Wall Street is speculating on Huawei’s future in enterprise networking as the company prepares to make what everyone (including Huawei) says will be a major push there. In some ways, the move is a validation of the thesis that service provider networking is not a growth market; constraints on transport ROI are simply too great to allow for explosive growth there even if some service-layer enhancements to revenue could be found. One operator responding to our fall survey said “Sure we could use cloud or other service profits to subsidize transport, but why would we? We’d just be helping competitors ride for less.”
Enterprise networking isn’t any more immune to bit commoditization than service provider networking is, but for a company with no enterprise exposure at all it’s a new market area with a new set of opportunities. Huawei knows that the enterprise market is, if anything, more price-sensitive than the service provider market. It’s recent strategy of using price leadership to gain an entrée and then demonstrating insight to lock down the deal fits very well with enterprise buyers.
Huawei’s entry into the enterprise space is going to pull at least 15% market share out of the current-vendor pie. The Street is speculating that Cisco would suffer the most based on the logical if somewhat simplistic presumption that the guy with the largest market share has the most to lose. Yes, but that party also likely has the greatest account control. Our surveys suggest that price-based competition is initially most successful when it’s aimed at buyers who are somewhat strategically adrift, meaning that they are not being influenced by a vendor plan for network advance that makes sense. Heck, says the price leader, nobody really understands this stuff so why pay so much for it? We think that the players that could be most at risk are those with limited scope and strategic influence, which would suggest that HP and Juniper might have a bigger problem in the near term. HP is already reeling from loss of influence arising out of confusion over its long-term direction.