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Huawei, ZTE Predict 2009 Growth

Ray Le Maistre
12/19/2008

As some of the telecom industry's major equipment manufacturers, including Alcatel-Lucent (NYSE: ALU) and Nokia Networks , prepare for a reduction in carrier spending and a consequent fall in sales in 2009, their Chinese rivals, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), believe they're still on course to grow their revenues during the coming year.

AlcaLu and Nokia Siemens both believe their revenues will fall in line with the market, with AlcaLu predicting that the value of the fixed and mobile infrastructure (including associated services) sector will shrink by between 8 percent and 12 percent in 2009, and NSN seeing the market shrink by 5 percent or more. (See AlcaLu's New Vision: More Convergence and Nokia Siemens Braced for Tough 2009.)

Huawei, though, is bullish about its prospects for next year, and believes it's still on course to hit its 2008 target of $23 billion in "contract sales."

That's not the same as revenues of course: For example, in 2007, Huawei reported "contract sales" of $16 billion, but audited revenues of $12.56 billion -- but that was still enough to make it the fifth-biggest telecom equipment vendor in the world. (See Huawei Reports 2007 Revenues of $12.5B.)

If Huawei manages the same revenues-to-contract sales ratio this year as it did in 2007, its 2008 revenues are on course to be more than $17 billion.

For 2009, the company predicts "steady growth from both the fixed and mobile field, especially with the development in the mobile broadband space," a market in which Huawei is regarded as a strong rival to the large European vendors. (See Heavy Reading Homes In on Huawei.)

In an emailed statement to Light Reading, the vendor noted: "We are closely monitoring the impact that the global economic downturn will bring to the telecoms industry, but in the long term, we are optimistic about the future of the industry. The development of 3G/LTE and the rapid growth of bandwidth will bring greater market opportunities for operators... We are confident that more operators will recognize the value that Huawei can deliver in the current climate."

While the reference to the "mobile broadband space" points to 3G developments in general, Huawei is known to be confident of picking up significant business in China once 3G license and rollout plans are finalized, which should be any week now. The Chinese government estimates that the country's mobile carriers will spend around $29 billion on 3G-related capex next year. (See China's 3G Move to Trigger Spending.)

The company, which has built a strong position in many so-called "emerging markets" during the past few years, is also amongst the front-runners to pick up new network rollout business in India, where 2G expansion projects are still ongoing and 3G licenses are set to be auctioned in mid-January. (See Emerging Markets Offer Capex Hope, Vendors Queue Up for Indian Deals , Reliance Borrows $750M for Huawei Gear, IndiaWatch: Tender Times at BSNL , and India Edges Closer to 3G.)

There are other markets that Huawei's targeting too, particularly the fixed broadband access sector and the North American market in general -- and there's even the prospect of some inorganic growth. (See Huawei Sniffing at Set-Top Strategy, Is Huawei Moving Closer to Nortel?, Huawei Says Aye, Android in 2009. Huawei Boasts DSL, Softswitch Lead, Huawei Gains Optical Ground in North America, Russian Altnet Makes FTTx Plans, Huawei Touts 100 GigE, Huawei Raises the Optical Stakes, Huawei Names Cable CTO, Huawei Goes Indie for OSS, Huawei Opens in Spain, Huawei Dives for €uros, and Huawei Bites at the IP Core.)

And as carriers the world over think longer and harder about their capital expenditures, Huawei's reputation for ultra-competitive pricing could make it even more popular with large Tier 1 operators in mature markets, where it's already a significant player. (See Telefónica Deploys Huawei DWDM, TI Uses Huawei for NGN, BT Goes With Huawei for FTTH , Huawei's Core Euro Breakthrough, Huawei Lands Deutsche Deal, and Huawei Wins Vodafone Deal.)

ZTE confident
While listed firm and fierce Huawei rival ZTE has not yet issued an official 2009 financial outlook, company representatives have been talking of sales growth in 2009.

Like Huawei, ZTE is well positioned, as a local supplier, to continue to win new build and network expansion deals from China's carriers, and is also active in India. (See ZTE Wins CDMA Deal, ZTE Wins Unicom VAS Deals, ZTE Wins India Deal, China's Mega CDMA Tender, Unicom Plans Capex Blowout, and Vendors Queue Up for Indian Deals .)

And according to a report from Bloomberg, Xu Ming, VP of ZTE's wireless division, said recently that the vendor is expecting "stable growth" in revenues from outside China during 2009.

ZTE spokespeople said the company couldn't be more specific, other than to reiterate that an increase in revenues is expected.

Like Huawei, ZTE has been busy building business in emerging markets in Asia/Pacific, Africa, and Latin America, and is keen to win deals in North America. To that end it announced a deal this week for CDMA infrastructure and handsets from U.S.-based mobile startup Smart PCS, and is making noises about next-generation fiber access technology developments. (See ZTE Wins CDMA Deal in US, ZTE Touts Next Gen PON, ZTE Tackles Opex, WDM-PON, ZTE Ousts NSN in Hong Kong , and ZTE Wins Libya WiMax Deal.)

During the first nine months of this year, ZTE reported revenues up 29 percent compared with the same period in 2007 to 30.3 billion Yuan Renminbi ($4.4 billion), and seems on course to record a significant full year sales hike compared with 2007's RMB34.8 billion ($5.1 billion).

Among the company's main challenges are its profitability -- its net profit margins are low, at 3.6 percent for the full year 2007 and just 2.9 percent in the third quarter of this year -- and its reputation, which has taken a severe knock following the recent bribery scandal at Telenor Group (Nasdaq: TELN). (See Telenor Bans ZTE From New Deals.)

— Ray Le Maistre, International News Editor, Light Reading

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jmlspt
jmlspt
12/5/2012 | 3:24:45 PM
re: Huawei, ZTE Predict 2009 Growth
I have a curious experience about Chinese products that have nothing to do with the telecom market. If a product is cheap, it usually has a very doubtful quality and it will end up to have some problem that will make it useless. However, if you're looking for higher quality material, then there is a price to pay and that cost is not far away from the other (non-chinese) vendors. Does someone have this kind of experience about Huawei and ZTE products?
bollocks187
bollocks187
12/5/2012 | 3:24:44 PM
re: Huawei, ZTE Predict 2009 Growth
The products from ZTE and Huawei are good - but do not have the extra innovation or completness you might expect from other vendors.

They are the best at imitation and copying.

They are cheaper by far than their Western competitors - sometimes they have A lot more silicon on a board and yet it costs less.
Jasonfire
Jasonfire
12/5/2012 | 3:24:42 PM
re: Huawei, ZTE Predict 2009 Growth
I must say, some of your opinions are totally out of date. Huawei and ZTE are changing all the time. They are the leaders in some fields of telco industry.
Light-bulb
Light-bulb
12/5/2012 | 3:24:40 PM
re: Huawei, ZTE Predict 2009 Growth
Ah... yes could you elaborate on exactly where they lead and innovate? Any links on standard leading efforts, IEEE?

What new technologies and new product niches have actually started within these companies?

Inquiring minds would love to know.

LB
halo.duan
halo.duan
12/5/2012 | 3:24:35 PM
re: Huawei, ZTE Predict 2009 Growth
http://www.cpri.info/index.htm...
I don't know how much they contributed. You can find it out if you have enough time. I know Huawei is the poineer to market it and realy get some attention from big body.
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