Huawei on the Hunt
Huawei Technologies Co. Ltd. is looking for a U.S. partner to distribute its optical networking products in North America, according to reports in the South China Morning Post.
In the article dated September 30th, Fei Min, Huawei's executive vice president, said the company is seeking a partner in the U.S: "We will compete in the U.S., as we are in China."
Due to the time difference, Huawei officials were unavailable for further comment.
A move into the U.S. optical networking market would put the equipment manufacturer up against incumbents Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT).
Huawei has already begun a push into the States with its enterprise IP switching and routing products. So far, it’s been a bumpy road. In January of this year, Cisco Systems Inc. (Nasdaq: CSCO) filed a lawsuit against the company accusing it of copyright and intellectual property infringements (see Cisco/Huawei Brawl Begins). Earlier this month, both sides agreed to suspend the suit for six months while the Huawei products are reviewed by an independent expert (see Cisco/Huawei Lawsuit on Hold).
Huawei, which is a major power in Asia, has steadily been building its business overseas. In 2002, the company reported $2.7 billion in revenues, one fifth of which came from sales abroad. The company recently reported that in the first nine months of this year, it has nearly doubled its overseas sales. Most of this success has been in exporting gear to other parts of Asia and in the Middle East. It’s also making some headway in Russia and parts of Eastern Europe.
Meanwhile, Huawei has not let legal challenges prevent it from establishing a partnership with 3Com Corp. (Nasdaq: COMS), a Cisco competitor in the enterprise networking market (see 3Com Taps Huawei in Enterprise Battle). 3Com will resell Huawei gear to enterprise customers in the U.S. In return, Huawei will help distribute 3Com’s products throughout Asia and other parts of the world.
So who will Huawei choose as its U.S. optical partner? Experts agree it would have to be a company that has significant inroads with regional Bell operators and long-distance carriers. Any prospective partner would also need to have a complementary product suite, rather than a competing product offering.
Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) seems like a logical choice. For one, Tellabs already has the right customer footprint through its digital crossconnect business. At the same time, the company has not gotten much traction with the Tellabs 7120 optical add/drop multiplexer and the Tellabs 7100 DWDM optical transport product. Attempts by Tellabs to penetrate these optical markets in a meaningful way have failed, because its products have been too expensive, says one financial analyst. Partnering with a low-cost equipment provider could be just the answer.
Whether Huawei eventually ends up partnering with a U.S. company or tackling the market on its own, it won’t be an easy trek.
“The carrier market is very different from the enterprise,” says Steven D. Levy, an analyst with Lehman Brothers. “Anyone who tries selling in the U.S. carrier market has to meet very rigid product specifications. They must also go through extensive testing and trialing. It’s very different from doing business in other parts of the world.”
Other foreign equipment providers like Alcatel SA (NYSE: ALA; Paris: CGEP:PA), LM Ericsson (Nasdaq: ERICY), and Siemens AG (NYSE: SI; Frankfurt: SIE) have struggled to sell their optical gear in the U.S. market against Lucent and Nortel.
Public perception plays a major role in the company’s potential success, too. Huawei’s reputation has been somewhat damaged by its lawsuit with Cisco. According to a recent market perception study done by Heavy Reading, most carriers think of Huawei as a low-cost, me-too equipment provider (see Heavy Reading Surveys Telecom Vendors). However, one Huawei customer in the U.K., Fibernet Group plc (London: FIB), says this is totally unfair (see Huawei Springs Surprises).
— Marguerite Reardon, Senior Editor, Light Reading