Chinese equipment vendor Huawei Technologies Co. Ltd. is on a roll these days and the threat it poses to incumbent equipment vendors is clear from the latest analyst figures.In the battle for market share, Huawei is rapidly closing in on vendors like Alcatel (NYSE: ALA; Paris: CGEP:PA), the long-time DSLAM equipment leader.

In its "Broadband Quarterly Shipments Analysis," Dittberner Associates Inc. reports Huawei’s DSLAM port shipments increased during the first quarter by 21.77 percent compared with the fourth quarter of last year, despite the overall market remaining flat.

That growth came at Alcatel's expense, as its shipments fell by 19.37 percent during the same period, and boosted Huawei to the number 2 position in the market (see Dittberner Reports on Alcatel's DSL ).

As it stands now, Alcatel has a 31.11 percent share of the market and Huawei has 21.89 percent, above companies like Lucent Technologies Inc. (NYSE: LU) and Siemens AG (NYSE: SI; Frankfurt: SIE).

Table 1: Q1 2005 Worldwide DSL Market

Light Reading's report Who Makes What: IP DSLAMs takes a closer look at this market, which is set to take off with the widespread deployment of TV and video over DSL, identifying vendors and categorizing their equipment.

Huawei is also making huge strides in the hot voice-over-packet equipment market. Dittberner’s "NGN Shipments Analysis" finds Huawei holding a 13.76 percent share of the market, with 1.98 million ports shipped in the first quarter, behind Nortel’s 22.9 percent share, or 3.29 million shipments (see VOIP Port Shipments up 6.3% in Q1). The overall market increased 6.33 percent quarter-on-quarter, and the growth of VOIP services signals demand is set to continue rising.

Table 2: Q1 2005 Worldwide VOP Ports Market Share

The reason for the turnaround in part comes down to image. The latest Light Reading Insider, "China's Big Three Vendors Take On the World," reports that carrier perceptions of product quality and support from Huawei, UTStarcom Inc. (Nasdaq: UTSIE), and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) have steadily improved, and potential customers who were attracted by lower prices but concerned about quality are now looking eastward.

The Insider notes Huawei's recent surprise contract wins with BT Group plc (NYSE: BT; London: BTA) demonstrate that the Chinese vendors are now a major force in the worldwide telecom equipment industry, and sees Huawei as the best positioned of the three (see Insider Analyzes China's Big Three). "With a strong domestic position in next-generation networking (NGN) and a healthy global position in DSL, Huawei appears well positioned to take share internationally," writes author James Crawshaw.

All three clearly have master plans for boosting international sales, and Huawei has had the most success so far, with around 40 percent of its orders coming from outside China last year, versus around 20 percent apiece for UTStarcom and ZTE.

They are particularly benefiting from the deregulation of emerging markets such as Eastern Europe, where there's no installed base to compete against. "In emerging markets, the Chinese brought to bear the experience of their domestic market, which shares many of the same characteristics, such as low penetration, generally low urban density, and low per-capita GDP," writes Crawshaw.

At the same time, telecom capital expenditure is on the rise in the Asia/Pacific region, so there’s no shortage of potential sales back home. Infonetics Research Inc. reports capex in Asia increased by 11 percent to $52.4 billion between 2003 and 2004, and expects spending to climb another 3 percent this year to $54.2 billion.

While investments are slowing down, from an 11 percent rise to a 3 percent rise, carriers are still spending 20 percent of their revenues on capex, a higher proportion than their North American and European counterparts. Revenues also increased by 11 percent between 2003 and 2004, reaching $257.2 billion, and are predicted to increase 6 percent in 2005 to $273.2 billion.

— Nicole Willing, Reporter, Light Reading