world growth

world growth

Monday, August 24, 2009

China's Huawei ranked 3rd worldwide in the telecommunication equipment industry

Huawei Technologies Co., China’s biggest telecommunications equipment maker, has garnered a 10 percent market share in Europe and expects to gain more ground this year, a company executive said.

The Shenzhen, China-based company is targeting a “huge improvement” in Europe this year with a focus on wireless equipment, Tim Watkins, Huawei’s vice president for western Europe, said in an interview in London.

The company won $3 billion in contracts out of the $30 billion awarded in Europe last year, a 20 percent gain from a year earlier, with sales to “all major operators,” including Vodafone Group Plc and Telefonica SA, Watkins said. Closely held Huawei also made a “significant breakthrough” in the U.S., with a contract that is “by the nature of the customer and scale of network a very strong statement that Huawei is now entering the U.S. market,” he said, declining to elaborate.

Huawei’s gains defy the trend in the telecommunications- equipment industry that’s been hurt by falling demand and intensifying price competition. The Chinese company’s net income rose 20 percent to $1.15 billion in 2008, while its major rivals Ericsson AB and Nokia Siemens Networks both suffered an almost 50 percent drop in annual profit, and Alcatel-Lucent SA’s full- year loss widened by 48 percent.

Aided by its lower cost-base, Huawei now ranks third in the industry with a global market share of 14 percent, behind Ericsson with a 35 percent share and Nokia Siemens with 20 percent, according to Kulbinder Garcha, a London-based analyst at Credit Suisse Group AG.

U.S. Entry

“For Huawei, the only market left is North America, which could be more challenging, but I don’t see why it can’t have a long-term 18 to 20 percent share there,” said Garcha.

Huawei has been stymied in North America by security concerns. The company’s $2.2 billion joint bid with Bain Capital LLC for the computer-gear maker 3Com Corp. was withdrawn amid U.S. government concern that China would gain access to 3Com’s anti-hacking technology used by the U.S. Defense Department.

It’s a “misconception” that Huawei is linked to the Chinese government, said Watkins.

Huawei won more than five contracts in North America this year, according to Watkins, including a three-year fourth- generation wireless contract this month from the Kirkland, U.S.- based Clearwire Corp.

“It doesn’t mean all of a sudden the gate is flying open and everybody’s happy with Huawei, but the important thing is we are moving in,” he said.

Pricing Advantage

Telecommunications operators wanting to develop fourth- generation may get easier access to funding from Chinese banks working with Huawei, Watkins said. Huawei said it this year won trials to build the fourth-generation network infrastructure for T-Mobile International AG in Austria, and Vodafone in Germany.

The Chinese company also maintains a pricing advantage over its rivals, said Credit Suisse’s Garcha. Huawei had a net margin of 6 percent in 2008, which it plans to improve this year, while its competitors are “struggling to keep theirs above zero,” Watkins said. “This advantage enables us to invest more in R&D and gain further market share,” he added.

The cost of engineering for Huawei is between 15 to 16 percent lower than Ericsson or Nokia Siemens, Garcha said.

“Huawei has been very successful at expanding outside China, first emerging and now developed markets because they’ve got significant pricing advantages,” he said.

Huawei employs, mostly in China, about 40,000 engineers, almost double the number at Ericsson. That enables it to innovate faster than its rivals, Watkins said.

“It will take a long time for Huawei to reach the top because market shares in infrastructure don’t change that quickly,” Garcha said, “but it’s possible that within three to five years it’ll become the number two player.”

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