Huawei Forges Ahead in Cloud, Other U.S. Lines, as Network Gear Business Gets Hung Up
The Chinese vendor Huawei has ambitions in U.S. cloud-computing services that haven’t publicly drawn the security objections repeatedly raised against its network business at the highest levels of government. The company is forging ahead with U.S. business efforts despite repeated political and governmental setbacks to its network-equipment efforts in the market (CD Feb 14 p7). In the latest blow, the federal interagency Committee on Foreign Investment in the United States reportedly has recommended as expected that Huawei be required to unwind the acquisition it completed last year of high-technology company 3Leaf, but the Chinese company is waiting to see what President Obama decides. We couldn’t reach a company representative for comment Tuesday.
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"Designed to advance customers’ journey to cloud computing, the strategy involves working with leading North American partners to deliver a solution that will enable customers to expand service offerings, reduce costs, and bring telecommunications services to the cloud,” the company said last month as it opened an expanded Canadian headquarters. “We see an exceptional opportunity to work closely with our valued North American partners and customers to take cloud computing to the next level,” said Charles Ding, Huawei North America president.
A prime mover in U.S. efforts to promote cloud interoperability is a Huawei consultant, Robert Marcus (CD Dec 6 p9). And the company is active in Silicon Valley networking, taking part in Telecom Council events such as a private November executive forum on Collaborating for Cloud Services, where the company sent seven of the 61 participants, and the Carrier Connections Summit a few weeks earlier, where Huawei employees made up 28 of the 230 attending, according to the organizers.
But U.S. government and political objections are holding back the growth of Huawei, one of China’s otherwise booming international telecom equipment vendors, analysts said. The company has a U.S. handset business, but hasn’t been able to use device subsidies to help win mobile networks the way it is thought to elsewhere, said analyst Gavin Byrne of Informa research.
"They have basically come from nowhere when they started to become one of the dominant vendors in network equipment globally” over the past five years, said Mike Roberts, an Informa principal analyst. The firm ranks Huawei second in mobile network equipment, after Ericsson. ABI Research put Huawei third in market share for cellular infrastructure in Q3 of 2010 at 16.7 percent, after Ericsson and Nokia Siemens Networks. Another Chinese vendor, ZTE, was fifth at 9.5 percent, behind Alcatel-Lucent, the firm estimated.
ZTE is “on a similar trajectory” to Huawei’s, “but they're a few years behind,” Roberts said. ZTE “has done very well with lower-cost mobile phones” and ranks fifth in the world, Byrne said. Huawei has done better with dongles -- USB modems -- and become the world leader, but it has scored recent device wins with T-Mobile, he said. The vendor also is strong in femtocells, said Vice President Jake Saunders of ABI, who heads the firm’s Asia-Pacific research. The companies started by competing on low price but increasingly are stressing selling points such as equipment integration and low power consumption, said Malik Kamal-Saadi, an Informa principal analyst.
Both companies have “struggled more on the network side” in the U.S., Roberts said. Part of that results from “issues with security that are difficult to get to the bottom of” because of confidentiality, he said. But they've also “bumped into buyers with established relationships” with vendors that are always hard to displace, Roberts said. “The infrastructure market is very much legacy-driven,” Saunders said. The companies sell integrated base stations, “boxes that do everything, and that doesn’t leave enough flexibility to operators in North America” to add security and otherwise, Kamal-Saadi said. The vendors “are the only one able to know what is going on inside the box."
It’s not surprising that security objections are holding Huawei back more in U.S. networks than other businesses, analysts said. “The network is the core, the brains,” Roberts said. “Devices are intelligent, but they tend only to know about themselves. … The network knows everything.” ABI’s Saunders agreed.
Saunders said no evidence of security problems has surfaced from Huawei’s and ZTE’s network businesses around the world. “This is a bit of smoke and mirrors” to the security objections, he said. The Chinese government has too much interest in the companies’ commercial success to risk it for surveillance that could be accomplished other ways, Saunders said.
But Roberts said “there’s enough there to be of concern. … Telecom infrastructure is an important internal asset” and authorities are always concerned about facilities’ being controlled by a foreign power. Meanwhile, “other vendors are going to play that for what it’s worth, so the commercial always comes in,” Roberts said. The Chinese vendors “will continue to struggle” in the U.S. network-equipment market, he said. “They will increase market share very gradually.”