In just about a week, I’ll be headed to China. It will be my second trip to the country this year, with one more planned in June. You might ask why I’m headed there so much? It’s a fair question, one I’ve asked myself on more than one occasion even though the answer is fairly straightforward.
Let’s start with the specific events I’m headed to. June brings MWC19 Shanghai and last month was a quick trip to Beijing to talk up what happened at MWC19 Barcelona along with launching our latest research on the Chinese market.
Both of these point to a very simple reason for all the 12-hour flights: China is an important mobile market. This is so patently obvious that it feels silly writing it out. But, whether we’re talking about 5G launches, IoT scale or the innovation that comes from a society with 1.1 billion smartphone subscribers, the importance of China as key to understanding the direction of mobility is clear.
And the trip that’s coming up? That’s my annual visit to Huawei’s analyst conference. I’ve been to every one of these for more than a decade. Skipping out on the chance to catch up with the vendor (or any of its major competitors) never feels like a wise decision. But, if “China is important” explains the other trips, a visit to Shenzhen raises an obvious question. Why is Huawei important?
This, too, might seem blatantly obvious. Given the amount of news circulating around the vendor lately and a plea for “fact-based” judgements on it, it’s still worth highlighting some basics.
Operator market share
We don’t model network infrastructure market share at GSMA Intelligence. That’s okay, there are plenty of other people who do. My friends at Dell’Oro Group have Huawei capturing 29 per cent of the telecom equipment market in 2018, the top position, with Nokia and Ericsson taking a distant second and third, respectively. In other words, you can’t talk about the state of telecom networks in 2019 without talking about Huawei.
Mobile market presence
Of course, telecom networks market share and mobile infrastructure market share aren’t the same thing. So, let’s look at this a different way. How many mobile networks is Huawei present in?
The company claims to have supported 5G tests with 182 carriers. Does that seem high? It shouldn’t. Our own analysis of network launch announcements has Huawei touching more than one-third of operator 4G launches, over-indexing in some markets like Europe. That means you or someone you know is likely touching a Huawei-powered wireless network on a regular basis (US readers excepted).
Over the past five years, Huawei’s carrier business revenues have grown by almost 80 per cent. The figures for key competitors? Let’s just say they’re not quite that solid.
I’m not sold on the idea that revenue success points to product superiority. However, it does support R&D scale and the financial stability operators like to see when making an investment that needs to live for ten or more years.
Another idea I’m not sold on? That end-to-end capabilities always help to win deals. Maybe for smaller operators which need a one-stop shop or a bundle of base stations and mobile devices. But Ericsson does pretty well for itself without smartphones to sell and Cisco manages to sell into mobile operators without a base station portfolio.
So why does end-to-end (in this case network infrastructure, consumer devices, and enterprise gear) matter? In part, because diversification helps with financial stability. In part, because these disparate spaces are converging as operators look to build networks on IT technologies and build services that more directly touch the consumer (think smart home, gaming or AR/VR). Know-how that touches all three spaces is an inherent advantage.
So, is there anything else I’m forgetting?
Oh yeah, that security thing and Huawei’s recently released 2018 annual report.
As we said in our MWC19 Barcelona wrap-up, “5G is increasingly positioned as ‘critical infrastructure’ given its potential for societal digital transformation. The critical nature means that 5G security is paramount”.
In other words, while mobile network security has always been top of mind, nobody should have been surprised by the elevated focus on 5G network security. And, as we talked up the possibilities the technology brings, and the scale benefits of a single ecosystem, we should have all been able to predict the stakes at hand and the potential impact of banning any major network vendor from 5G deployments: delayed service rollouts; the cost of replacing existing network assets; potential global R&D contraction due to constrained competition; and potential global technology scale impacts.
It’s a doom and gloom scenario, for sure. But Huawei’s latest annual report provides some important context. Among all the data in it, a few points stand out.
After years of double-digit growth, Huawei’s carrier business had a tepid 2017 (growing 2.5 per cent) and a worse 2018 (shrinking 1.3 per cent). As a result, the company’s consumer business suddenly became its biggest money maker, accounting for 48 per cent of revenues.
Meanwhile, the Chinese market has steadily grown in importance for Huawei: where it was 35 per cent of revenue in 2013, it’s now almost 52 per cent. Combined with EMEA, the markets generate 80 per cent of Huawei’s sales.
What’s the story here? That the ascending importance of consumer and Chinese markets will impact how Huawei looks at its business strategy and how best to deal with security concerns? Retrenching on the easier wins?
To date, there’s been no indication of a pullback. And, here, another highlight of its 2018 annual report is worth noting
In 2016 and 2017, Huawei kicked off its report by answering three questions: who is Huawei; what do we offer the world; and what do we stand for? In the latest document, it added a few new questions: who owns Huawei; who controls and manages Huawei; and who does Huawei work with?
The additions send a clear message: Huawei wants to signal that it operates around the world, as a private company with “no government agency or outside organisation” holding shares. A pullback wouldn’t benefit anyone. Not Huawei. Not its carrier customers with “1,500 networks in more than 170 countries”. Not the global standards organisations it supports.
Of course, this is a message it’s been sending for some time now. How that message evolves in the face of commercial and political progress on 5G is the key question. And it’s why I’ll be in Shenzhen later this month.
– Peter Jarich – head of GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.