Huawei Plans Euro Push

PARIS – Huawei Technologies Co. Ltd. believes it's on course to triple the value of contracts signed in Europe in 2005 to $600 million, compared with $200 million in 2004.

Speaking at a product launch here on Tuesday, Huawei's deputy director of corporate communications, Richard Lee, said that sales (the value of signed contracts) in Western Europe to the end of May were already twice as high as in 2004, and that current internal estimates put total sales in Europe (West and East) at around $600 million for the whole year (see Huawei Unveils God Box).

The company has recorded some significant deals in Europe this year, particularly in the West, where Huawei signed just $90 million in contracts in 2004. The most notable scalp taken was BT Group plc's (NYSE: BT; London: BTA), where Huawei is to provide access and optical transport infrastructure for the British carrier's 21st Century Network (21CN) project. (See BT Unveils 21CN Suppliers, Huawei Picked for BT's 21CN, Tiscali UK Unbundles With Huawei, Huawei Scores Euro Win, Huawei Lands German Deals, Huawei Claims Another Euro Scalp, Huawei Lands DWDM Deal, and Neuf: Time Is Right for IPTV.)

That anticipated ramp-up in Europe could result in international sales (the value of contracts signed outside China) topping 50 percent of the total for the first time, notes Lee.

And the company has increasingly ambitious targets for its total sales figures for 2005, nearly $8 billion; and 2006, when it expects to sign deals worth nearly $12 billion, according to a recent Light Reading Insider report, "China's Big Three Vendors Take On the World" (see Telecom's China Syndrome, China's 'Big Three' Eye IPTV, and Insider Analyzes China's Big Three).

"Huawei expects this growth to be driven mainly by its mobile infrastructure, [mobile] terminals, and datacom divisions," writes the report's author, James Crawshaw.

Huawei insists it has no plans to speed its international expansion by acquiring any competitors (see Could Huawei Buy Marconi?). "We don't think we have the financial strength to acquire any large companies. It's not a major concern for us. We are focused on organic growth," said Lee.

The company's international growth, and its success in a number of key industry segments such as IP DSLAMs, have also resulted in a significant increase in staffing (see Huawei Deepens DSLAM Penetration, Infonetics Reports on Routers, and VOIP Port Shipments up 6.3% in Q1).

Huawei employed 24,000 people at the end of 2004, but now has more than 30,000 on staff, with 14,500 of those focused on research and development. According to Lee, the company is committed to investing more than 10 percent of its annual revenues in R&D each year.

And this is where it's important to point out the distinction between Huawei's sales (the value of contracts signed) and its actual revenues (see Huawei's Global Sales Hit $5.58B). For instance, while total sales in 2004 were $5.58 billion, actual revenues were $3.83 billion, according to a chart it revealed in Paris:

Table 1: Huawei's Financials 2000-2004 (all figures in US$ millions)
Year Ended December 31 2004 2003 2002 2001 2000
Revenues 3,827 2,694 2,128 2,290 1,933
Net income 624 384 108 258 345
Cash flow from operations 396 385 311 204 255
R&D expenditures 487 389 355 342 180
Source: Huawei Technologies

Lee said all the financial figures in the table above have been audited by KPMG.

Having its financial numbers independently verified will be of great importance when Huawei decides it's time to list its shares on a public exchange. Lee said it's inevitable that Huawei will go public, but there are no immediate plans to do so (see Is Huawei Edging Closer to IPO?). He said the company is currently wholly owned by its staff, with about 80 percent of employees holding stock options.

It seems likely there would be an appetite for Huawei shares: When rival Chinese vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which also has international ambitions, listed on the Hong Kong exchange late last year, its shares were oversubscribed by 253 times (see ZTE Zooms on HK Debut).

In the Insider report, Crawshaw writes that, while its status as a private company "allows management to focus on running the business for the long term rather than worrying about meeting quarterly earnings forecasts, it also adds to the air of secrecy about the company. Ultimately Huawei may seek to do an IPO in order to finance a more rapid internationalization of its business."

— Ray Le Maistre, International News Editor, Light Reading

The report, China's Big Three Vendors Take On the World, is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900. For more information, or to subscribe, please visit: www.lightreading.com/insider.

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