Objects may appear larger than they are…
Over the last couple of weeks there have been a number of media reports (e.g. The Economist: Who’s afraid of Huawei?) suggesting that Huawei has become the biggest telecom vendor in the world. The basis for these claims are the H1 financial reporting which reveals that Huawei revenues (2012 H1 ~16.2B$) have surpassed Ericsson (2012 H1 15.4B$).
For me, these claims are a good reminder of how much the telecom vendor landscape has changed over the last 5-10 years and how traditional definitions of what a telecom vendor is have become less relevant.
That Huawei has surpassed Ericsson in revenues is not surprising since it has broadened its portfolio with enterprise and handsets offerings – the same markets that Ericsson has left in the same period. But I would not rank any of them as the biggest telecom vendor. I would place Apple in that position (~38.9 B$ in H1 2012 from just sales of iPhones) followed by Samsung ( 34.6 B$) in H1 2012 in mobiles).
Then you could of course argue that handsets/smartphones should not be included in a telecom equipment market comparison. I would argue they should, because of the significance handsets have in the overall mobile ecosystem (think pre- and post Apple’s entry). Also it is in several cases developed and sold by the same players that do network equipment. In my opinion smartphones are the most impressive pieces of telecom equipment that have ever existed.
But, for the sake of the argument, let’s exclude handsets from the equation – who is biggest then? I would put Cisco on top. With its 23.1B$ in Q2 and Q3 revenues (fiscal year ending July) Cisco is a good margin bigger than both Ericsson and Huawei. Again, you could of course argue that we should not include enterprise telecom equipment (which is the biggest part of Cisco’s sales) in the comparison. Yet again I would argue it should, since the difference between enterprise and operator telecom equipment is quite blurred these days. The Googles and Facebooks of this world are building “carrier grade” networks without engaging traditional telecom vendors.
But again, for the sake of argument, let’s remove enterprise equipment from the equation. Who is biggest telecom vendor then? With handsets, enterprise gear removed and only focusing on the telecom equipment and services that operators in the world are buying?
It’s not that easy to tell since Huawei is not a publically listed company, and they only provide total revenues for H1 2012 without breakdown of individual business units. But if we look at the results announcement for the full year 2011, about 74% of revenues came from the operator market. The rest is from the enterprise market and handsets, which represents its targeted growth areas. It is therefore very likely that Huawei’s H1 2012 revenues have a lower percentage of operator market revenues than in 2011. This would mean that Ericsson is still biggest telecom vendor, since the numbers it is reporting are almost 100% from equipment and services sold to operators.
However, as I’ve suggested here, the historical way of measuring who is the ‘biggest telecom vendor’ bears very little relation to how that market has evolved. If we look at who and what is influencing the telecom market the most today, using the “follow the money” principle, Apple and Samsung are playing in their own league when it comes to revenues and even more so when it comes to profits (99% of all handset profits). When and what products they are releasing are dictating so much for the telecom industry. Telecom vendors or not, this is where center of gravity is.