Huawei's Feeling the Pinch

Huawei Technologies Co. Ltd. is on course for a year-on-year increase in annual revenues of more than 33 percent, a company representative has told a business summit in China, but increasing competition means margins will be lower.

Huawei executive VP Hu Yong told the Reuters China Century Summit that 2006 revenues would be above $8 billion, an increase of more than a third over 2005's $5.98 billion, the news agency reported. That's also slightly higher than the $7.8 billion projected by the company earlier this year. (See Huawei 2006 Target: $8 Billion.)

It also points to a major ramp-up in the second half of this year. Huawei informed China's Ministry of Information Industry (MII) last month that its first-half revenues were 25.98 billion renminbi (US$3.3 billion).

That revenue growth, though, is accompanied by lower gross margins of between 37 and 38 percent, compared with between 41 and 42 percent in 2005. As a result, net income, which totaled $681 million in 2005, will not grow at the same rate as revenues in 2006, though Yong didn't provide the summit with a profit projection. The margin squeeze and prospect of slimmer profits comes as no surprise. Huawei and its main domestic rival, ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), are facing a number of business challenges in China and abroad. (See Pressure Piles on Huawei, ZTE and ZTE Leans on Credit Crutch.).

Huawei also reports its business in terms of the value of signed purchase orders, or "sales." That figure reached $5.2 billion in the first half of 2006, up from $4.15 billion a year earlier. Yong said 65 percent of those sales came from outside China, compared with 58 percent in the first half of 2005. (See Huawei Reports H1 Sales.)

The VP added that full-year contract sales are expected to be worth $10.7 billion, compared with $8.2 billion in 2005, and that Huawei was aiming to increase that figure by a further 30 percent, to $13.9 billion, in 2007. (See Huawei Doubles Overseas.)

Yong also said the company's headcount is set to reach 50,000 by the end of 2006, from 44,000 at the end of June.

While Huawei may be facing some competitive, financial, and regulatory challenges, there is no doubt it continues to have a major impact on the telecom sector, as Heavy Reading chief analyst Scott Clavenna pointed out following his trip to the vendor's HQ in Shenzhen earlier this year. (See Huawei: File Under Travelogue and Report: Huawei Grows Up.)

And the company continues to report significant contract wins and breakthroughs, including 3G infrastructure deals in the U.S., Spain, and Japan, alongside its continuing strength in the emerging markets. (See Huawei Leaps Into US 3G, Huawei Wins V'fone HSDPA Deal, Huawei Wins in Japan, Huawei Builds Uruguay UMTS, Huawei Wins Moroccan IPTV Deal, Vivo Picks Huawei GSM, Magyar Picks Huawei, Comverse, Huawei Deploys HSDPA Network, and Huawei Announces Contract.)

That continuing success helped Huawei achieve the No. 3 position in the carrier Ethernet switch/router market in the second quarter of this year, albeit a very long way behind Cisco Systems Inc. (Nasdaq: CSCO) and Alcatel (NYSE: ALA; Paris: CGEP:PA). But during the same quarter Huawei did bump the French vendor off its optical perch, according to market research reports. (See HR: Huawei Climbs CESR Ladder, Optical Equipment Sales Rise 20%, and Huawei Leads Pack.)

— Ray Le Maistre, International News Editor, Light Reading

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runnyme 12/5/2012 | 3:41:38 AM
re: Huawei's Feeling the Pinch I can see quite a lot negative posts on Huawei. Why haven't these stopped its growth?
Light-bulb 12/5/2012 | 3:41:36 AM
re: Huawei's Feeling the Pinch I don't exactly recall, but I thought I read somewhere that Huawei wasn't allowed in the US due to some industrial espionage charges. Weren't they the same company that stole Cisco source code and forgot to change the comments within the code?
What I find alarming is that if indeed this is the same company, why are they getting any play within the US?
Have their sins been washed away? Anyone have some more information on this?
Pete Baldwin 12/5/2012 | 3:41:35 AM
re: Huawei's Feeling the Pinch Huawei wasn't ever banned from the U.S. Heck, they've got a whole operation here:


The Cisco lawsuit did happen, but it didn't result in an injunction against Huawei (and it would have been an injunction only against certain Huawei routers anyway, IIRC.)
Michael Harris 12/5/2012 | 3:41:33 AM
re: Huawei's Feeling the Pinch I can see quite a lot negative posts on Huawei. Why haven't these stopped its growth?

Carriers fancy one common feature on Huawei products: they're cheaper. And, by buying from them, carriers put serious price pressure on their larger, incumbent suppliers.

This makes the incumbent vendors, and the ever growing list of their pink-slipped employees, unhappy. Perhaps this is a source of the negative comments?

In defense of those comments though, carriers squeezing their vendors too hard over the long term with the Wa-Way vice could prove penny wise and pound foolish.

optoslob 12/5/2012 | 3:41:32 AM
re: Huawei's Feeling the Pinch Huawei bashing is quickly developing into a sport at LR.

Look at the facts
1) Huawei has stollen your snack followed by your lunch
2) They are not happy with lunch they want to be the dinner supplier
3) They are profitable and growing rapidly (just tell me one other telecom supplier that would not kill for this top line growth)
4) Negative press did not stop Huawei winning big at BT (ask any ex-Marconi employee how well this strategy worked)

Stop bashing and lift your own game while you still have a chance.


yhuawei 12/5/2012 | 3:41:32 AM
re: Huawei's Feeling the Pinch After dealing with this organisation purely on their Datacom range of products, I wouldn't have anything to do with them. They have a hell of alot to understand about doing business with the Western, along with acknowledging that product features and benefits is alternatively what carriers and corporates alike are truly looking for.

I do get the feeling that Huawei are taking the cheaper is better approach, apposed to providing real business benefits to their products/solution offerings.
st0 12/5/2012 | 3:41:28 AM
re: Huawei's Feeling the Pinch (1) Huawei took full advantage of the downturn on Telecom of 2000. Cheap optical test equipment and components made more of the price advantage than ever (once in a life time oppotuniety). Basically, the capital expanditure is a penny on the dollar.
(2) Huawei also took advantage of the massive layoff from US, particularly, the Sr. member of technical staff from various large carriers. The business at those carriers were ran by MBAs/Lawyers, the techies, specifically, the high price top notch research type were consider as "cost" rather than "assets". Check all the on-line resume of the famous consultants, who did the presentation at Huawei were the list of "who's who". (It was the single reason, if it is not the most important reason of key technology went to competitor country... just got the state of the art tool without the know how, is useless to "really costly"). Guess that treatment like a "king" for the consultant compare to the kick on the butt out the door by the suits just give more "driving force" for take the 12 -14 hr flight...
(3) The workforce of willingness to learn is another factor.
(4) Anyone care to comment on the 3Com/Huawei alliances?

Very sad... Looking forward, the playfield is a bit of leveling now... however, if item number 2 still going on strong, you might need more than God to level the playfield...(So far, the buddha appear to be having the upper hand).

-my 2cents
yhuawei 12/5/2012 | 3:41:24 AM
re: Huawei's Feeling the Pinch Huawei have many arms and legs and it is certainly not an organisation that you can through a blanket over and say it is good or it is bad. I have had a bit to do with Huawei in Australia and I would sum them up this way.

1. Their Optical networks are very good.
2. Fixed Networks are good but not as good as their Optical offerings.
3. Mobile Networks are OK,
4. Datacom is a disaster, the JV with 3com.
5. Most divisions do NOT understand how we do business in the west and as a consequence they destroy relationships.
6. In the Asia Pacific they have totally destroyed their credibility through constantly screwing over their partners.
7. A lot of their products lack features and as a consequence they make the customer fit the product, rather than the product (notice I have used the word product and NOT the word solution) fit the customerGÇÖs requirements.
8. As for their wins, we most of their revenue I would suggest is coming from China.
9. The company is still a privately owned one that is not listed so they do NOT need to disclose a lot of what they do.
10. Unless you have had to deal with them it is difficult to explain just how difficult this vendor is to deal with.

I am very sceptical about anything this organisation does without fully investigating it first. You may get the feeling that I have been scared by this so called technology giant Huawei, well surprise, surprise (just look at my user name) I have.
razeredge 12/5/2012 | 3:41:23 AM
re: Huawei's Feeling the Pinch If Huawei is as screwed up as the posts here suggest, yet continue annual growth and major customer wins, does it not suggest the incumbent vendors are even more screwed up?

If LR posters are suggesting BT, Vodafone, etc are stupid, then it's no mystery as to why Huawei is taking your customer base.

>> Razer
Mark Sebastyn 12/5/2012 | 3:41:21 AM
re: Huawei's Feeling the Pinch I don't want to be included in the list of Huawei bashers, but it should be noted that all accounting information from Huawei should be in question until it is signed off by independent auditing.

We all know that doesn't mean it is guaranteed to be correct, but it should be better.
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