consumer electronics are very different from telecom, and straddling the two camps could be costly and dangerous. But without risk, there is little reward.