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Optical/IP

Avici Joins Huawei for China Push

Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) is aggressively going after the Chinese IP router market.

On Wednesday, the company announced an OEM deal with Chinese telecom equipment provider, Huawei Technologies Co. Ltd. (see Avici, Huawei Team on IP). The deal calls for Huawei to sell Avici’s SSR and QSR core routers as part of Huawei’s IP routing portfolio.

“The deal looks good on paper,” says Kevin Mitchell, an analyst with Infonetics Research Inc. “The Chinese market is important, and Avici would have been hard-pressed to succeed there without a partnership like this.” The deal also is one in the eye for market leader Cisco Systems Inc. (Nasdaq: CSCO), which is embroiled in a patent and copyright infringement lawsuit with Huawei’s U.S. subsidiary, FutureWei (see Cisco/Huawei Brawl Begins).

The legal wrangling between Huawei and Cisco in the U.S. shouldn’t affect the Avici OEM deal, which is exclusive to China -- a territory that could turn into a monster market for Avici in the long term.

"The lawsuit has nothing to do with us," says Esmeralda Swartz, director of strategic marketing for Avici. "That's between Huawei and Cisco. Besides, this agreement is exclusively for China, but even if we were to expand it, it still wouldn't matter to us."

Japan and South Korea are considered the two most important Asian markets for telecom spending in the near future. But China’s growing population, which already exceeds 1.2 billion people, and its use of IP technology for telecommunications, makes it a key market, too. Stephen Kamman, an equities analyst with CIBC World Markets, traveled to China at the end of 2002. He says that most of China’s long-distance voice traffic is already transported via IP.

“They are a classic case of a developing country leap-frogging the installed base in the United States,” he says. “As a result, there is a real need for routers, and they are using up a lot of the capacity.”

Huawei is one of China’s biggest telecom equipment companies. In 2002, it generated about $2.7 billion in revenue [ed. note: that's about $2.25 per Chinese native]. Most of this business was for traditional telecom and optical gear sold in China. Huawei has a small installed base of Layer 2 and Layer 3 IP switches and is already partnering with 3Com Corp. (Nasdaq: COMS) to address the enterprise market (see 3Com Taps Huawei in Enterprise Battle). However, it’s struggled to gain traction for its service provider IP routing gear, and it’s been especially weak in the core IP router category, according to Kamman. Avici’s routers will definitely fill another hole in Huawei’s product portfolio.

So will Huawei help Avici catch up with the leaders in the core router market? It’s going to be tough on a couple of counts.

First, Avici is a long way behind the market leaders. In the first quarter of 2003, Avici only had about 2 percent of the worldwide core routing market, according to Infonetics. Cisco dominated with 72 percent and Juniper Networks Inc. (Nasdaq: JNPR) had about 21 percent. These figures are consistent with the market-share figures over the past several quarters, adds Infonetics' Mitchell.

Second, if Avici's partnership with Huawei proves successful, then Cisco and Juniper might follow suit and find local partners. Huawei isn’t the only panda in the park. Other Chinese equipment vendors, such as ZTE Corp., are of a comparable size to Huawei. And if Cisco were to do a deal with ZTE, for instance, Huawei could end up dropping Avici and clubbing up with Juniper.

The majority of the $7.6 million in revenue Avici reported in the first quarter of 2003 came from sales in North America, and most of those sales have been to AT&T Corp. (NYSE: T) (see Avici Posts Q1 Loss, Gets Partners). That company has not been very successful in Asia, although it has signed up some system integrator partners in Hong Kong, Seoul, and Taipei.

Avici has worked hard over the past year and a half to enhance its software and hardware features to better address carrier needs. Earlier this week, it announced a series of new software programmable line cards that will allow carriers to switch or route Asynchronous Transfer Mode (ATM), Frame Relay, or Internet Protocol (IP) as they migrate their networks to Multiprotocol Label Switching (MPLS) backbones (see Avici Intros Multiservice Line Cards).

Last year, Avici announced software additions to improve security (see Avici Adds Core Router Software). The company has also enhanced its resilience and reliability features (see IP Routing Gets a Restart). And it has introduced two new smaller platforms, the SSR and QSR, to better fit the size requirements of smaller providers (see Avici Intros Tiny TSR and Avici's Incredible Shrinking Router).

— Marguerite Reardon, Senior Editor, Light Reading

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skeptic 12/4/2012 | 11:57:26 PM
re: Avici Joins Huawei for China Push
Avici is going to find out what some of those who
have dealt with Huawei have found out. They
don't want partners and the only thing they
want from north america is technology transfer.

Given that Avici is on the road to running out
of money, one could speculate that Huawei might
be lining up Avici to provide a cheap replacement
for Huawei's potentially fatally-compromised
routing software.

The problem for Huawei is that they have picked
a loser. They are stuck with an old product
thats been rejected in lots of places.

This would also suggest that Huawei's software
story isn't as strong as many have been claiming
in public.

This is a really a nightmare partnership though.
It combines a ruthless company with terrible
judgement and bad management....with a company
which has a disfunctional culture which has
raised pissing people off (customers, partners,
etc) to an art.
reoptic 12/4/2012 | 11:57:25 PM
re: Avici Joins Huawei for China Push Skeptic, you have been posting the same tired messages on Avici for years. Must be affiliated with one of those core startups that are either belly up or on their last legs.

Avici still has a lot to prove with this deal, but it is hard to think of a better partner over there. Huawei wouldn't have done this if they didn't think it would help them vs. Cisco...
signmeup 12/4/2012 | 11:57:25 PM
re: Avici Joins Huawei for China Push Actually I am quite suprised that avici would agree to such a partnership. I think it is more telling of the dire situation at avici than anything else. As far as Huawei, they gain potential access into AT&T.

I can't imagine anyone in their right mind wanting to partner with a piranha like Huawei......

signmeup
skeptic 12/4/2012 | 11:57:24 PM
re: Avici Joins Huawei for China Push Skeptic, you have been posting the same tired messages on Avici for years. Must be affiliated with one of those core startups that are either belly up or on their last legs.
--------------

Look, I'm giving you the honest external
impression many people have of Avici. If you
want to bury your head in the sand and ignore
the problems (like they have), go ahead.

If you think that partnering with Huawei will
end in a positive result for Avici, you are
in for a rude surprise. The words "Huawei" and
"good partner" don't belong in the same sentence.

I would have thought that most people would have
figured that out by now, but it seems that more
people need to learn things the hard way.

right_leading 12/4/2012 | 11:57:22 PM
re: Avici Joins Huawei for China Push
"Avici Joins Huawei for China Push"

Sounds like an Italian-Asian porno flick.

alchemy 12/4/2012 | 11:57:21 PM
re: Avici Joins Huawei for China Push "Avici Joins Huawei for China Push"

Sounds like an Italian-Asian porno flick.


Does it have Hank Zannini in it? *gag* *barf*
indianajones 12/4/2012 | 11:57:20 PM
re: Avici Joins Huawei for China Push Well, the technology is old and they have no "real" customers other than AT&T. It amazes me that they have not been able to leverage their limited success at AT&T anywhere else.

I guess if a house has been on the market for a long time without selling, prospective buyers do not want to take a chance.
materialgirl 12/4/2012 | 11:57:20 PM
re: Avici Joins Huawei for China Push If all service providers are moving to IP, and if legacy switch vendors like Nortel lack IP expertise, why would they not want to buy Avici? The company is cheap and their technology probably beats the old ATM stuff from Nortel.
skeptic 12/4/2012 | 11:57:19 PM
re: Avici Joins Huawei for China Push If all service providers are moving to IP, and if legacy switch vendors like Nortel lack IP expertise, why would they not want to buy Avici? The company is cheap and their technology probably beats the old ATM stuff from Nortel.
-------------
Nortel tried to work with them years ago and
it didn't work out. Yes, the company is cheap
but its architecture is aging and not competitive
anymore. Nortel might also be more interested
if Avici had another high-profile customer.

But as it is, Avici is standing still. Their
only value is the ATT contract which is a "mature"
contract.
null0 12/4/2012 | 11:57:19 PM
re: Avici Joins Huawei for China Push Nortel were an early investor in Avici and had the opportunity to purchase them in 1999. They decided against at the time as they wanted to concentrate on building the ill fated OPC (Optera Packet Core).

It is now highly unlikely that anyone would be interested in purchasing an 8 year old architecture, however as someone has already mentioned they may be interested in there code base.

Time will tell.

Null0
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