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The transcript of a recent internal presentation by Huawei CEO Ren Zhengfei attracted much attention in the press and was interpreted as a strategy to counter restrictions to access the US and other markets, and to impose Chinese global dominance in telecommunications as a strategy to counter restrictions to access the US and other markets, and to try to impose Chinese dominance in the world. I read the entire transcript and found that it provides valuable context to frame Huawei’s recent product announcements and analyst presentations.
In talking to his own people, Zhengfei gives a glimpse, at times self-critical, into the company’s strategy, culture and relation to the global wireless ecosystem that goes beyond Huawei’s reaction to US policies, although those policies definitely – and understandably – play a major role in shaping Huawei’s future.
The first topic – the one that captured the headlines – was the need to shift the focus of R&D, product development and, eventually, value and revenue generation from hardware to software.
This will free Huawei from some of the restrictions imposed by the US and other countries, which mostly target hardware. Software can run on third-party hardware, and this will make it more difficult to prevent Huawei’s entrance into a market. If Huawei software solutions prove successful in the Chinese market first and then in other markets, the US may be forced to either accept them or follow an isolationist technology path. However, in the US and other countries, restrictions – or reluctance to engage with Huawei – could be extended to software as well.
Software is becoming more prominent in wireless, and it is possible that ongoing policies that target Chinese technology companies, and Huawei in particular, will catch up with that.
The move toward software is hardly surprising, though. For years now, Huawei has increasingly focused on automation, AI, optimization, reduction of power consumption, and IoT applications, all of which have in common an increased role for software. Furthermore, the complexity of 5G cannot be tamed without strong software running these networks. For instance, the success of M-MIMO deployments crucially depends on robust software management to extract the performance benefits that the technology promises.
While Huawei’s increased focus on software may not be big news, it does introduce cultural changes within the organization – different skills are needed, and they will have to come from both from new hires and from retraining the workforce. In addressing these issues, Zhengfei makes it clear that this is all work in progress. It will be instructive to see how change will happen at Huawei and whether it will choose a path different from those at other vendors.
Even within the global wireless ecosystem, the move to software is pervasive among vendors. Virtualization, increased complexity of 5G networks, and disaggregation have all pushed vendors to move toward software-based solutions that rely on non-proprietary hardware. Much of this change has been in response to operator demand, and it has been – and still is – a difficult one for established vendors accustomed to generating revenues from hardware.
Like many other vendors, Huawei has tried to contain the trend toward disaggregation and multi-vendor networks. The need to react to US sanctions may prove beneficial to the company by making the transition to a software-based, open approach more urgent and financially compelling. And if Huawei’s software solutions do indeed get traction, this may become a competitive advantage, especially since Huawei can still reliably count on the large Chinese market as a sort of proof-of-concept environment.
Zhengfei made it clear that it is not sufficient to move from hardware to software, nor will replicating software solutions already in the market suffice. A new approach to software solutions is needed. Huawei’s recent launch of the Harmony OS may be an example of what he means.
The new Huawei’s OS faces a closely controlled competitive environment in which Android and iOS control more than 95% of mobile devices. Having two dominating OSs has created the right network effects to establish a vibrant ecosystem of app developers, but more competition could now be beneficial to innovation. For instance, we could have the same device support multiple OSs and users could decide which one to use.
Previous attempts have shown how hard it is for a new OS to get enough market share to survive. It is difficult to envisage how a new OS can succeed unless it introduces a fundamentally new approach – just adding a few features will not do the trick.
Harmony OS’s ambition is to rethink the OS for users who own multiple devices and for IoT devices that are not attached to individuals. Android and iOS were initially developed as smartphone OSs. Harmony OS has been designed from the ground up for multiple wireless device types that have to connect to the same network, as well as with each other.
Harmony OS faces the challenge of getting buy-in from both device manufacturers and operators used to the existing OSes. But it may introduce some needed competition – or at least a push for the other OSs to improve the support for new types of devices.
Just as important as the move toward software is the need for a more open approach to technology development and adoption. The two trends are complementary, and both are tied to virtualization, disaggregation, AI and automation, as well as to the need to manage complex, multi-vendor networks. The times when a single vendor could provide a complete end-to-end solution are gone. Vendors need to cooperate with each other and with their customers to make sure all the elements in a wireless network work together as intended.
In his talk, Zhengfei stressed the importance of openness, collaboration and interoperability, both to meet the needs of specific customers and to strengthen the overall ecosystem. This is another area where tier-one vendors face a big challenge to their existing business models built on vertically integrated solutions.
Huawei has already greatly increased its efforts in standardization and collaborative efforts in recent years. However, an increased commitment to openness – e.g., by supporting Open RAN efforts – may strengthen Huawei’s software strategy and reduce the resistance it faces in some markets.
It would be a pity to treat the Zhengfei talk as another chapter in the back-and-forth US versus Huawei saga. So I asked Huawei to discuss some of Zhengfei’s remarks, and especially how they relate to recent public announcements – e.g., the analyst meeting in the spring, or the Harmony OS launch – in a Sparring Partners, where we had an open discussion with Huawei experts, and they can answer questions from the audience. You can access the Sparring Partners here.
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