China’s digitalisation driving growth of Huawei’s enterprise unit

Huawei Technologies, the world’s largest telecom equipment provider, expects its enterprise business to account for a higher proportion of future group revenues as the digital transformation of the economy is embraced by the Chinese government and private companies.

The enterprise business unit, which produces network gear for corporate customers in cloud computing, big data, and smart city development, will see revenue growth “double every two years” on buoyant demand for digitalisation in China, unit president Yan Lida said in an interview in Shenzhen.

“Chinese society is adopting a liberal view towards digital technology. After the banking industry became one of the first to go digital, other industries like energy, electronics, and transport are now following suit,” said Yan. “Meanwhile, local Chinese governments are also keen on smart city developments, which have gradually shifted from utilising smart solutions to safeguard cities to [using them to] better promote economic growth.”

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The demand for digitalisation in China has motivated companies like Huawei to invest in Internet of Things (IoT) solutions – where internet-linked devices embedded in everyday objects gather, send and receive data – to help governments and enterprises carry out digital transformation and reap profits.

In late March Alibaba Group Holding, China’s largest e-commerce platform and owner of the South China Morning Post, also announced a plan to build a network of 10 billion connected devices within the next five years as part of a push to expand its business in IoT. Other technology giants in China, including Baidu and Tencent Holdings, also have their own IoT platforms. Worldwide spending on IoT is forecast to reach US$772.5 billion in 2018, according to an research firm IDC.

More than 1,000 smart city pilot projects are underway globally while China accounts for about half of them, according to a report issued by Deloitte in February.

Huawei’s enterprise unit, the smallest among the company’s three key business – the other two being carrier and smartphone sales – is the fastest growth engine within the Shenzhen-based company.

Revenue for the whole company in financial year 2017 reached 603.6 billion yuan, or US$92.5 billion based on year-end exchange rates, up 15.7 per cent year on year, Huawei announced on March 30.

Unlike Huawei’s telecoms carrier business, which saw a tepid 2.5 per cent revenue growth to 297.8 billion yuan in 2017, its consumer business segment – primarily Huawei smartphones and its sub-brand Honor – saw sales surge 31.9 per cent last year to 237.2 billion yuan.

The enterprise business unit had the fastest revenue growth of the three, with a 35.1 per cent increase to 54.9 billion yuan, though it only accounts for 9 per cent of the company’s total revenue.

By the end of 2019, digital transformation spending will reach US$1.7 trillion worldwide, representing a 42 per cent increase from last year, IDC said in a report issued in November.

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Huawei said 197 of the Fortune Global 500 companies have chosen to work with it on digital transformation projects, including IBM, Samsung, Airbus and Volkswagen, but revenue generated from the Chinese market remains a bigger part of the enterprise business, accounting for two thirds of its sales.

Huawei’s smart city solutions have been adopted by more than 120 cities in over 40 countries, while its omni-channel banking product is used by 300 financial institutions globally, including six of the world’s top 10 banks – four of which are from mainland China – according a statement provided by the company.

Yan, who is also on the Huawei board, said the proportion of group revenues from China has grown from 30 per cent to 50 per cent “in recent years due to the local economic growth momentum in China”.

Commenting on the US market where Huawei has been banned from selling its telecom equipment and has had setbacks in trying to market its smartphones, Yan said the company is not in a hurry to seek growth in that market at this stage.