Huawei CEO and founder, Ren Zhengfei, recently said his company should make growing its cloud services revenue its new priority. The executive laid out the company’s new direction at an internal meeting held late last year.
Huawei had been a leading provider in the global smartphone market until it lost access to U.S. derived handset semiconductor technology in September 2020
Huawei’s Pivot to Cloud Services
Zhengfei positioned cloud computing as the telecom’s way forward following its recent headwinds in the mobile device sector. He said the Chinese conglomerate should take lessons from digital infrastructure industry leaders like Amazon and Alibaba. However, he also admitted that his firm does not have the financial resources to compete with the field’s biggest players.
Although it is one of China’s largest technology companies, Huawei is a privately owned enterprise. That means it cannot raise capital in the public markets like its rivals. Zhengfei said that reality would require the firm to narrow its focus in enacting its corporate pivot.
The billionaire stressed that Huawei needs a “breakthrough” to expand its position within the cloud computing sector. He specifically mentioned the company needs to develop platform and infrastructure-as-a-service products a la Microsoft. Zhengfei asserted the conglomerate needs to land contracts with businesses operating in multiple industries to succeed.
The conglomerate could significantly increase its income by becoming a leading online computing provider. ResearchandMarket’s estimates the global segment will be worth $832.1 billion by 2025.
Will Huawei’s New Business Model Right the Ship?
Huawei’s plans to expand its cloud service business makes sense but will be exceedingly difficult.
The firm briefly became the world’s largest smartphone manufacturer last year because of its technological resources and market strategy. Its HiSilicon division designed chipsets that made its premium handsets among the wireless sector’s most powerful. In addition, it found massive success in its home country via a patriotic-themed marketing campaign.
However, Huawei cannot utilize its smartphone strategy to build out its cloud computing segment.
Analyst group Canalys reported Alibaba represented 40 percent of the Chinese web services sector in the third quarter of 2020. By comparison, Huawei had a 16 percent share of the market during the same period.
At present, the telecom’s digital infrastructure technology lags far behind its chief rival. It is also unable to use its status as a domestic champion to its advantage as it did when competing with Apple. And as Zhengfei pointed out, the company’s ownership status prevents it from outspending Alibaba to close the gap.
Given its current circumstances, Huawei is better off pursuing various foreign markets rather than fighting a battle it cannot win at home.
The corporation’s recent moves suggest it intends to expand its cloud computing footprint outside China significantly. Last fall, the firm inked deals to bring 5G coverage and enterprise digital services to Russia. Its executives also revealed plans to become a major player in sub-Saharan Africa’s telecommunications sector.
Huawei is likely headed for a massive business contraction in the near-term because of its smartphone sector challenges. Without its lucrative handset business, it will not be able to match the $122 billion it made in 2019 anytime soon. However, the company could transform itself into a leading global cloud services provider in the long-term.