Huawei's Next Big Bet: Telecom Software

(Business News & Technology News, 27 May 2008)

In view of the current trend of acquisitions and reorganisation of telecom and software vendors alike, Huawei Technologies has spun off its Application and Software Division into an independent business unit, called Huawei Software. Already highly successful in the China domestic market, the company has set about building a global business overseas, with the vision to become the world's leading vendor in end-to-end software products and service solutions for the convergent telecom market.

"To achieve this, Huawei has designed Huawei Software with a relatively independent and flexible business operation approach. This allows us to proactively explore service convergence to assist operators successfully transform their business operations," says Dr. Che Haiping, Head of Huawei Software.

In the past, Huawei's combination of highly skilled engineers and a low cost base gave it a significant competitive advantage. However, rising costs and a stronger yuan have chipped away at this edge. Competing vendors have responded to Huawei's low-cost pricing by partnering and tapping into the same cost savings that benefit Huawei, such as relocating their production lines to developing countries.

Having a low-cost offer was not enough of a value proposition for Huawei to maintain growth; it needed other competitive edges to bring long-term value while achieving good profit targets and sustained profitability. Thus, Huawei Software carries the specific mission of providing value-added telecom software and services solutions to enhance Huawei's overall corporate strategy.

According to Che, the new division has grown steadily with an average annual growth rate of about 33 percent. In 2007, it has achieved sales of $1.4 billion, 55 percent of which came from the international market.

Leveraging its success with China Mobile, whose VAS accounts for almost 30 percent of revenues, Huawei is keen to bring those business potentials to European operators such as Vodafone and Telefonica.

"Moving forward, Huawei Software needs to define its role in media, advertising and entertainment and how it will exploit opportunities through strategic cooperation and joint ventures with major players," comments Cynthia Leung, Senior Analyst at Ovum.They have expressed interest to cooperate with industry peers, including competitors and third parties, to construct a service value chain that prioritizes shared interests to improve end-to-end service integration and delivery.

As Huawei appears in the telecoms software landscape and lowers the upfront cost of solution acquisition, smaller telecoms ISVs, as well as incumbent equipment vendors, will have to continually find ways to increase their business value and respond to Huawei's challenge.

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