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

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BobbyMax 12/4/2012 | 11:18:04 PM
re: Huawei on the Hunt HuaWei has established itself in the market by dint of successful product lines and fair pricing. With future existence of Lucent in doubt, very few companies in the US would be able to compete with HuaWei. US vendors believe in false publicity, stock options, fat bonuses and many other unethical things likes of which the rest of the world has not seen. Cisco has been selling its routers (essentially me-too type) for over a decade. Cisco elevated itself to be a telecom equipment manufacturer with no experience in technology). Its workgroup routers were being sold at least 20 times the fair market value.

The purpose of the Cisco's lawsuite against HuaWei was to stop the sale of HuaWei's routers in the US. It would be interesting to examine IOS and other Cisco products to determine how much they have copied from various sources. Most of the router commands are identical as their format is determined by man machine interfaces.

Another interesting thing about Cisco is that it has appointed four high level executives who worked at a FDDI card company of about 20 folks. If it happened at HuaWei it will receive headlines in the US under various catchy headings. This is more serious than thew US allegation of China using its prisoners to produce propducts. Not to have a merit based appointments is a very serius crime which is destroying our country and culture.

All products that are used by RBOCs go through extensive testing process. I am sure carriers will follow the same procedure with respect to HuaWei's products. I think Tellabs would be the best choice for HuaWei.
gea 12/4/2012 | 11:18:03 PM
re: Huawei on the Hunt BobbyMax:

All your base are belong to us.
befuddled 12/4/2012 | 11:18:02 PM
re: Huawei on the Hunt Someone's asleep at the wheel here.

Tellabs has made a significant investment in White Rock Networks and private labels their VLX2020 platform. With the latest enhancements to the product, and OSMINE compliance, they are a lot better positioned in their traditional RBOC foot print to offer carrier class SONET with DWDM transport options.
Mezo 12/4/2012 | 11:18:01 PM
re: Huawei on the Hunt Thank you gea...very appropriate on this one...
BackSlash 12/4/2012 | 11:18:00 PM
re: Huawei on the Hunt Funny how the word 'take' makes all the difference.
Huawei on the Hunt
OCTOBER 30, 2003 - Huawei is making plans to take beef up its US presence, to take on Lucent & Nortel in the N. American optical marke


billy_fold 12/4/2012 | 11:18:00 PM
re: Huawei on the Hunt Tellabs already has a resale deal with the White Rock ADM and they manufacture products that compete with most of the other Hauwei products.

Rumour has it that they are close to a deal with the boys in Linthicum.

opticalfuneral 12/4/2012 | 11:17:59 PM
re: Huawei on the Hunt
"...to take beef up its US presence..."
lambdabuster 12/4/2012 | 11:17:56 PM
re: Huawei on the Hunt This revives issues raised on LR article talk in summer 2002.

Huawei targeting ULH DWDM in 2004? They picked up the Optimight IP. Could they be targeting a product based off this platform? How about picking up IP from other ULH startups - Photonex, Ceyba?

How about the IP they have in tech transfer from Alcatel Shanghai Bell? How much, how is it being used?

General criticism of LR analysis on this topic -
Isn't Huawei addressing optical networking from metro access, thru multiservice, thru metro transport DWDM, to long-haul DWDM (and beyond)?
So why does the article emphasize only Tellabs missing OADM and DWDM? Why not analyze where the cost of entry is low for any of the optical products? Wouldn't the strategy and timing possibly be different for each?
whyiswhy 12/4/2012 | 11:17:43 PM
re: Huawei on the Hunt Bobby:


You slay me with your rightousness wrt Huawei and China! Chinese business is BASED ON FEAR AND GREED, exactly as it is here. Oops, I forgot, all the bad guys in the world are white ex-euros and live in Silicon Valley CA.

Except, how come are the best and brightest Chinese are STILL coming over in droves? Hell, two more in my company alone just took their US citizenship exams this week. PhDs.

Sluuuuurrrrrp! The sucking sound of Chinese brains coming to the US, and staying, and paying taxes, and growing companies over here. Love it!

Huawei took a risk copying Cisco code and got caught. They got foolish and greedy and thought Cisco would roll over and let them not only copy code, but take US market share.

Huawei management is very very stupid. Because of that, the company is doomed. The only thing holding them up is their bribery and connections with the corrupt Chinese government. That will pass when the money fades.

China business will fail because of their corrupt government and no courts or business law worth a pixx. Indeed, China cannot be governed except by dictatorship. Ten thousand years of history cannot tell a lie.

telebud 12/4/2012 | 11:17:42 PM
re: Huawei on the Hunt It is just not same.
Huawei enjoys protection from Chinese government.
They don't have to deal with Labor Laws like US
companies and High Taxes.
Maybe the Huawei EXECS are making money but
how many people at the bottom?
I bet average worker is making $50 a week.
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