Huawei joins the pack moving into telco software

Huawei Technologies has spun off its Application and Software Division into an independent unit, Huawei Software. Huawei says this will help achieve its goal of becoming the world's leading vendor in end-to-end software products and services for the convergent telecom market, building on its success in the Chinese market.

Dr Che Haiping, Head of Huawei Software said: "To achieve this, Huawei has designed Huawei Software with a relatively independent and flexible business operation approach. This allows us to explore service convergence to assist operators successfully transform their business operations."

According to Che, the new division has grown rapidly, with an average annual growth rate of about 33%. In 2007, it has achieved sales of €886 million (US$1.4 billion), 55% of which came from the international market.

Global suppliers of services to telecom operators saw revenue increase across the board in 2007 as the total market grew to (€45.13 billion), an 8% increase over 2006, according to Technology Business Research's Telecom Infrastructure Services (TIS) Market Model.

The report pointed to the greater focus in software and services by many players "businesses to help insulate against slowing demand for telecom equipment". The likes of HP/EDS, Accenture and IBM are increasingly interested in providing software for telcos.

Still, at the moment China Mobile's VAS accounts for almost 30% of Huawei Software's revenues and the company is eying big players in the European market.

Formerly the combination of skilled engineers and a low cost base gave Huawei a competitive edge, but rising costs, the increasingly strength of the Chinese RMB currency and competitors moving their production lines east to reduce costs have blunted that edge.

Now Huawei Software needs to define its role in media, advertising and entertainment, and work out how it will exploit opportunities through strategic cooperation and joint ventures with big players.

In short, the strategy looks like a good move, but competition is hotting up and many of Huawei's biggest rivals are already well established with its main targets - the Tier 1 European operators.