Huawei is definitely getting to be a problem for the other network equipment vendors. The company had a good quarter with sales up over 10%, and it’s also gaining market share in both carrier routing and switching; by our measure the fastest growth rate of any vendor. The company is also embarking on a campaign to build its strategic influence in emerging markets, presenting what by most accounts is the best overall strategic pitch that anyone is offering to the Tier Two and Three players. There have even been speculations that Huawei might be the one that would pick up HP’s TouchPad and webOS business.
What Huawei now has is what the Street calls “Mo”, which means “momentum”. The competitors are all fighting to hold their own in a tough market and are in the main losing that battle while Huawei is on a roll. They have true, convincing, price leadership and many competitors are playing into their hands with cost-based value propositions instead of feature and opportunity differentiation. They have (according to one of our sources) DOUBLED their investment in strategic higher-layer R&D over the last year. They are looking to double and then redouble their software efforts according to the same source. In short, they feel they have the competition on the rocks and they’re closing in.
But right now they can’t put their opponents away. There is still a period when the incumbency of competitors counts for something, and in that period competitors could still create some significant barriers to Huawei success by being more aggressive in the higher network layers. The economic angst globally is limiting capex and limiting willingness to make radical changes, but our model suggests that attitude won’t last beyond 2012. I think that Cisco may be seeing this and may be trying to get its service-layer assets in order. They’re the player who, as the biggest incumbent, has the biggest chance, but Alcatel-Lucent and Juniper are also in play here, as I’ve noted in the past.
The timing for all of these guys is critical. Operators tell me that their proof-of-concept trials in content monetization almost all scheduled to be underway by the end of 1H12, and about a third of operators say that they need a good cloud strategy in that same timeframe. Mobile/behavioral networking is involved in both these activities for about two-thirds of all mobile operators, and nearly all of them say they’ll have to deploy trials in web-mobile services and social services for mobile users by the end of 2012. That means that at the same time as the capex veil is lifted, the operators will have had to commit to a short-term approach that could end up being their long-term strategy by default. Huawei wants that position and their efforts to get it are becoming visible, particularly in the content space. Anyone who wants to contend with them for the role will have to be ready to do something by early 2012 at the latest.