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Huawei Technologies - Strong revenue growth

February 15, 2010
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Huawei Technologies, the Shenzhenheadquartered telecom solutions vendor, has achieved an international footprint within a short span of time. Established in 1988, the company's revenues have nearly tripled over the past three years.

The surprising rise in revenue has drawn a lot of attention lately. Not only has the Chinese company been unaffected by the global economic downturn, its revenues have, in fact, risen by 17.5 per cent to $21.5 billion on contract sales of over $30 billion while most of its rivals, like Ericsson, Nokia Siemens Networks (NSN), Alcatel-Lucent and Motorola, have fared poorly.

To some extent, Huawei's gains have come at the loss of yesterday's power players, especially in the emerging markets. The company is expected to overtake Ericsson in another three years to become the largest equipment vendor in the world.

Part of its growth can be attributed to the company's low-cost equipment offerings. The strategy has helped Huawei win international customers from its rivals. The company has gone a step further by offering vendor financing (the guarantee for commercial loans given to customers). This has helped it enter new markets in Africa, the Middle East and South Asia.

Huawei provides solutions and equipment in the field of wireless, fixed line, optical and datacom networks, and application and software solutions. It has over 87,500 employees worldwide, with 50 per cent dedicated to research and development (R&D). The company has established 14 R&D centres at places like the Silicon Valley, Dallas, Stockholm, Moscow and Bangalore. Huawei's products and solutions are deployed in over 100 countries and serve more than 300 operators.

The company's first overseas R&D centre was set up in Bangalore. In 2001, it consolidated its position in India by setting up Huawei Telecommunications India, which has made major inroads into the domestic telecom market.

Employing about 2,000 engineers, the Bangalore centre is Huawei's largest overseas development site outside China, as well as a key platform and component development centre.

In terms of client base, Huawei has served almost every major Indian telecom operator –­ from the state-owned Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited to private operators like Bharti Airtel and Reliance Communications (RCOM).

Tendering issues
Huawei has been in the news lately for running into trouble with regard to BSNL's 93 million GSM line tender. BSNL had awarded a part of this tender (a 20 million GSM line contract for the south zone) to Huawei in November 2009. In a surprising move, in December 2009, BSNL revoked the equipment purchase order saying that the conditions imposed by the vendor were not acceptable. Huawei's bids to supply the stateowned player have also been held up due to security concerns. The final verdict on the contract is awaited.

This is not the first time the company has faced such issues. Huawei had earlier run into trouble with BSNL in 2005 when it, in partnership with Himachal Futuristic Communications Limited and Semiconductors India, failed to supply equipment for 1.05 million CDMA lines under a contract worth Rs 1.4 billion. This threw a spanner into BSNL's rural telephony plans, prompting the PSU to serve a show-cause notice to Huawei. Following this, Huawei lost out to fellow Chinese equipment vendor ZTE in the race to form a 50:50 joint venture with BSNL to manufacture CDMA handsets and fixed wireless terminals.

Growing ambitions
In an attempt to counter the perceived security concerns, Huawei has pledged to expand its operations in Bangalore, the Silicon Valley of India. In the next five years, Huawei plans to invest $500 million in its R&D centre and increase its employee strength from 2,000 to 6,000.

The expansion plans are an indication of the company's commitment towards the Indian telecom market. Huawei has enjoyed a 100 per cent growth rate in India over the past three years. In 2008, its India revenues stood at $1.3 billion (around Rs 64 billion). In 2009, Indian operations accounted for over 10 per cent of Huawei's global sales.

According to company officials, manufacturing in India will also protect Huawei from the steep anti-dumping duties levied by the Indian government on the import of some telecom equipment from China. In December 2009, the Indian government decided to levy anti-dumping duties, which were three times the value of the synchronous digital hierarchy products and telecommunication transmission equipment imported from China. The ZTE Corporation will have to pay a duty of 236 per cent for transmission equipment sold in the country while Huawei will have to pay only 50 per cent.

Huawei has also been localising its management in India. It has brought in Indian executives as business heads for all operations of its Indian subsidiary Huawei Telecommunications India.

The company brought in four Indian executive directors in 2009. Avijit Chaliha was appointed as director for sales, A. Sethuraman for product and solution systems, D.S. Rawat for sales (Bharti account) and Saravjit Garg for technical sales.

Akash Mathur joined the company as head of human resources and Sandeep Gulati as head of finance. According to a company statement, Huawei Telecommunications India has over 80 per cent Indian staff.

Recent contracts
Huawei is working with leading Indian telecom operators in areas such as mobile, IP and fixed line networks, GSM/CDMA, broadband, optical fibre, and multi protocol label switching and terminal devices.

Tata Teleservices Limited has selected Huawei's all-IP-based CDMA core network solution and radio access equipment to replace its existing networks in Delhi, Kolkata and other major cities and to facilitate the transition to 3G.

For Reliance Telecom, the GSM arm of RCOM, Huawei has supplied technology to set up GSM networks in the Bihar, Orissa, Madhya Pradesh, West Bengal, Himachal Pradesh, Assam and Northeast circles. Huawei is the sole vendor for RCOM's countrywide GSM expansion.

The following are the key contracts won by Huawei in India in 2009: 

In March 2009, RCOM signed a Rs 3 billion deal with Huawei and ZTE for over 1 million plug-and-play USB modems.

Unitech Wireless awarded a $400 million GSM contract to Huawei Technologies in May 2009. As per the five-year contract, Huawei has to deploy the endto-end telecom network for Unitech's telecom venture in the Karnataka, Tamil Nadu and Andhra Pradesh circles.

In November 2009, RCOM selected eight technology providers for its Rs 700- Rs 800 billion contract for implementing mobile number portability across its network. The eight companies are Tekelec, HP, Intec, Huawei, ZTE, Ericsson, Alcatel-Lucent and Radio Telecom. Huawei and ZTE will provide core network solutions. The project is expected to be completed by March 2010.

Huawei also received a smartphone manufacturing order from Sistema Shyam TeleServices. These smartphones will be configured for high speed internet access.

Future plans
While telecom vendors in India are still getting business from the urban areas in terms of network upgradation and capacity expansion, the growing rural market has become a key focus area as service providers look to launch greenfield networks. Huawei is hopeful about obtaining a large share of this market. Cost effectiveness is a big factor for operators rolling out rural networks, and this provides a big opportunity for Huawei to push its lowcost equipment. The Chinese company is also eyeing business from the half a dozen new operators that have entered the Indian telecom space.


Global position

 Huawei Technologies ranked first in terms of wireless base station shipments globally in 2009, outpacing Ericsson. Its wireless infrastructure equipment sales revenue exceeded $10 billion and its wireless business revenue accounted for approximately 33.33 per cent of its over $30 billion total revenue in 2009.

According to the Dell'Oro Group, Huawei captured a 20.1 per cent share of the global telecom equipment revenue in the third quarter of 2009, lower than Ericsson's 31.6 per cent.NSN followed with 19.4 per cent share, Alcatel-Lucent with 13.1 per cent and ZTE Corporation with 6.8 per cent.

LTE emerged as a strong focus area for the Chinese telecom equipment maker. It concluded five LTE contracts and one standby LTE contract by end-2009, the maximum globally, signalling Huawei's position as a frontrunner in the 4G field.

Some of the recent global contracts signed by the company are as follows:
The company has signed a contract with China Telecom to provide a CDMA2000 1xEVDO Rev.
B network in Beijing and Guangzhou. The network, which supports downlink data rates of up to 9.3 Mbps, will enable the operator to improve capacity on its existing EVDO network and offer 3G services including VOIP , voice-on-demand and media streaming.

Huawei Technologies' subsidiary, Huawei Marine Networks, has signed a turnkey contract with Indonesia's PT Telekomunikasi (Telkom) to build the operator's new submarine cable system. The project involves connecting five islands in eastern Indonesia, spanning 1,200 km, with an initial capacity of 4x10 Gbps. It is scheduled for completion by end-2010.

Malaysia's Axiata Group has signed a two-year MoU with Huawei that includes developing new technologies as well as streamlining the process of procuring equipment from Huawei. Huawei, along with other Chinese financial institutions, will also arrange financing options for Axiata to buy its products.

Huawei has been contracted to expand South Africa-based Neotel's CDMA network. Huawei will provide a fourth-generation BTS which can support the current EVDO Rev. A data service and also ensure future evolution to EVDO Rev. B or technologies such as LTE.

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