Could Huawei Buy Marconi?

Huawei says it's mulling over 'internal issues,' and Marconi's share price is continuing to slide

April 29, 2005

3 Min Read
Could Huawei Buy Marconi?

Could Chinese vendor Huawei Technologies Co. Ltd. be lining up a takeover bid for troubled U.K. firm Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) in the aftermath of BT Group plc's (NYSE: BT; London: BTA) 21CN contract award news? (See BT Unveils 21CN Suppliers.)

Although Light Reading hasn't found any evidence to back up this speculation, such a move would make sense according to analysts. Suggestions that Huawei is considering its current U.K. position were corroborated today when Huawei declined to discuss its groundbreaking involvement in BT's £10 billion ($19 billion) next-generation network plans.

Having been named as a primary supplier in BT's access and transmission categories, Huawei said it couldn't offer any executives for comment on the news as it is "working through several internal issues related to the details of this announcement." The company said it would be prepared to talk about its 21CN involvement late next week.

Huawei currently has several hundred employees in the U.K., few of whom are believed to have any operational experience with BT. Huawei needs a strong services and support team to back up its 21CN success, and needs it fast. BT has an aggressive project timetable, as it wants to switch off its current voice and data networks in 2010.

Marconi, conversely, has more experience of BT's current networks and culture than any other supplier, and has an existing and extensive support contract with BT (see BT Renews $656M Marconi Deal).

But it now finds itself facing a future without any work from a carrier currently providing a quarter of its revenues (see Marconi in Turmoil).

Its omission from the 21CN plans sent its share price tumbling by nearly 40 percent yesterday, and this morning it lost another 17 percent of its value, falling 52 pence to 246 pence on the London Stock Exchange.

That values Marconi at about £500 million ($950 million), half the £1 billion ($1.9 billion) it was worth before BT's shocking announcement.

Should Huawei make a move on Marconi now, it would not only get the vendor at a knocked-down price, but also buy itself into a number of European carrier accounts, a key goal in its international expansion strategy. Marconi counts the likes of Belgacom (Euronext: BELG), Cable & Wireless plc (NYSE: CWP), Deutsche Telekom AG (NYSE: DT), Telecom Italia SpA (NYSE: TI), and Telefónica SA, as well as smaller European operators, among its customers (see T-Com Selects Marconi , Telefónica Deploys Marconi DWDM, Marconi, Italtel Score at C&W, Belgacom Upgrades With Marconi, Marconi Lands Access Hub Deal, and Marconi Wins Polish MSAN Contract).

And the two companies know each other already, having forged a business and product development partnership in January this year (see Marconi Hitches a Ride With Huawei).

Heavy Reading analyst-at-large Graham Beniston reckons such a merger would "make sense. The BT win is such a shop window, as it's the first implementation of an IP NGN. And many analysts believe it's only a matter of a few years before other vendors, through outsourcing and overseas development, achieve the same economies of scale that Huawei currently has. Huawei needs to leverage an advantage in the short term, and this would be a good way of doing it."

Marconi declined to comment, and Huawei said it couldn't comment on questions related to Marconi.

One question that might be raised is whether the U.K. government would allow a Chinese company to acquire a major British company such as Marconi. It appears it would, as only weeks ago British government ministers were doing everything they could to persuade a Chinese car manufacturer to buy one of the U.K.'s industrial giants, carmaker MG Rover. That deal, though, fell through. (See this news story for background.)

— Ray Le Maistre, International News Editor, Light Reading

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