IHS Research’s director of data center and critical infrastructure research, Jason dePreaux, recently authored a document titled “Huawei’s bold data center play,” in which he asks—then tries to answer—whether or not the $39.5-billion company can “shake up an industry that has been dominated by incumbents.” We’re reprinting dePreaux’s analysis here.
Huawei’s Bold Data Center Play
By Jason dePreaux; director, data center and critical infrastructure research
IHS Technology
Huawei may not exactly be a household name in the United States, but it is a massive company. In 2013 it had global sales of $39.5 billion, a 13-percent increase from 2012. Most of its revenue comes from the sale of equipment used to build out telecommunication networks. It also has more consumer-facing efforts. Huawei is the third-ranked smartphone vendor globally. More recently, it has started to focus on data center products and services. Just how much can Huawei shake up an industry that has been dominated by incumbents?
Huawei has two groups of offerings for data centers residing within their “enterprise” segment, which turned over $2.5 billion itself last year. The first group is their IT product line that includes servers, storage, and networking. The second group, called Network Energy, offers power and cooling systems. The name of the latter section bears a striking resemblance to Emerson’s Network Power division, a longtime leader in critical power systems.
Huawei’s Network Energy business arose very quickly. In less than five years it has gone from nothing to having full lines of UPS, row and rack cooling, power distribution and rack enclosures. Huawei is also betting on the emergence of future markets like data center infrastructure management (DCIM) software, where it joins a crowded supplier environment. While it is just ramping up these product lines, Huawei has gotten off to a fast start as a major manufacturer of containerized data center systems; to the extent that it will likely race into the upper echelon of vendor ranks in the next containerized data center market analysis produced by IHS. Such containers not only benefit from pre-engineered and tested designs, but also from low-cost labor when assembled in China.
The fact that Huawei has these two groups relevant to data centers makes it unique. Their presence in IT puts them in competition with heavyweights like HP, IBM and Cisco, while the DCI market is dominated by the likes of Schneider Electric, Emerson and Eaton. In many respects the IT and facilities sides of the data center business is highly segregated and the supplier landscape reflects this. Should Huawei create sufficient scale to their operations, they would be one of the only vendors to be a major player on both sides. In the relentless quest of companies to become “one-stop shops” for their customer bases, Huawei has quietly carved out a unique position.
This does not mean you should look for Huawei-badged gear on your next data center tour here in the States. Currently Huawei’s distribution is regionalized and most of its sales in the data center area come from its home market in China or in developing markets like Africa, the Middle East, and South America. Penetrating mature markets is difficult where name recognition, long-standing reputation, and familiarity are tremendous barriers to entry into an industry that defines risk aversion.
Breaking into the U.S. market is a particular challenge. Aside from the arduous and expensive UL certifications which must be obtained, rightly or wrongly, there is serious political opposition to the sale and use of Huawei gear in the United States. Facing congressional backlash, Huawei announced at the end of 2013 it would be exiting the U.S. market in terms of telecommunication equipment. It is hard to imagine data center equipment would enjoy a better fate. In all likelihood, Huawei will not have access to the single largest data center market.
However, if Huawei has the patience to make a long-term play, future growth in data centers resides outside of United States and Western Europe. Opportunity will come from “connecting the next 4.4 billion unconnected”—a reference Huawei used to highlight the fact that two-thirds of the world’s population does not have access to the internet. This was a recurring theme at their analyst summit this year. Huawei sees bringing connectedness to all as a moral cause and a shrewd strategic decision. We can only assume its data center appetites will follow this doctrine.
While its current presence in the data center market is limited, the scale and ambition of a company like Huawei means that it may be a formidable force in data centers of the future.