By Dr Lin Sun, Beijing Correspondent
Despite scrutiny from the US Congress and concerns about potential state-sponsored espionage involving Chinese technology companies, Huawei continues to advance rapidly on the global stage.
Earlier this year the US government blocked a Huawei bid for a national LTE project citing security concerns—one of several obstacles in the company’s push into the US market. Huawei’s US sales remain modest at roughly $200–300 million annually, mainly to regional operators and through OEM handset partnerships. The company rejects any ties to the Chinese military or government subsidies, and maintains confidence in its long-term prospects: Huawei currently employs about 1,500 people in the United States, most in research and development.
Globally, Huawei ranks as the second-largest telecom equipment maker after Ericsson. In 2010 the company reported revenue of $28 billion, a 28% increase over 2009, and profit growth of 30%. Huawei and ZTE were rare examples of double-digit growth during a global recession. Overseas sales now account for roughly 65% of Huawei’s revenue—a performance achieved with limited contribution from the US market.
The company’s success offers a clear lesson. In the late 1990s Huawei focused on emerging markets where telecom infrastructure lagged and affordability constrained demand. Huawei undercut incumbents such as Alcatel, Ericsson and Nokia by offering equipment at prices 30–40% lower and providing vendor financing or loan guarantees when necessary.
That low-pricing strategy was supported by the company’s ability to reduce costs across labor, R&D, production and sales. Today Huawei still uses competitive pricing as a decisive advantage, while its product quality and performance have improved to match global competitors.
Known for aggressive sales tactics and a broad global presence, Huawei has gained strong footholds across emerging markets—from low-income African countries to fast-growing economies like India and Brazil—and has become a recognized LTE supplier for many European operators.
Huawei’s competitive edge rests on three pillars: compelling pricing, substantial R&D investment, and a willingness to work closely with customers to deliver tailored solutions—areas where few rivals can match the company.
Nimble Business Model
Huawei has also sustained growth by expanding its product portfolio. As demand for legacy telecom equipment declined, the rise of smartphones and tablets created new opportunities. Huawei responded by launching a consumer products division and introducing devices such as the Ideos tablet and MediaPad business tablet alongside a range of feature phones and smartphones. Terminals quickly became the company’s fastest-growing segment and a major revenue contributor; Huawei projected terminal sales could grow to $20 billion by 2015.
The enterprise market represents another significant growth arena. Huawei originally had a strong enterprise presence but shifted focus to telecommunications after forming H3C with 3Com in 2003. Following a series of joint-venture changes and a rejected acquisition attempt—blocked by the US government on national security grounds—Huawei is re-entering the enterprise space aggressively, forecasting revenues to double to $4 billion in 2011 and reach $7 billion in 2012.
Huawei aims for enterprise sales of $15–20 billion by 2015, roughly 20% of total revenue. A central element of this strategy is cloud computing: the company intends to pursue targeted acquisitions and partnerships to build cloud capabilities tailored to enterprise customers. Recently Huawei bought back its 49% stake in a joint venture with Symantec for $530 million to strengthen its position in security, storage and network management—capabilities that support a cloud-focused enterprise strategy. Huawei is also exploring vertical-market opportunities in sectors such as energy and transportation.
What lies ahead?
By June Huawei reported half-year revenue of RMB98.3 billion ($15 billion), an 11% increase year-over-year, and profit of RMB12.4 billion ($1.97 billion). Beyond LTE and optical transmission networks, terminals remained a standout: Huawei shipped a total of 72 million units, generating $4.2 billion in revenue, a 64% year-on-year increase.
The company’s CFO expressed confidence in reaching RMB199 billion ($30.7 billion) in full-year revenue, a projected 7.5% increase. While growth will naturally moderate as the revenue base expands, Huawei’s performance remains robust.
That said, Huawei faces internal and external challenges. In early 2011 reports surfaced about tensions within senior ranks, including disputes involving founder Ren Zhengfei and other executives—rumors that raised questions about succession and governance. Although the company weathered those storms, the episode renewed interest in Huawei’s long-term stability.
Huawei is governed by an Executive Management Team, but the company is often criticized for its opacity. Over the past decade Huawei has released basic sales figures under external pressure, yet it still discloses limited detail about operations. Observers attribute the company’s secrecy to its corporate culture and to Ren’s military background. An initial public offering could improve transparency around capital structure, costs, and labor practices, but Huawei maintains it does not need outside capital and is wary that broader disclosure might weaken its competitive position.
Former employees and insiders have also pointed to cultural challenges that can accompany rapid growth: the emergence of siloed “cubicle” teams, factionalism that can inhibit innovation, and resistance to change driven by short-term sales concerns. These trends could, if unchecked, lead to greater bureaucracy and reduced dynamism.
Despite such risks, most of these issues have not yet substantially eroded Huawei’s core strengths: strong R&D, competitive pricing, and an aggressive go-to-market approach. The company’s future will depend on its ability to sustain innovation, improve corporate governance and continue executing its global strategy while managing public scrutiny and geopolitical headwinds.
Beijing Correspondent Dr Lin Sun
Lin Sun, Ph.D., brings 25 years of experience in China’s telecommunications industry, covering switching and transmission technologies, wireless, broadband and broadcasting. He has served as a senior executive for China at multiple companies and now consults on investment, technology and competitive strategy in China.
Dr. Sun has published and spoken widely on telecom issues and holds a Ph.D. in telecommunications from the United States.