Things are about to get a little hotter for Cisco in the enterprise market.
Huawei, the cut-rate Chinese competitor Cisco fears most, is formalizing its entry into the U.S. and global enterprise market. It's establishing a presence in Silicon Valley, and shifting over and recruiting 10,000 people to staff its new group - one of three main Huawei business units along with Devices and Telecom Infrastructure.
Karen Yu is president of Huawei's Enterprise business in the U.S. The company is recruiting channel partners to market its campus networking, branch access, IP backbone, data center and videoconferencing products.
Three product areas will be a key focus for the new group, however: LAN switches, access routers and telepresence, says John Roese, Huawei's senior vice president and general manager of North American R&D. Huawei, a $29 billion company, did $2 billion in enterprise business last year, but by formalizing its enterprise efforts and attacking the North American market in earnest, it's looking to at least double that this year, and more than triple that tally in 2012.
Cisco has dominated the enterprise networking market for a decade or more. Juniper entered the market in 2004 with its NetScreen firewall and VPN acquisition, and then with LAN switches in 2008, but its sales there have been flat of late. HP is the clear No. 2 in LAN switching behind Cisco, and doubled its market share by acquiring 3Com in 2009. But HP is still at about 10% market share, while Cisco enjoys 65% or more.
What makes Huawei different and why now?
Three reasons, according to Roese: 1) the carrier, enterprise and consumer markets are converging, and that plays to Huawei's competencies in each market, he says; 2) there hasn't been a "major new entrant" in a while, even though the market grew substantially; and 3) customers trying to figure out consumerization of IT, the blurring lines between enterprise, carrier and consumer, and how to build extended or virtual enterprise.
"We're entering a market where many of our competitors are a bit complacent," Roese says. "Smaller players are not really strategic threats because they simply are not big enough. Huawei, on the other hand, is clearly big enough."
If Huawei hits that goal of $7 billion in enterprise networking revenue in 2012, it will clearly be the No. 2 player to Cisco, Roese says. The company is looking to be a $10 billion to $15 billion enterprise player in the next five years, he says.
He expects most of that business to come at the expense of Cisco rather than the HPs, Junipers, or smaller players like his old employers Enterasys and Nortel enterprise, which is now owned by Avaya.
"If we took share from everyone but (Cisco), we wouldn't hit our number," Roese says. "The smaller players could potentially struggle in this environment. When there's true competition among the big players, the big players innovate and go after more of those niches filled by smaller players. It will be tough for the mid-sized players to meet the scale of the big players."
First, Huawei has its work cut out. It has to cultivate a roster of channel partners and convince them to push a Chinese brand with a checkered past - Huawei was embroiled in patent and intellectual property litigation with Cisco years ago. Huawei's Chinese roots also led to security concerns in the U.S. when it and Bain Capital looked to acquire 3Com years ago. That deal collapsed.
Huawei also has to Westernize its product portfolio and make the user interface a little more familiar to customers in North America, Roese said.
The Chinese and intellectual property issues are well in the past, Roese says.
"We're multinational with a significant presence in China and developing countries," he says. "Most of the global companies that exist have already gotten over their concerns about competing in a global ecosystem. Lots of verticals in the U.S. are open to a global company, an international company, selling them technology."
He says Huawei over the years has invested "huge resources" into building up its own intellectual property portfolio. It now owns 50,000 patents and has 120 leadership positions in standards bodies around the world, Roese says.
"Clearly, we recognize the value of intellectual property and put a huge amount of resources into making sure we were a have, not a have not, in this market," he says.
Roese is also confident that the economics of the Huawei channel program will entice partners, and that profit distribution will be "a little bit more equal" for all parties involved vs. competitive programs.
One area where Huawei will stay to the sidelines and let the dust settle is in data center fabrics. Huawei already has a unified fabric offering for carriers and service providers; but it's content to wait a bit before pushing it in the enterprise.
"The idea of a customer making such a radical shift in their data center architecture is such a high risk proposition for an enterprise CIO that this is going to take a long time to progress," Roese says. "Let the war happen, let the customer settle down, let the technology mature. Let competitors kill each other, learn what they did right or wrong. We'll be at a pretty good advantage especially when we're not losing the ability to penetrate the market."
Roese says Huawei's interest is more in cloud architectures "on the outside" and gateways to connect into it through access routers.
Huawei's enterprise headquarters will be split between China and Santa Clara.