Report: Huawei Grows Up

A new Heavy Reading report, "Remade in China: Huawei and the Future of the Global Telecom Market," looks at the progress made by Huawei Technologies Co. Ltd. into markets outside of China and examines the price war it helped start.

Huawei’s progress outside China over the past five years has been driven by an impressively broad product portfolio, but perhaps more so by its low pricing. The vendor reported 56 percent revenue growth in 2005 with overseas sales reaching nearly 60 percent of total sales. (See Huawei 2006 Target: $8 Billion.)

But, as the new report points out, Huawei's low prices have caused a price war that has put pressure on margins for everybody. That fact might make it harder for Huawei to manage some of the global competitive challenges it faces in the next few years. (See Telecom's China Syndrome.)

One of those challenges involves supporting foreign clients after the equipment has been sold, according to the report.

The report’s author, Heavy Reading chief analyst Scott Clavenna, says this hasn’t been a huge issue with Huawei’s customers in emerging markets like Russia or Thailand. But Western operators simply have different expectations for service and support.

"They are used to real heavy-duty professional services, where the vendor acts as a systems integrator, does some network planning, and does all the engineering, sales, and support,” Clavenna says.

Geography is also a problem in Western accounts, Clavenna says. “You’re getting a lot farther away from China, so trying to integrate back with the engineers at the headquarters in China is more difficult.”

Huawei’s low margins could begin to hurt its ability to provide thorough professional services to its foreign clients.

If Huawei can’t meet expectations in this area, its expansion could be slowed. Operators might opt for competing vendors despite Huawei’s low prices, Clavenna says. “It’s really no secret that that’s where they’ve run into problems in Western Europe, because at some point the operators don’t want just the cheapest gear in the world.”

Clavenna says pressure on margins might also strain Huawei’s R&D investments, which are already low compared to its competitors.

To make matters worse, Huawei will soon be facing new and stronger global rivals that have been formed by consolidation. These include super-vendors Lucent Technologies Inc. (NYSE: LU)/Alcatel (NYSE: ALA; Paris: CGEP:PA) and Nokia Corp. (NYSE: NOK)/Siemens AG (NYSE: SI; Frankfurt: SIE), which Clavenna says will just be getting their games on in the 2007-2008 time frame.

And that’s not all. Light Reading recently reported that regulatory changes in China may strip Huawei of some of the tax breaks and other subsidies it once enjoyed from the Chinese government. Because of China’s growing trade deficit, the country’s international trading partners and the World Trade Organization (WTO) have been pressuring it to reform tax refund policies that have benefited Huawei and other Chinese companies. China is expected to comply, although tax breaks for vendors in the telecom sector probably won’t be the first affected by the change. (See Pressure Piles on Huawei, ZTE.)

So is the end of Huawei’s march on the world in sight? Not exactly, says Clavenna, not yet. Huawei “has a lot going on in 2006” and will likely keep its forward momentum into 2007, he says.

For more information about the new Heavy Reading report, click here.

— Mark Sullivan, Reporter, Light Reading

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Peter Heywood 12/5/2012 | 3:47:49 AM
re: Report: Huawei Grows Up Regarding low cost Chinese engineers, this article suggests that Huawei may have underestimated how much after sales service and support it needs to provide in Western countries. A lot of that service and support would have to be provided locally, probably by Western engineers on Western salaries.
oemarket_com 12/5/2012 | 3:47:49 AM
re: Report: Huawei Grows Up Another important advantage that Huawei has is the low cost and large number of engineers. Its western competitors can not afford the same number of people because of the high salaries for those engineers.
With the increase of the experience and abilities of Huawei's engineers, this company has significant growing potentials.
Peter Heywood 12/5/2012 | 3:47:49 AM
re: Report: Huawei Grows Up It would be very interesting to hear from Huawei's customers on whether they are happy with its post-sales service and support.

A couple of years back, carriers were telling me that they were very happy with Huawei's pre-sales service. I gave an example of this in a post the other day:

In essence, Huawei was sending in teams of developers to brainstorm projects with carriers, and carriers were saying this was a breath of fresh air - something they loved and they didn't get with Western vendors.

At the time, there was a debate within Light Reading on whether this could scale, bearing in mind that Huawei is a very centralized organization and language is a barrier for a lot of its Chinese staff working overseas.

I guess we need to do a survey of Huawei's existing customers to get some answers!

midguy 12/5/2012 | 3:47:48 AM
re: Report: Huawei Grows Up I still stick to my point for their advantages:

cheaper, high quality and more productive engineers at large scale.
That is also why they could managed to keep the broadest product line. They can start from the scratch rather than buying a matured startup, which enable them to reutilise the existing ones and integrate the new product better with their portfolios.
Mark van der Hoek 12/5/2012 | 3:47:47 AM
re: Report: Huawei Grows Up Depends what you mean by "more productive". In my experience, Chinese trained engineers have the theoretical knowledge, but lack some "common sense" fundamentals that are common to engineers in the western world.

For example, understanding that antennas should not be mounted on a rooftop, facing into a taller building 5 feet away. Or behind an aluminum billboard. They don't understand how to check a new site for swapped cables, or even that they SHOULD check a new site - for ANYTHING.

While they can AFFORD to assign more engineers, they don't. Huawei scorns typcial Western design methods such as computer modeling of networks. They are quite sure that drawing circles on a paper map is an acceptable method of designing a wireless network. They simply do not know any better, and this is at the highest levels in the company.

I'm not kidding. I've seen this in China firsthand, and heard it from Huawei.

They do fine in third world countries where the quality of the network expected to be poor, but to succeed in the western world is going to take a major paradigm shift for them.
oemarket_com 12/5/2012 | 3:47:47 AM
re: Report: Huawei Grows Up Huawei is a purely Chinese "native" company. It is not strange that language is one of the issues for them in the western countries, because most of their people have not lived in overseas. In some circumstances, language can greatly discount the creditability and the image of a company, unfortunately.

I got an impression that they want to employ local people for their sales roles in western countries. It is a question whether they can find the right people and whether their company culture can integrate those people successfully.
bvark2 12/5/2012 | 3:47:47 AM
re: Report: Huawei Grows Up Huawei's post-sales support from my (relatively limited) experience suffered from some very variable quality local people, some very variable standards of English amongst the Chinese engineers, and an inability to get very far before the issue had to be referred back to China (adding a day to the process).
jcrawshaw 12/5/2012 | 3:47:46 AM
re: Report: Huawei Grows Up It is interesting to see Huawei winning mobile infra contracts in Japan (eMobile). A market not known for its tendency to buy cheap or buy from foreigners.
trzwuip 12/5/2012 | 3:47:45 AM
re: Report: Huawei Grows Up "They do fine in third world countries where the quality of the network expected to be poor, but to succeed in the western world is going to take a major paradigm shift for them."

Dude, who is poring money to float the telecom carriers? Third world. Where do you see cell phones surpassing landline by 2x/3x magnititude, RFPs for adding > 4M+ subscribers? More than half the population of a country waiting to buy a phone? In the third world!
qaman1 12/5/2012 | 3:47:41 AM
re: Report: Huawei Grows Up Midguy,

Are you saying that the Peoples Army Col. that is CEO of Huawei and his associates and superiors in the party will allow such forward thinking and abstract thought given the recent jailing of people in China for such thoughts?
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