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Technology Stocks : 5G Wireless and the Internet of Things (IoT)

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To: Eric L who wrote (21)3/10/2020 1:55:49 PM
From: Eric L   of 44
5G Technology Leadership: Huawei and Others (Part 2 of 2) ...

... [continued from prior post "Huawei's '18-month lead' in 5G is telecom's most spurious claim."]

Country rankings make a mockery of the Huawei leadership claims, too. In a report published in March 2019 by respected consulting firm Arthur D. Little [see PDF LINK at the end of this post] put Australia, South Korea and the US among a small number of 5G leaders, describing most other countries as either followers or laggards. If Huawei is 18 months ahead of its competitors, could three countries that make zero or minimal use of its equipment ever be 5G leaders? "How is it that the two leading 5G markets in the world are the US and South Korea?" asks John Strand, the CEO of advisory group Strand Consult.

One of Huawei's major European customers also takes issue with the claims about its 18-month technology lead. Arnaud Vamparys heads up the 5G technical program for Orange, which currently operates networks through Europe, Africa and the Middle East. In selecting 5G suppliers, he wanted diversity without compromising the reputation for network quality Orange established in the 4G era. "We finished with five suppliers able to roll out in Europe, namely Ericsson, Huawei, Nokia, Samsung and ZTE," Vamparys tells Light Reading. "I don't see this 18 months. Of course, you have positive and negative things in our benchmarks, but it is not so black and white."

Research muscle

Awestruck and Huawei-fearing observers have regularly drawn attention to the imbalance in research and development (R&D) spending between the Chinese vendor and its competitors. Last year alone, Huawei pumped a massive $18 billion into R&D, according to Ryan Ding, the CEO of its carrier business. Nokia's budget was just $4.8 billion, while Ericsson managed only $4 billion. Yet this comparison of headline amounts overlooks the huge differences between the three companies. "Ericsson is pure mobile and Nokia is mainly mobile plus some other things," says Strand. "Huawei's R&D budget covers chipsets, fixed line, mobile, cable TV solutions, AI solutions, data centers, mobile phones, laptops and tablets."

That budget even extends into activities outside its main addressable market, he says. Besides making telecom equipment, Huawei has also been a significant player in the solar energy business, according to Strand. Indeed, in June last year, it was reported by the UK's Financial Times to have shut down a US solar business that sold inverters, a type of electrical converter. The global significance of this solar business is unclear because Huawei's most recently published annual report, for 2018, makes only one cursory reference to the products it develops. "There is no transparency in the way they do things," says Strand.

Nor do the headline figures prove that Huawei allocates funds and spends them more efficiently than its rivals. The firm is understood to have a more scattergun approach than other vendors, a greater willingness (and ability) to support initiatives that might ultimately fail. While this risk-taking might boost the likelihood of breakthroughs, companies with far smaller R&D budgets have remained competitive in the 5G era.

The standout example is perhaps ZTE, another Chinese vendor whose entire R&D spending was less than $1.6 billion in 2018. Despite the gap with its rivals, ZTE increased its share of the overall market for telecom equipment by two percentage points last year, to about 10%, according to market research firm Dell'Oro. In 5G, Orange's Vamparys holds it in high regard. "It has very good technology and quality, even in standalone mode," he says. "It is one of our main vendors."

If Huawei does hold a technology advantage, it probably relates to the breadth of its product portfolio. No other vendor can provide the full spectrum of high-quality network equipment along with consumer gadgets, data center components and even some cable TV products. This makes Huawei a competitive threat in nearly all segments of the market, and a real danger when customers want to buy almost everything from the same vendor. But within specific areas, each of the leading suppliers could boast strengths, according to Stefan Pongratz, an analyst at Dell'Oro. Another analyst for a different organization is in broad agreement. Talk of an 18-month lead is "mainly rubbish," he says.

None of this would justify banning the Chinese vendor. Arguments about the security of Chinese equipment and illegal activities by Chinese firms are separate matters for consideration. Unfortunately, the spurious claims regarding Huawei's technology lead are being used to influence that debate one way or the other. Service providers and policymakers are right to worry about competition and supplier diversity, and Huawei must these days be acknowledged as a formidable technology player – just not one that has a monopoly on 5G expertise. <<

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Arthur D. Little's 16 page repoort referred to in the opening paragraph above is available in PDF format. That PDF is linked below:

The Race to 5G

Arthur D. Little
March 2019

- Eric L. -
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