Huawei Quietly Builds Up Its U.S. Presence, But Needs Channel Partners To Start Making Some Noise

China-based electronics giant Huawei is hungry.

The company aims to dominate key areas of the IT market, from mobile phones to carrier-grade networks, and has the kind of growth most of its competitors would die for: fast-growing sales, strong profits, a hearty research-and-development budget, and all the hallmarks of a worldwide success story. Except it's not a worldwide success story, due to its underwhelming market presence in one part of the globe: the U.S.

Huawei puts on a show about not caring about the U.S. market.

At the company's annual Huawei Global Analyst Summit in April, which CRN attended, much was made of the company's strength in Europe, Asia, Africa and Latin America, with nary a word said about the U.S. except when pressed by an analyst or reporter. Huawei's' current rotating CEO last year even said the company is not interested in the U.S. market, only to later explain that he meant the carrier network business and not the market as a whole.

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Huawei's business in the U.S. has been held back in large part due to the U.S. government's concerns that networking and other enterprise gear from Huawei, whose chairman is a former officer in China's People's Liberation Army, could be used to spy on government and commercial organizations.

As a result, total U.S. 2013 market sales of Huawei products fell 1.3 percent compared with the previous year, even as total sales worldwide rose 8.5 percent, according to Huawei.

Despite government spying concerns, and despite a slow ramp-up in the U.S. including a false start when a joint venture between Huawei and U.S.-based security developer Symantec dissolved in 2011, Huawei knows it must succeed in the U.S. market to get the one thing it can't find anywhere else: access to the American consumers' mind-set.

Huawei: Success In The U.S. A Priority

Patrick Zhang Shunmao, president of marketing and solutions for the Huawei enterprise business, told CRN that while Huawei has only a small share of the huge U.S. market, it is a market the company simply cannot ignore.

Zhang told CRN that the U.S. is the world's technology leader, making it important that Huawei succeed in that market despite the perceived security issues.

"Innovation depends on two wheels: customer requirements and technology," he said. "So a company can't just invest in technology. Technology is important, but not everything. The other wheel is customer requirements. U.S. customer requirements are usually advanced compared to other areas. To keep in a leading position, for us the U.S. is not just technology, but also its lead in in customer requirements."

Tom Costelloe, marketing manager at Buffalo, N.Y.-based VoIP Supply, a supplier of VoIP equipment and complete VoIP solutions, said he has seen an interest in the Huawei products the company carries, but they haven't taken off as expected.

"They are a new name to many in the U.S. market and not as well-known here as in the rest of the world," Costelloe said.

Huawei's acceptance in the market depends where in the industry a partner sits, said Mario Guerendo, president and CEO of EcoTech Solutions Group, an Indianapolis-based solution provider and Huawei channel partner.

"In the state, local and federal government, some people are OK with the Huawei brand, and some are completely against it," Guerendo said. "Because of controversy from the government over Huawei, even people who are OK with the brand may not want to purchase it."

However, that controversy has less of an impact in commercial accounts, Guerendo said. "A couple of people ask about it, but they tell us, 'You are our VAR, and if you trust the brand, we're OK with it,' " he said.

When asked about last year's drop in Huawei's North American sales, Zhang told CRN the main cause was a fall in carrier sales. However, he said, sales into the U.S. of enterprise products, including servers, storage, networking and mobile equipment, should reach $100 million this year, up from $60 million in 2013.

Huawei looks to achieve this growth with a focus on three primary verticals, including education, retail and ISPs, Zhang told CRN. The company's storage, eLTE (enterprise LTE), and networking switches and Wi-Fi equipment are all targeted at those verticals, he said.

That represents a change in strategy for Huawei, which used to try to go everywhere in the U.S. market. "Our biggest mistake was starting in the U.S. with our market segments too diversified," he said. "We weren't focused enough on specific marketing."

That was an issue, Guerendo said.

"Huawei has reduced its portfolio," he said. In the beginning, it did too much. This focus helps us with our telepresence, Wi-Fi and routing business. We now have Huawei-certified engineers, and we're getting all sorts of training, including on-site and via telepresence."

About 90 percent of decision-making in the U.S. market is done locally, depending on certain pre-authorized parameters, Zhang said.

NEXT: How Did That Elephant In The Tent Get Here?

How Did That Elephant In The Tent Get Here?

Huawei has been quietly but aggressively building its U.S. business, said Greg Schultz, founder of StorageIO, a Stillwater, Minn.-based research firm.

"I think when people find it to be a $1 billion business in the U.S., it won't be quiet anymore," Schultz said. "It's the classic story of how the elephant snuck into the circus tent. It did so trunk-first, then gradually pushed itself in until someone said, how did that elephant get in the tent?"

Huawei is quietly building up customer accounts and partnerships, and when it is ready to make noise, it will give potential new customers confidence in its solutions, Schultz said.
That, however, will require Huawei to build a strong channel, he said.

"When China does something, it takes an army approach," he said. "When they build a road, it takes an army. When they build software, it takes an army. To win in the U.S., they need to build an army of channel partners. But it needs to do so quietly until one day people notice it."

That army of channel partners will have to come from those who are currently close to rivals such as Cisco Systems and Juniper Networks, Schultz said. "Huawei needs to flip some deals," he said. "It's a battle for hearts and minds."

Investing In Research And Development, Investing In Channels

During a question-and-answer session at the Huawei Global Analyst Summit, Zhang through an interpreter said Huawei in 2013 invested $800 million in research and development for its enterprise business, or about 33 percent of its total enterprise revenue, compared with only about 12.8 percent of carrier network business revenue invested in that business' research and development.

That investment has paid off, Zhang said. "The revenue base for our enterprise business is not big, but it's growing fast," he said. "We're the first to introduce SDN into campus networks, making the networks more agile. We have other innovations in cloud data centers, unified communications and others."

That investment has resulted in some amazing technology, said Don Hows, manager of online and distribution channels at Daystrom Technology Group, a Half Moon Bay, Calif.-based Huawei storage partner.

Hows looks forward to getting access to Huawei's OceanStor UDS storage solution, which gives each SmartDisk in the system its ARM processor and networking resources, making it well-suited for large object stores.

"We don't have access yet because Huawei's support staff is not yet complete in the U.S.," he said.

The Huawei Enterprise Business Group also has made a significant investment in the channel, with 2013 seeing about 5,400 new channel partners, including more than 1,100 solution partners and about 1,100 services partners, sign up with the organization, Zhang said. "About 68 percent of our revenue comes from channel partners," he said.

Zhang told CRN that the Huawei brand, which is well-known in the telecom market, is not as well-known in the enterprise business.

As a result, Huawei is dependent on channel partners to build its business and spread the word about its brand, he said.

"We need channel partners to do business with enterprise customers, both for signing contracts and doing services," he said. "We need to enable our partners."

Huawei also needs partners to stand between it and its customers, Zhang said. "We don't sell direct," he said.

Still Much Work To Do

Even so, Huawei has much work to do to build its U.S. business.

Schultz said it's one thing to want to take on Huawei as a partner, but it's another thing in the context of established competitors such as Cisco.
"VARs need to ask, 'What is the value proposition that will make me want to talk to Huawei?'" he said.

Huawei, meanwhile, already has signed up a couple of large national solution providers with a large online presence, including Newegg and TigerDirect, as well as multiple smaller solution providers. The company also works with Danvers, Mass.-based Sumaria Networks to provide training to customers and channel partners.

However, the company still has a lot of work to do to increase its U.S. footprint, solution providers said.

While Huawei has signed up distributors including ASI, Synnex and Communications Test Design (CTDI), it needs to do more, EcoTech Solutions Group's Guerendo said.

It also needs to increase its brand awareness. "Huawei needs more marketing," he said. "People need to know who Huawei is. It needs to be more acceptable as a brand. The company has good products. Most hesitation in the market comes from people now knowing who Huawei is."

Positive press about Huawei would help, VoIP Supply's Costelloe said. "They've received a large amount of negative press related to the House Intelligence Committee panel's findings in 2012."
Huawei also needs to build brand awareness in North America, Costelloe said.

"They are a $39.5 billion company that no one really is aware of in the United States," he said. "The U.S. may prove to be a tough market for them to break into. Cisco holds a large share of the enterprise market, and in the SOHO/SMB space lines such as Netgear and Adtran have been performing well for us."

Huawei's difficulties in breaking into the U.S. market are not because of its technology, Costelloe said. "Featurewise, Huawei's VoIP phones are comparable with the other manufacturers," he said. "The quality and design of them appears quite good. They're good-looking phones."

This article originally ran an as an exclusive on the CRN Tech News App for tablet.