In addition to responding to the US supply cut, Huawei's self-developed basic software is also why

In the four basic software fields of operating systems, databases, middleware, and programming tools, Western manufacturers have long been in a monopoly position. Huawei's breakthrough in this field is not only the only way to resolve the neck crisis, but also an important step for major manufacturers to take the lead in strengthening China's software ecosystem

Text | Wu Junyu Xie Lirong

Edit | Xie Lirong

Since 2019, Huawei has been restricted by the US government for several rounds, and Huawei has walked in the established rhythm according to the new logic of "everything needs to rely on itself".

On March 19, Huawei founder Ren Zhengfei mentioned at Huawei's "Difficult Problem Unveiling" Spark Award Expert Symposium that Huawei has made its own management system MetaERP software with its own operating system, database, compiler, and language. MetaERP is Huawei's internal business resource management software, which has been tested by the application practice of various departments around the world and the annual settlement of the company's general ledger.

ERP (Enterprise Resource Management) software covers all aspects of enterprise management, including supply chain, procurement, sales, orders, shipping, inventory, finance, customer relations, human resources, etc.

ERP software is only one of Huawei's breakthrough achievements in the field of basic software in the past three years. In terms of basic software development tools, Huawei has completed the replacement development of 13,000+ devices and the repeated replacement of 4,000+ circuit boards in three years. Overcome the survival problems caused by the US government's supply cut-off in stages.

Self-developed software business is one of Huawei's key breakthrough directions in 2023. "Financial Eleven" learned that Huawei's self-developed software business mainly focuses on basic software, especially the platform software in basic software. This continues Huawei's investment in root technology. Huawei has made its own management system MetaERP software with its own basic software, which means that Huawei has achieved independent control in all four major areas of basic software (operating system, database, middleware, and programming tools).

MetaERP as a platform software, competitors are Oracle, SAP and other high-end ERP software market. The judgment of many professionals is that Huawei's self-developed MetaERP aims to achieve a breakthrough in localization and expand the domestic software ecosystem, rather than sharing the application software market with partners. Oracle and SAP become bigger, relying on a large number of software implementation partners, how far MetaERP can go will also depend on this factor.

For the industry, China's software industry has been in a state of "big but not strong" for more than a decade, and at this stage, large companies need to personally cultivate the ecology. Domestic enterprise software companies generally have a limited scale, such as Kingdee and Yonyou, with annual revenue of no more than 10 billion yuan, and no more than five software companies with cloud subscription revenue of more than 100 million US dollars.

Ren Zhengfei said that Huawei is still in a difficult period, but it has not stopped on the road ahead. In 2022, Huawei's R&D expenditure will be 23.8 billion US dollars, and it will continue to increase investment in cutting-edge exploration in a few years.

It is understood that Huawei intends to open MetaERP and a number of design tools to the outside world and expose them to social applications.

Focus on basic software

China's software industry has long had the problem of "emphasizing application over foundation". Specifically, it focuses on the development of application software (finance, auditing, taxation, customer management, office collaboration, etc.), and ignores the research and development of basic software (operating systems, databases, middleware, programming tools).

As a result, China's software industry ranks third in terms of revenue in the world, but in the field of basic software, China's revenue scale ranks sixth in the world, even lower than Japan, South Korea, and Russia.

According to the White Paper on the Development of China's Software Root Technology released by the China Software Industry Association in November 2022, the global software industry revenue in 2020 was about $10 trillion. The top seven countries and regions are: the United States $2.7 trillion, Europe $21,000 trillion, China $800 billion, Japan $700 billion, India $350 billion, South Korea $300 billion, and Russia $300 billion.

However, in the field of basic software (operating systems, databases, middleware, programming tools), the US revenue is $810 billion, accounting for more than 60% of the global business revenue in this field. Europe $210 billion, Japan $70 billion, South Korea $45 billion, Russia $45 billion, and China only $36 billion.

China has made mixed progress in the four major directions of basic software, and databases and middleware currently have relatively mature domestic alternatives, but operating systems and programming tools are currently highly dependent on international companies.

In terms of operating system market, Microsoft's Windows and Apple's MacOS desktop operating systems have a global share of more than 90%; Google's Android and Apple's iOS mobile operating systems also have a global market share of more than 90%. Domestic desktop operating systems are modified from open source Linux systems, and the domestic market share does not exceed 5%.

In terms of programming tools market, Visual Studio under Microsoft and IntelliJ IDEA under JetBrain occupy the main share of the integrated development environment (IDE) market. An integrated development tool is software that develops software. A software development technician told Caijing Eleven that one of the reasons why Microsoft is strong in the software market is that developers around the world develop software based on Microsoft's software tools, and then contribute the code to the Github code hosting platform acquired by Microsoft after development. This means that software development tools, standards, and ideas are all on the Microsoft ecosystem.

In terms of the database market, Oracle, Microsoft and IBM are the three leading companies in the world. According to the latest IDC data, Oracle's share of global relational databases is about 42% of the market, compared with 24% for Microsoft and 13% for IBM. However, the database is currently the fastest and best alternative field in the field of domestic basic software.

China's database market is relatively active, and the speed of domestic substitution is accelerating. At present, domestic cloud computing vendors have launched self-developed database products, such as Huawei's GaussDB, Alibaba Cloud PolarDB, and Tencent Cloud CynosDB. There are also hundreds of domestic databases based on the open source database MySQL in China, and the four small dragons of information and innovation, such as Wuhan Dameng, Renmin University Jincang, Nanda GM, and Shenzhou GM, are typical enterprises. Gartner, a third-party market analyst, predicts that in 2025, the proportion of overseas vendors in China's analytical database market will be only 30%, and the share of overseas vendors in the transactional database market will only be 50%.

In the middleware market, Microsoft, IBM, Oracle, SAP and Salesforce are typical enterprises. Some software technicians told Caijing Eleven that middleware in a narrow sense refers to a platform that supports application development and integration. As enterprise business is increasingly integrated with technologies such as cloud and middle office, the role of middleware has become more and more blurred. Platform software such as Oracle, SAP, and Salesforce also act as an integrated function of enterprise resource management and application development. Huawei's MetaERP can also be regarded as such platform software.

Huawei's current progress in the four major areas of basic software is different.

Middleware and databases are key areas for Huawei to open up to the outside world for commercialization. Huawei's GaussDB database has a mature commercialization path in the financial and government fields. MetaERP as a platform software, targeting ERP software. One explanation is that MetaERP is consistent with the positioning of high-end ERP software such as Oracle and SAP, in order to meet the needs of internal resource management of large domestic enterprises.

ERP software is not so much a set of software as a set of software management system. It covers all aspects of business management, including supply chain, procurement, sales, orders, shipping, inventory, finance, customer relations, human resources, etc. MetaERP satisfies the management requirements of Chinese enterprises for localization. Oracle and SAP become bigger, relying on huge software implementation partners, and how far MetaERP can go will also depend on this factor.

Operating system, programming tools, two areas that have been monopolized for a long time, Huawei has previously given a spare tire plan. In the direction of operating system, Huawei has laid out two products, Hongmeng and Euler. Hongmeng for intelligent terminals, Internet of Things terminals and industrial terminals; Euler targets servers, edge computing, cloud, and embedded devices. In the direction of programming tools, Huawei opened HUAWEI CLOUD software development production line CodeArts. However, the above spare tire schemes are currently in their infancy, the ecological scale is limited, and there is still a long way to go.

Make a thick software ecosystem

From a longer-term perspective, Huawei's launch of MetaERP is another purpose to thicken the platform software and expand the software ecosystem. Make up for the shortcomings of platform software in the domestic software ecosystem.

The embarrassment of China's enterprise software industry has been that it is difficult for China to produce large software vendors such as Salesforce, Oracle, and SAP. The three enterprise software companies generated revenue of $31.4 billion, $42.4 billion and $32.9 billion in the most recent fiscal year, respectively. The market capitalization is $184.9 billion, $230.2 billion and $136.5 billion, respectively.

There are currently no listed companies in China with software revenue of more than 10 billion yuan, and the market value of software companies is almost always less than 100 billion yuan. A Chinese cloud vendor executive and enterprise software investor also told Caijing Eleven that there are at least 140 software companies with ARRs greater than $100 million in the US market in 2020. However, there are less than 10 domestic ARR (Annual Recurring Revenue, or SaaS cloud subscription revenue) with an ARR greater than $100 million, and zero companies with ARR greater than $300 million.

In China's IT expenditure structure, the proportion of software has also been lower than the world average for a long time. According to data from Gartner in 2022, the global IT spending structure in 2021 is hardware accounting for 19%, services accounting for 28%, and software accounting for 14%. At that time, China's IT spending structure was 31% for hardware, 15% for services, and 4% for software. Hardware spending is much larger than software, which is considered to be an important factor in the growth of China's enterprise software market.

China's enterprise software market is too fragmented, and currently dominated by small and medium-sized enterprise software manufacturers. The long-term reluctance of large companies to end the market mainly includes two factors: first, the domestic IT expenditure structure, the long-term insufficient proportion of software, and large companies are worried about insufficient market space; Second, cloud vendors are doing enterprise software, which is easy to steal the cake of small and medium-sized software vendors, resulting in a lack of trust in the ecosystem.

In the past few years, Chinese cloud vendors have always adhered to the principle of "being integrated". There is a clear line between cloud vendors and software vendors, with cloud vendors only doing infrastructure and software vendors being responsible for upper-layer applications. The logic is to benefit partners, and then drive the flywheel effect of the entire ecosystem.

This is actually the early successful experience of Huawei and Amazon AWS. Huawei's enterprise business enabled integrators, channel providers, and software partners to sell products in the early stage, becoming the largest IT solution provider in China. Amazon AWS does not touch the upper-layer applications, but leaves the responsibility of SaaS enterprises, thus becoming the world's largest cloud vendor.

In the domestic software market, however, this strategy currently appears to have limited effectiveness. A leading cloud vendor technical source explained that in the US software market, the three-layer cake industry pattern of cloud vendors, platform software vendors, and small and medium-sized software vendors is obvious. Amazon, Microsoft, Google three head cloud vendors, Oracle, Salesforce, SAP, Adobe and even IBM platform software vendors, as well as hundreds of upper-layer application software, each layer of the ecology is perfect and the power is relatively balanced.

However, in China, small and medium-sized software manufacturers are too small, platform software manufacturers are too few, and the application base is not stable enough. Small and medium-sized software manufacturers cannot drive the consumption of underlying resources, so large companies need to supplement the link of platform software.

Some industry veterans believe that large companies need to play two roles to do a good job in platform software: one is to help small and medium-sized software manufacturers do a good job in developing platforms and integration platforms, and the other is to bring large customer resources to small and medium-sized software manufacturers. In his opinion, sooner or later, cloud vendors will enter the platform software market.

A digital business partner of a management consulting firm told Caijing Eleven that in the pattern of China's software market, large companies must do both cloud infrastructure and platform software. Compared with cloud vendors such as Amazon AWS, the industry positioning will become thicker and heavier.

The value of software development tool autonomy

In the past decade, Huawei has invested about 845 billion yuan in R&D spending, a large proportion of which is invested in software. In addition to MetaERP, Huawei has deployed autonomy in dealing with the supply of software development tools.

Software development tools are root technologies, and a software ecosystem must have tools to produce software. Even hardware manufacturing requires the support of software development tools.

Take the chip manufacturing that the public has paid attention to in recent years as an example. The lithography machine is used in the lithography process of chip production, and the lithography process is the most critical step in the chip production process, so the lithography machine, as the carrier of lithography technology, is one of the indispensable key production tools for chip manufacturing. An advanced lithography machine may even affect the development process of a country's chip industry.

Software development is also similar to chip manufacturing. In the process of software development, many key development tools similar to lithography machines are also required, which are the cutting-edge technology carriers of software development and are an indispensable foundation in the production of software products.

Without software development tools, the survival of the entire software industry is directly challenged. Just as without the operating system, all software services cannot run; Without a database, there is no place for all application data. Without software development tools, all software applications cannot be developed and innovated.

In terms of software development tools, a large number of Chinese software companies directly purchase US commercial tools, and the domestic software tool chain relies heavily on open source technology packaging, once subject to foreign sanctions, open source technology platform is disabled, which will directly lead to business shutdown. The core vendors of software development tools worldwide mainly include Microsoft, Jetbrains, Perforce, Atlassian, Adobe, etc., with a total market share of about 45%, in addition to Oracle, Synopsys and Axure Software, Sparx Systems, Trident Inforsol and a number of major vendors. China still lacks matching type companies and has limited autonomous tools.

Looking further, modern software development has increasingly adopted the cloud development model. In sensitive and core software, such as the use of US servers and related platforms (Github, Gitlab), etc., the development code needs to be transmitted to the US server, whether the data production, storage, transmission, access, use, destruction and other processes are secure and uncontrollable, and the confidentiality and integrity of the data processing process cannot be confirmed. In the event of an extreme situation, relevant sensitive data may be viewed and exploited, including key information of the application and whether the product has vulnerabilities.

Since the software supply was interrupted in 2019, Huawei no longer expects the US government to relax restrictions, and has determined a new idea - adopting the strategy of self-development and joint research and development with partners to achieve self-sufficiency and ensure the continuity of R&D tools. The scope involves hardware (X86->ARM), operating system (Linux/Windows->Euler), database (Oracle->RDS), middleware, application software transformation five categories of full-stack self-developed replacement, involving hundreds of components replacement, tens of millions of lines of code test verification.

Since December 2022, Huawei has released 11 software and hardware development tools and services in a row, and Huawei's own product line research and development has switched to its own tools. A set of software development production lines covering the whole process and all aspects of software development has been built.

Among them, some software has been provided externally through HUAWEI CLOUD, Huawei's thinking is very clear, these design software are not only for Huawei's own use, but also open to other enterprises to use. According to relevant Huawei sources, Huawei has also recently released a series of hardware development tool software with partners to achieve self-sufficiency in hardware tools.

On August 13, 2022, the U.S. Department of Commerce issued new rules to implement new export controls on four technologies, including EDA software, ultra-wide bandgap semiconductor materials, and pressure gain combustion (PGC), effective August 15, 2022.

As a chip design software, EDA can perform functional design, physical design, and verification of VLSI chips. EDA itself is extremely complex and has great significance for achieving chip autonomy. By realizing the autonomy of EDA tools, the prerequisites for semiconductor autonomy can be basically achieved.

From the perspective of business field, EDA is the core design software of the chip, and it is reasonable to bear the brunt of it. The less sanctioned risks are information management tools, such as requirements management and test management; The relatively risky are the code warehouse, product warehouse, inspection and other tools related to the strong contracting. That is, the more core the tool, the greater the risk of being sanctioned.

Huawei's make-up and catch-up in basic software in the past three years is of warning significance to China's software industry and the entire digital ecosystem.

The reality we need to face is that from the underlying chip to the operating system, root technology, development tools and various application software services, the digital ecosystem of the United States has "flourished", while China's software industry has basically built a relatively complete structural context after years of development and catch-up, but the overall capacity is still very weak.

Domestic chips, domestic operating systems, domestic basic software and domestic software ecology constitute the core bones of China's digital ecosystem. Every technology is closely connected and interconnected. The bottom layer is the chip, the middle is the operating system, database, middleware, etc., and the upper layer is a large number of applications and services. Independent software research and development, first of all, to adapt to the operating system and hardware environment.

This is an extremely difficult and unavoidable road, and basic software is only one part of it.