Whenever Huawei is facing scrutiny, rivals simply have to sit back and reap the benefits, though Ericsson and Nokia are upping the focus on research and development to compound the gains.
This is the opportunity which is being presented to Huawei’s rivals. When it is banned from certain markets, there is a gain. When there are security concerns shown, there is a gain. When there are questions about the resilience of the supply chain, there is a gain. All the likes of Ericsson, Nokia and Samsung have to do is sit back and do what they have been doing for years. The worse beating Huawei takes, the better their alternative looks.
What is clear is these companies will have to be as careful when capitalising on the misfortune, tip toeing over broken glass as gunfire rages overhead. Just look at the trouble Nokia CTO Marcus Weldon got himself in when criticising Huawei a couple of months back.
However, looking more closely at the financial reports of the rivals, there is perhaps evidence of an attempt to compound the gains by increasing R&D investments. There are of course numerous reasons why this would be done.
Firstly, if Huawei is considered the market leader for radio and transmission equipment, this is an opportunity to close the gap. Secondly, this is a chance to seize the initiative in the 5G race while the reputation of Huawei is picking up dents. Looking at the numbers, this story becomes a bit more apparent.
|Vendor||R&D investment as % of total revenues|
The numbers above are taken for the first six months of 2019. Huawei hasn’t given numbers for the first half, only a full year commitment, so this is more of a rough guess. Samsung does not break-out financials for its network equipment division, keeping up its reputation for being less-than-transparent, so it is difficult to offer a comparison.
Including Samsung with the other four major network infrastructure providers might raise some eyebrows, but with a strong 5G RAN product Samsung now deserves to dine at the top table according to Heavy Reading Analyst Gabriel Brown, particularly in markets where it has made long-term, sustained investment in R&D and in customer support, such as the US, India and South Korea.
After years of investment and working to meet customer requirements, the US market offers promise to Samsung. Without Huawei and ZTE in the game, operators are looking for credible alternatives to the Nokia and Ericsson duopoly in RAN, while its Korean domestic market clearly offers some wins. There is a clear opportunity for growth, though as Brown points out, there are other considerations.
In terms of the 5G RAN, Samsung has competitive base station products according to Brown. However, it doesn’t necessarily have the breadth of portfolio, relationships or footprint to compete globally. Brown stated this is often an area which is underestimated and is expensive to build-up and maintain. Outside of its priority markets Samsung does not have the local support that telcos have come to expect nor the long-term in-country presence that gives operators confidence to do business.
However, it is still an opportunity, with the team is making the right noises, producing the right demonstrations and making the right connections to grow and claim market share.
The numbers above are taken for the first six months of 2019. Huawei hasn’t given numbers for the first half, only a full year commitment, so this is more of a rough guess. Samsung does not break-out financials for its 5G network equipment division, keeping up its reputation for being less-than-transparent, so it is difficult to offer a comparison.
Including Samsung with the other four major network infrastructure providers might raise a few eyebrows but work done over the last few years has raised their game. According to Heavy Reading Analyst Gabriel Brown, Samsung now deserves to dine at the top table, with strong focus on the US, India and South Korea.
Samsung is a company which is clearly benefiting from the Huawei misery. The US is a market which will offer promise to Samsung, though it will have some difficulties considering an ex-CEO of Ericsson is in charge at Verizon, while its domestic market clearly offers some wins. There is a clear opportunity for growth, though as Brown points out, there are other considerations.
In terms of the 5G base station product, Samsung is up there with the best according to Brown, though as it doesn’t necessarily have the relationships or product inventory in place it might struggle in certain areas. Brown stated this is often an area which is underestimated, as Samsung may well struggle to meet the timelines demanded by telcos in Switzerland or Columbia (for example). It doesn’t have the ‘feet on the ground’ or scaled manufacturing experience of its rivals, an element many telcos will have come to expect.
However, it is still an opportunity and the team is making the right noises, producing the right figures and making the right connections to grow and claim market share.
Back to the R&D investments, this is an important metric to judge vendors by and will gain interest from potential customers. At Ericsson, the 18.7% ratio invested in R&D is certainly an increase from the 14% and 15% it spent in 2015 and 2016 respectively. Nokia’s investments are also up from this period, though it has consistently hovered around this level. As a percentage of net sales, R&D accounted for 20.5% and 21.2% for 2018 and 2017 respectively at Nokia.
Although both of these firms are leaping ahead when it comes to the percentage, another factor that you have to take into account is that Huawei is spending more in real terms.
|Vendor||Total R&D investment in US$|
While Huawei is vastly exceeding the amount spent by its rivals, it has a much broader scope. Ericsson focuses on mobile predominantly, while Nokia has both mobile and fixed businesses, as well as licencing payments from its former glory days as a leading mobile phone manufacturer.
Huawei has its fingers in a lot more pies. Not only does it focus on both mobile and fixed, it also has a subsea cable business and an enterprise unit, while the consumer group is now the largest contributor to total revenues. Looking at the consumer unit alone, Huawei will be investing R&D funds into smartphones, laptops, wearable devices and a new operating system to potentially replace Google’s Android.
This $8.38 billion figure should always be considered when comparing the R&D investments from all the rivals, but it should also be weighed against the broader business exposure Huawei as.
There are of course numerous factors to consider when judging who is winning the 5G race, geopolitical trends are close to the top of the list, but the percentage of revenues being attributed to R&D is another very important one. Although these numbers do not tell the whole story, perhaps it does indicate rivals are attempting to make the most of Huawei’s misery while they have a chance.