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Could Huawei Buy Marconi?

Light Reading
News Analysis
Light Reading
4/29/2005

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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DZED
DZED
12/5/2012 | 3:16:55 AM
re: Could Huawei Buy Marconi?
The British government had no difficulty watching Bookham get up and walk out of the UK, taking bundles of Nortel and Marconi IP with it.

I can't imagine they would have a problem seeing Marconi go.

It is a bit of a surprise BT have dropped Marconi for Huawei when they have no experience with the legacy systems.
issey
issey
12/5/2012 | 3:16:55 AM
re: Could Huawei Buy Marconi?
So if Huawei won and critics say they don't have a support structure in place in UK then what the hell is several hundred people in UK doing? eating and drinking ??, What were BT's criteria if service as support isn't one of them ?
laserbrain2
laserbrain2
12/5/2012 | 3:16:51 AM
re: Could Huawei Buy Marconi?
interesting that the last bits of Marconi-Fore ATM business tends to be in US government contracts.

You gotta figure Huawei would be the last nail in the Pittsburgh coffin.
frzrmn
frzrmn
12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi?
A Marconi news release stated the company could not meet BT's commercial requirements.
frzrmn
frzrmn
12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi?
Should the Huawei/Marconi buyout take place, Bookham could get a huge boost. In addition to buying Marconi's optical business, Huawei represents more than 10% of Bookham's revenues, and in 2004 Bookham received Huawei's sole gold award.
jsittko
jsittko
12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi?
The should buy Tellabs or ADC.

I think Tellabs or ADC will be bought by somebody maybe Siemens or Fujistu.

Why?

Not technology. The customer contact list and entry into the door.. period.
OptoScot
OptoScot
12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi?
The suggestion that the UK Govt would step in to stop Marconi being bought by anyone is ridiculous. No White Knight would rush in from the City of London mainly because most of our financial institutions are foreign owned anyway. Apart from that they're too busy trading in hedge funds and other rubbish..... The UK has absolutely no concept of a loss of prestige. We are quite content to let other countries invest in and develop technology so we can buy what we want when we need it. Napoleon once said that England was a nation of shopkeepers and it won't be long before he's proven 100% right. We're up for sale - offers anyone?
zher
zher
12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi?
Totally agree, the tickets!!!

However, Marconi have more tickets than Tellabs or ADC I believe.
zher
zher
12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi?
Huawei doesn't do R&D in UK, a couple of hundreds of experienced people are not enough, but not that bad.

China is the second largest market for Cisco, guess how many Cisco employees in China? Less than 1000! I admit there are a lot of Cisco parters in China, my point is, several hundreds of people should not be too bad.

But anyway, to purchase Marconi at this moment is really a smart choice for Huawei.
zher
zher
12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi?
"It is a bit of a surprise BT have dropped Marconi for Huawei when they have no experience with the legacy systems. "

Well I would say, Huawei may not have experience on BT, but they do have lagacy system experience.
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