Huawei & ZTE Under Scrutiny Again, This Time By The European Commission For Unfair Competition
Another round of headaches for Chinese telecom equipment makers Huawei and ZTE–after previously facing scrutiny over security concerns in the U.S., the two companies are now being targeted by the European Commission. The European Union’s executive body is seeking to investigate Huawei and ZTE for undercutting European firms by receiving state subsidies, and wants the backing of EU states to move ahead even without a complaint from domestic manufacturers, according to sources cited in a Reuters report.
Reuters reports that European manufacturers Ericsson, Alcatel-Lucent, and Nokia Siemens Networks have refused to cooperate with the Commission or file a complaint because they fear being shut out of the lucrative Chinese telecoms market. In turn, Huawei has denied receiving unfair subsidies and says it complies with international laws and does not engage in espionage. Huawei is the world’s second largest telecom gear maker after Ericsson.
According to the report, EU Trade Commissioner Karel De Gucht intends to move ahead and bring up the issue with EU trade ministers at a meeting in Dublin this week. An internal EU report last year recommended that EU take steps to limit the growth of Chinese telecoms equipment maker, citing competition against domestic companies as well as threats to security.
The Commission’s complaints are similar U.S. concerns about the Chinese companies. Last month, Sprint Nextel and SoftBank pledged not to use gear from Huawei if they merged, though that tie-up is now uncertain after Dish Network launched a $25.5 billion bid to compete with SoftBank’s previous offer of $20.5 billion. Huawei recently said that its U.S. growth prospects will be hindered this year by U.S. security concerns after a U.S. congressional report last October found that U.S. national security interests could be undermined if Huawei and ZTE provide gear for critical infrastructure.
But EU companies have not taken a unilateral stance. In Britain, Huawei has been subject to scrutiny by the government over security concerns, though the company is also seen as a major job provider both there in the Netherlands. Germany, however, stopped Huawei last year from providing infrastructure for a national academic research network.
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Investment Firm Expects AWS Will Hit $20 Billion In Revenues By 2020
Bernstein Research has issued a research report saying it expects AWS will have an estimated $20 billion in revenues by the end of the decade. In a separate report, RW Baird & Co. projects $10 billion in revenue for AWS by 2016 and up to $40 billion in losses from the traditional IT market. The estimates reflect Wall Street’s growing confidence in cloud services and the need that analysts see in letting their customers know that a shift is underway that will lead to continued flat revenues or even losses for enterprise companies and systems integrators. In times of disruption, something like AWS may actually exceed investment analyst projections. Conversely, AWS success is not a certainty. Technologies may advance that will flatten AWS advantages or Amazon can’t scale the group’s services fast enough to keep its edge. These are the factors that investment research houses consider when making corporate financial projections. Overall, Baird and Bernstein cite a number of reasons that account for why AWS will do so well. The reasoning is sound but not without weaknesses, such as why AWS success will be harder to come by with large enterprises.
A Turning Point
The public cloud reached a turning point last year. As Baird states in its report, the top 10 cloud providers grew 37 percent while more traditional technology companies grew by 2 percent. AWS does not break out its revenues. Bernstein, based on its own research, estimates that AWS grew 100 percent year-over-year. Bernstein estimates AWS is worth $24 billion, 13 times its approximate $1.8 billion in revenue (Amazon does not break out revenues for AWS). In contrast, Bernstein reports that Rackspace, as of April 1, trades at about 5.3 times 2012 revenue. Its revenue grew 28 percent compared year-over-year. Its public cloud service revenues of $309 million account for 23 percent of total revenues. Rackspace, it should be noted, has aggressive expansion plans of its own and has been one of the founders of OpenStack, the open cloud effort. Developer interest has grown consistently in OpenStack since its unveiling. Google is a more concerning foe with Google Compute Engine and Google Apps. And Microsoft’s Windows Azure puts the company in position to compete in the cloud space.
How The Market Breaks Down
Enterprise Software: Baird Analyst Steve Ashley, quoted in the AWS report, “views client/server vendors like… SAP and BMC as most likely disintermediated, and SaaS companies like Salesforce, Concur, and cloud infrastructure vendors like Citrix and Red Hat as beneficiaries of the shift towards cloud computing.” The former are large, powerful companies that have built core businesses critical to IT. How these companies adapt is still a big question.
Customers will continue to invest in these providers to keep their businesses running. The time is now to ramp up and offer SaaS options, embrace mobile and offer friendly developer environments. ”Over time traditional IT will be forced to go to SaaS. The first choice will be mobile,” said Forrester Research Analyst Lauren E. Nelson to me in a recent interview.
IT Systems and Networking: According to Baird, HP and Dell have the potential to be most disrupted. EMC, VMware and NetApp also face exposure. When customers start using AWS, they stop buying storage and networking equipment. That certainly is a factor but data is so deeply embedded into these systems that analytics will give these players value over time. They also have deep histories with enterprise shops, and that dominance is not going to pass anytime soon. Realistically, AWS does have its own weaknesses in both storage and networking. ProfitBricks, for example, is leveraging its InfiniBand network and instance sizes that can scale to 62 cores and 240GB of RAM. HP is making its own play with OpenStack, as is Dell, which is also putting a deeper focus on next-generation storage and networking technology. Here’s Baird’s “competitive heat map” that shows how AWS stacks up compared to the rest of the market.
The greater danger stems from the AWS infrastructure and the breadth of what the cloud service offers. Developers get choice when they use AWS. It’s useful for test and development, as an extended network for media companies to offload peak demand. Pharmaceutical companies use AWS for its computational power and storage. According to the Bernstein report, customers that use AWS face high switching costs, because they use more services and customize their applications. And so even if there is more competition, AWS will most likely be able to protect its high margins, which Bernstein estimate at 25 percent. Amazon weathers pricing wars with the rapid addition of new features.
Importantly, the vast majority of the customers we interviewed stated that they would not change IaaS providers even for a 20% or so price discount, as switching would bring risks and, importantly, require them to invest scarce development resources, for example, to redevelop monitoring and management tools on the new provider’s application programming interface (API). While customers running relatively simple applications (e.g., the front end of a website) did not see material switching barriers, most users we interviewed have more complex, and hence “stickier” use cases.
Conclusion
AWS benefits from the steep demand in the market for computational, storage and networking power. It is built on a distributed infrastructure. At its core, AWS is complex due to the additional technologies needed to make an app or service truly robust. But still, customers start with AWS and often remain loyal. In turn, AWS has become an ecosystem for developers. Ask about a startup’s infrastructure and the founder will often say they run it on AWS. But AWS is not the only game in town and it still has not proven that it can provide the deep infrastructure that the enterprise requires. It’s a 10-year cycle that is underway that will keep a lot of infrastructure intact, on-premise. That gives the enterprise giants some time, but to this date they have not shown a deep willingness to embrace the hyper-scale infrastructures that customers demand.
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Bitcoin Price-Drop Caused By Rush Of Interest, Not DDOS, Says Mt.Gox Exchange; Newcomers Now Opening ~20k Accounts Per Day
The Bitcoin correction we wrote about yesterday was not caused by a DDOS attack on one of the largest Bitcoin exchanges, Mt.Gox, but rather by a massive spike in interest in the crypto currency, according to Mt.Gox.
During trading yesterday the value of Bitcoin plummet by 60%, dropping from a high of $265 to around $150 (at the time of writing it has climbed back up slightly, to around $180). As the value of Bitcoin dropped, San Francisco-based exchange called TradeHill claimed the fall was a result of distributed denial of service attacks on Mt. Gox and Bitstamp.
But Mt.Gox has now posted a notice on its Facebook page explaining the dramatic dive as the result of too much interest in Bitcoin. As its infrastructure slowed down under the volume of new users crowding in, it said the resulting lag then caused traders to panic and sell off currency — triggering the drop.
Earlier this month the Tokyo-based exchange was hit by a DDOS attack — which it said had caused its “worst trading lag ever“. But this time the lag was caused by the Bitcoin goldrush, and existing investors’ fearing a Bitcoin bubble.
Mt.Gox said 60,000 new accounts were opened in the first few days of April alone, vs 75,000 for the whole month of March, and added that it is seeing an average of 20,000 new accounts opened per day, while trading volume has apparently tripled in the past day.
As a result of the increased strain on its infrastructure, Mt.Gox said it may have to temporarily close the exchange for two hours in order to add more servers. ”We have been busy working on improving things since last week and our team has been working around the clock to improve Mt.Gox to catch up with the demand,” it added. “We will continue to release several updates today and in the coming few days to improve our system overall performance.”
As well as needing to bolster its infrastructure to cope with the influx of new users, having previously been a DDOS target — and with the value of Bitcoin still so high and the market so volatile – Mt.Gox can expect to be a target for hackers for the foreseeable future, which is another reason it needs to beef up its infrastructure.
Mt.Gox’s update follows below in full:
Hi everyone, just a quick update on the situation and what happened last night.
First of all we would like to reassure you but no we were not last night victim of a DDoS but instead victim of our own success!
Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!
To give you an idea of how impressive things were here are some numbers that we would love to share with you guys:
- The number of trades executed triple in the last 24hrs.
- The number of new account opened went from 60k for March alone to 75k new account created for the first few days of April! We now have roughly 20,000 new accounts created each day.Due to these facts we have been busy working on improving things since last week and our team has been working around the clock to improve Mt.Gox to catch up with the demand. We will continue to release several updates today and in the coming few days to improve our system overall performance.
Also please note that we may have to close the exchange for two hours in the next 12 to 24hrs to add several new servers to our system.
Thank you for your understanding and continuous support!
Update: A notice on Mt.Gox’s Facebook page, posted several hours after the prior update, confirms the planned network downtime maintenance has been completed. However it also says the exchange is now under DDOS attack.
Read the original post: Bitcoin Price-Drop Caused By Rush Of Interest, Not DDOS, Says Mt.Gox Exchange; Newcomers Now Opening ~20k Accounts Per Day
Huawei Says Security Concerns Will Hinder U.S. Growth, But It Still Expects Traction In Europe And Asia
Huawei, the world’s second largest telecom gear marker after Ericsson, said that its U.S. growth will be hindered this year by U.S. security concerns. But Bob Cai, the Chinese company’s vice president in charge of wireless-network marketing, told the Wall Street Journal that Huawei still expects its key wireless-network business to gain ground in Europe and Asia.
Huawei has been dealt two major setbacks in the U.S. over the past half-year. In October, a U.S. congressional report said that Huawei and ZTE’s “provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests,” a claim that both companies disputed. Then last week, Sprint Nextel and SoftBank pledged not to use gear from Huawei after they merge.
Huawei is counting on other overseas markets, as well as its domestic market in China, for revenue growth. In 2011, Huawei’s wireless network business accounted for 45.91 billion yuan (about $7.4 billion USD), or 23 percent of the company’s total revenue of 203.93 billion yuan. Seventy percent of its group revenue is generated abroad and the company says that its biggest markets are in Western Europe and emerging Asian markets like Indonesia. In Europe, Cai told the Wall Street Journal that Huawei has “already built trust” with carriers.
Like smaller rival ZTE, Huawei is also pegging its domestic growth on China’s nascent LTE network. The country’s big three mobile carriers–China Mobile, China Telecom, and China Unicom–are all busy building out their LTE infrastructure. Together, the three companies will spend 345 billion yuan ($56 billion USD) on expanding their 4G networks this year. Cai told the Wall Street Journal that last year Huawei made $1 billion in revenue from its LTE network business, and that the company expects that figure to double to about $2 billion this year.
Overall, Huawei expects its mobile infrastructure unit to grow by at least 10 percent this year, after 11 percent growth in 2012. Despite the added challenge of U.S. security concerns, Huawei’s competitors like Ericsson have also had tough time over the past few years thanks to the poor economic climate. For instance, Ericsson’s 2012 group revenue was 227.78 billion Swedish kronor ($35.1 billion USD), almost flat when compared with its 2011 revenue of 226.92 billion kronor.
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ZTE Posts Second Straight Net Loss Of $183M In Q4 On Emerging Market Woes
As it already warned, ZTE posted its second-straight quarterly loss, due to vastly trimmed margins in emerging markets, as well as contract delays and falling handset sales in China.
It made a net loss of 1.14 billion yuan ($183 million) in the three months ended Dec. 31, compared with its net income of 991.16 million yuan a year prior. Sales in the fourth quarter also fell 16 percent to 23.5 billion yuan ($3.78 billion).
In all, this makes it the first time ZTE has posted an annual loss, at 2.84 billion yuan ($456 million).
The company blamed the decrease in profit margin on low-margin contracts in emerging markets like Africa, South America and Asia, as well as its home market of China.
ZTE has spent the last 20 years aggressively expanding overseas, but often at the cost of profitability because of its slim profit margins as it undercuts European equipment makers in emerging markets such as India.
It recently said it will try to cut costs and make a profit in the first quarter by focusing on developed markets, instead.
ZTE has been lagging behind fellow Chinese rival, Huawei Technologies. The former recently announced it will increase its investment in 4G infrastructure, in order to catch up with Huawei, as the two compete for most 4G contracts from the three major carriers in China—China Mobile, China Unicom and China Telecom.
Huawei is the second largest global maker of telecoms equipment, while ZTE is fifth-largest.
As for its handset play, nobody is really staking a claim on the Android market the way Samsung is. According to Gartner’s latest report, Samsung has 42.5 percent of the global Android market, with the next vendor at just 6 percent. And it grew this share in just a year, eclipsing Taiwanese competitor HTC to leave it trailing by 30 percent at the end of 2012.
Across OSes, Samsung and Apple have the number one and two slot respectively atop the global share, at 29 percent and 21.8 percent, respectively, according to IDC. Huawei has 4.9 percent, Sony has 4.5 percent, and ZTE is fifth at 4.3 percent.
But ZTE has more to worry about than just the Samsung juggernaut. Its general focus on the low to mid-range Android handset market means that thinner and thinner margins make it less worthwhile to duke it out in emerging markets.
Its new plan to attack the high-end market is testament to that. The definition of a “smartphone” is changing to include a lot of lower end devices now, and isn’t just reserved for premium handsets anymore. And with about half a billion handsets this year to sell for less than $100, makers will have to sell an awful lot just to keep above the water.
Excerpt from: ZTE Posts Second Straight Net Loss Of $183M In Q4 On Emerging Market Woes