pridgewell 12/5/2012 | 3:15:58 AM
re: Could Huawei Buy Marconi? Geoff,
I work for a research company and am looking into this issue - would be be able to talk offline about this?


Paul ([email protected])
probably 12/5/2012 | 3:16:14 AM
re: Could Huawei Buy Marconi? Looks like the exclusion from the BT 21CN has had its cruel effect already.


Sad news when coupled with IBM's announcement that 15 000 will be cut over Europe.

PS Sorry about the garbled link!
probably 12/5/2012 | 3:16:14 AM
re: Could Huawei Buy Marconi? Looks like the exclusion from the BT 21CN has had its cruel effect already.

Marconi Cuts Jobs

Sad news when coupled with IBM's announcement that 15 000 will be cut over Europe.
gbennett 12/5/2012 | 3:16:25 AM
re: Could Huawei Buy Marconi? Comrade Ibeenframed,
The 25% I referred to may have been "predatory pricing" that Huawei was using to enter a market and gain reference accounts. But we all know their stuff is cheap, how cheap compared to the opposition is yet to be clarified.

There are two obvious trends we'll see happening in this context. First is that competing manufactures will move more and more of the cost of their production into "developing world" countries. This trend has been happening in production for years. But I'm talking about R&D - software development to India, hardware development to China, Singapore, Malaysia and S.Korea.

The politicians are openly talking about dominating the hi tech industry already...


But there's a second trend. The new markets that Huawei is targetting are in Europe and N.America. To sell into these markets they need to employ local personnel, and locals cost a lot more to employ than equivalent employees in China. At the moment Huawei is paying below industry average salaries - they could get away with that because of the telecom collapse, when any job was a good job. But projects like 21CN are already creating a scarcity of good technical and sales folks in the UK, and when European SPs kick off their next-gen projects the same will happen in the rest of Europe. Cisco and Juniper are already hiring again here in the UK, and startup activity is busier than I've seen since the bubble burst. So Huawei's cost of sale in their target markets are set to rise, but they've already set expectation levels for equipment costs.

Bottom line - unless Huawei deals with the "cheap and cheerful" perception they could run into margin pressure soon. So the race is on for Huawei to build a customer base in Europe and N.America before their competitors manage to drive down costs through offshore R&D, as well as the current offshore production.

IMHO Cisco is in the best position. They have managed to retain ludicrously high margins, while the street price of Cisco equipment have fallen. Of course it's the reseller who has taken the margin hit in this case, not Cisco. This leaves plenty of margin for Cisco to play with, but Chambers knows that dropping prices will ruin his PE ratio, which will in turn hit the stock price.

Interesting times ahead.

gbennett 12/5/2012 | 3:16:26 AM
re: Could Huawei Buy Marconi? Comrades,
It occurs to me that there's another option for Huawei. They already have a business relationship with Marconi, so in the short term why not simply outsource the implementation of the 21CN work to Marconi? Remember BT has a pretty aggressive timetable for 21CN, so Huawei will have to move quickly. And several people have pointed out that their current UK infrastructure is not sufficient for this level of business.

Meanwhile, Marconi will have to go through savage layoffs so Huawei can cherry-pick ex-Marconi people to boost their own capabilities. In an ideal world a company making layoffs will try to keep its best people, but when you're laying off 3,000 out of 4,500 UK employees you can bet that plenty of top-class employees will be offered redundancy packages.

At some point Huawei will reach a critical mass so that they can take over the 21CN themselves. By then they'll have won a bunch of new business to - partly thanks to the value of 21CN as a showcase and reference account.

ron202 12/5/2012 | 3:16:29 AM
re: Could Huawei Buy Marconi? Well keeping in mind that a lot of us (readers of Lightreading) are making broadband as commodity as possible I cannot see how in the in the long run US can beat China (unless we put a ban on abortion and open wide the borders to immigration-:)). 1+ billion will be always > than +250million.
Do I miss something in reading the numbers?

rjmcmahon 12/5/2012 | 3:16:30 AM
re: Could Huawei Buy Marconi? Thanks to the morons that govern us, and their religious belief in the "magical hand of free markets":

China to beat US in broadband connections soon

Be careful not to play the role of a victim. "We the people" are part of the equation as well. It could be good if "we the people" came to an understanding about why the internet became what it is, and the guiding principles behind it.

What are LR readers beliefs on that?

I found the following observation particularly interesting and relevant. The entire thread can be found on


and is very much worth reading.

Mike's right in that the invention of the internet should not necessarily be dated to the invention of packet switching or IP and TCP.

I personally suggest that one of the magic ingredients which made the internet is what I call its cost contract. In other words, a billing invention rather than a technological one.

The internet cost contract is "I pay for my line to the midpoint, you pay for yours, and we don't account for the individual packets."

I pay my half, you pay yours.

This remarkable billing arrangement gave the illusion that the internet was free. People were paying for it but you could treat it like it was largely free. Other systems, including the X.25 network, and of course the PSTN, tended to have usage based accounting.

The internet grew because a flourish of people built strange and interesting applications, and left them open to access by the outside world. The
early days involved everything from fishtank webcams to FTP repositories of software to online communities talking about the technical and the trivial.

On a network where you paid for traffic, as soon as an application got popular, there would be a bill. And a beancounter would get the bill and somebody would be called into an office to be asked, "Why do we have a huge bill for people looking at camera images of our fishtank?" And it would have been shut down. Likewise software repositories and much more. Only what could be demonstrably financially justified could have a good chance of thriving.

It is from this that msggroup, and FTP, and USENET, and archie, and gopher and eventually the WWW that people come to think of as "the internet" grew.

The ability to innovate at the edges is important, but the ability to play without accounting may have been even more important.
OpticOm 12/5/2012 | 3:16:31 AM
re: Could Huawei Buy Marconi? Thanks to the morons that govern us, and their religious believe in the "magical hand of free markets":

China to beat US in broadband connections soon


By next year, analyst claims

By: INQUIRER staff Wednesday 04 May 2005, 17:15
MARKET RESEARCH firmm iSuppli said China is set to outstrip the USA in broadband subscribers during the next several years.

Figures it has published show that by the end of 2007, China will have 57 million broadband subscribers, compared to 54 million in the US.

He said America was the world leader in 2004 in the number of broadband residential subscribers, but in the last few years has "been plagued with regulatory issues" that have prevented the growth of such technologies.

Rago said that at the end of 2004, the US was 15th worldwide for broadband penetration. Nevertheless, last year, the US federal courts ruled against the unbundled network element platform (UNE-P) and George Bush recommended that Congress not tax access to broadband to stimulate its growth.

He said that the US has to do more, including minimising regulations on VoIP and video delivery and consider giving tax relief.

Isuppl provided a chart demonstrating the relative position of China and the US. -¦

russ4br 12/5/2012 | 3:16:37 AM
re: Could Huawei Buy Marconi? They will re-orginise, reduce the number of personnel in the UK and move on.

"Marconi prepares to welcome suitors"

The re-organization has started.

Ibeenframed 12/5/2012 | 3:16:37 AM
re: Could Huawei Buy Marconi? If Geoff is right that Huawei is 25% of traditional optical vendors - who else will get bit by them? Alcatel, Nortel, Lucent and others are all priced in similar ranges and will all face the pressure of competing below costs to maintain accounts. Successive new bids will begin lower and end lower than before.

Marconi is the start - but if Huawei can sustain their pricing models - they will own the PTTs and ILECS world wide - in time. If that assumption of very low pricing, for technically equivalent product, is true - who is next? Nortel and Lucent in NA?

paolo.franzoi 12/5/2012 | 3:16:39 AM
re: Could Huawei Buy Marconi?
I believe that an acquisition of Marconi makes no sense for Huawei. First off, they have already won the business. It is easier to hire a professional services group (using IBM or GE as examples) than it will be to buy one. The integration challenges would be huge and the payback small. The product overlap is large so lots of product churn would occur as well. If I was advising Huawei, I would use my M&A dollars to enter the US. A company like Tellabs might make sense for Huawei.

bitguy 12/5/2012 | 3:16:40 AM
re: Could Huawei Buy Marconi? Hi Geoff,

Re your first point - I agree to a certain extent, Huawei are definitely shaking off the cheap & nasty image they had 18 months ago, but they could buy a lot of trust within those accounts and an instant services organisation - question is, is it worth 500 million pounds? Not all in one chunk IMHO.

If I was buying, I'd buy the front end of the business (sales, customer engineering, services) and EOL the product set (moving the IP into my own) with great haste so I could get rid of the duplication.

Re your second point, not (quite so) true. Its all managed by one NMS and the LCT is pretty consistent. A lot of what you mention is gone.

I agree with your acquisition comment - there are exceptionally few who do it well (Cisco for one, and they mess up sometimes).
ozip 12/5/2012 | 3:16:40 AM
re: Could Huawei Buy Marconi? All companies win and loose deals. Although about 1/3 of marconi's revenue comes from the UK and Im guessing a big part of that from BT, it will take some time for the BT revenue stream to decline.

They will re-orginise, reduce the number of personnel in the UK and move on.

gbennett 12/5/2012 | 3:16:41 AM
re: Could Huawei Buy Marconi? Comrade Ibeenframed,

Well I kind of consider that communism is dead, or at least mortally wounded these days. We just have to wait for the remaining "communist" countries to figure out the benefits of democracy and capitalism and we're all set.

So that means that the word "comrade" can return to its original meaning..."A person who shares one's interests or activities; a friend or companion." The word is also androgenous, unlike "guy", "dude", or "mate".

Anyway, to your point on the wider benefits of Huawei acquiring Marconi.

Let's think about two aspects of this problem:

1. Marconi has a lot of successful telcos as their existing customers.

2. Marconi has decades of optical technology development, some of which is truly world class.

First Issues: Great Customers
You're right. If you look at Marconi's European customer list, it contains a bunch of great accounts: FT, DT, Telia-Sonera, Belgacom, etc.

But in all cases these customers buy SDH or DWDM equipment. Huawei makes that stuff already, and sells it for about 25% of the equivalent cost of Marconi, Nortel, Lucent or Alcatel.

And I suppose the most important question is - does Huawei need to acquire Marconi in order to penetrate these key accounts? Don't you think BT's decision to use Huawei will blow open the doors in even the most stubborn and jurassic PTTs across Europe? Huawei has a comparatively small team here in EMEA and I bet the phone has been ringing off the hook since last week's decision.

Second Issue: Marconi Optical Technology
The Huaweu optical equipment is considerably less advanced than the other vendors I've named above (despite this it still does the job or SPs wouldn't buy it, no matter how cheap it is). But with a massive investment in R&D Huawei is catching up fast. Most importantly those developments will continue to result in products that are much cheaper than the opposition.

Something that isn't widely discussed is product line consistency. My impression is that Huawei's products are more consistent in terms of their hardware architecture, user interface and management capabilities. This is certainly true for the Huawei router products, which use a single codebase across the product range. In contrast the Marconi optical products are based on a mish-mash of hardware platforms, different embedded executives, and inconsistent CLIs. This is because these products derive from three or four different companies within the old GEC conglomerate. It's also because Marconi never really came to terms with the need for centralised control over engineering projects, so it was quite common to find products made in the UK with one embedded OS, products made in Germany with a different OS, and products made in Italy with a third OS. No coordination at all.

I may have this analysis all wrong. Folks who read my ravings on other boards on this site may be aware that I'm very anti-acquisition, especially when technology is the goal of the acquisition. My experience of (many) such acquisitions has been very negative.

Ibeenframed 12/5/2012 | 3:16:43 AM
re: Could Huawei Buy Marconi? Comrades????

Funny way to start a post about a company from a communist country - very tounge in cheek Geoff.

Your posting assumes that the only value for Huawei's acquisition of Marconi would relate to the 21CN deal.

If you consider routes to market, broader customer base it may add additional value to the deal.
particle_man 12/5/2012 | 3:16:43 AM
re: Could Huawei Buy Marconi? It's not clear to me, even with their new 10B line of credit, that Huawei has the balance sheet for this sort of transaction. It certainly wouldn't be an accretive purchase.

I think Geoff nailed it - they can just hire whomever they need off the Marconi payroll.
Diogene 12/5/2012 | 3:16:44 AM
re: Could Huawei Buy Marconi? I think it is better for Marconi to be acquired by Huawey than others. Huawey is in the position to learn from Marconi technical experience and customer (BT) knowledge. Otherwise, its destiny is to be acquired by other vendors when it's too late, for Marconi, to have something to say.

gbennett 12/5/2012 | 3:16:46 AM
re: Could Huawei Buy Marconi? Comrades,
I don't have an MBA, but my amateur opinion would be that acquiring Marconi would not be the most cost-effective way to achieve the objective - ie. to assure BT that Huawei is able to support the rollout of Huawei's portion of the 21CN project.

I know it sounds callous to say this, but a much more pragmatic approach for Huawei would be to simply "take" the Marconi personel they need. In other words, just offer them jobs. After all, we know that Marconi will be making significant layoffs in the light of BT's decision.

So who do Huawei actually need from Marconi?

First off, they need about a dozen or so key personel who actually understand and contribute towards the BT/Marconi relationship. Finding the right dozen or so people is a huge challenge, because there are a lot of Marconi people who think they are essential to the BT relationship. At the end of the day only BT can really say who the right people are, and ethically it's unlikely that they would just give Huawei a list - good grief it make me shiver to think about it because we're talking about peoples' livelihoods here!

In addition, Huawei could cherry-pick the field engineers they need from the Marconi services organisation. I'm sure a lot of these folks would jump at the opportunity because Marconi (in their wisdom) actually tried to shut down the services organisation about three years ago - so it's not like Marconi actually has any established vision in this area.

So what about the thousands of other UK and international personnel that Huawei would inherit as a part of a potential Marconi acquisition?


- Why would Huawei "buy" hundreds of Marconi manufacturing employees, who earn at least four times what a Shenzen-based employee earns when those Shenzen employees apparently already make a world-class product?

- Why would Huawei "buy" hundreds of expensive Marconi R&D folks when 60% of Huawei employees already work in R&D or engineering? In fact we can be pretty sure that R&D is the last of Huawei's problems when it comes to the BT relationship. Word is their DSLAM is one of the most advanced products in that market segment.

- Why would Huawei "buy" Marconi marketing folks, G&A folks and HR folks who, to put it charitably, are unlikely to contribute to the Huawei/BT relationship?

Bottom line, by buying Marconi, about 70% of the personnel that they would acquire would have no direct contribution to make to the 21CN deal. And let's face it, it's not like Marconi is generating a bunch of new customers to whom Huawei doesn't already have access. Huawei should be on the short list for any SP in their right mind today. They don't need Marconi's help for that.

Acquiring Marconi? That kind of inefficient management decision doesn't strike me as Huawei's style.

And by the way, all of the folks I've indicated as being orthogonal to Huawei's objectives for the 21CN project are, in fact, essential, and active contributors to Marconi's day to day business today. If they weren't then, given the savage redundancies Marconi has made in the past few years, they wouldn't still be working there.

I wish all of the Marconi employees the best of luck in the weeks to come. The market is in a hell of a lot better shape today than two years ago, so there really can be life after Marconi!

donniall 12/5/2012 | 3:16:47 AM
re: Could Huawei Buy Marconi? The continued rise of Huawei, and the speed at which they appear to be winning business mindshare is incredible - and a credit to them. Does anyone know how long did it take Cisco to win business from one of the big carriers? I was always under the impression (maybe wrongly) that this proved to be a major hurdle for Cisco ....? If so, the recent BT 21CN announcement - which will be watched closely by countless other service providers - proves that the acceleration to commoditisation is arriving at its natural conclusion: COST is the prime differentiator ....
Bad news if you are one of the big guys desperately trying to keep your head above water after the recent downturn in telecoms ...

zher 12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi? Totally agree, the tickets!!!

However, Marconi have more tickets than Tellabs or ADC I believe.
zher 12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi? Huawei doesn't do R&D in UK, a couple of hundreds of experienced people are not enough, but not that bad.

China is the second largest market for Cisco, guess how many Cisco employees in China? Less than 1000! I admit there are a lot of Cisco parters in China, my point is, several hundreds of people should not be too bad.

But anyway, to purchase Marconi at this moment is really a smart choice for Huawei.
zher 12/5/2012 | 3:16:48 AM
re: Could Huawei Buy Marconi? "It is a bit of a surprise BT have dropped Marconi for Huawei when they have no experience with the legacy systems. "

Well I would say, Huawei may not have experience on BT, but they do have lagacy system experience.
frzrmn 12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi? A Marconi news release stated the company could not meet BT's commercial requirements.
frzrmn 12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi? Should the Huawei/Marconi buyout take place, Bookham could get a huge boost. In addition to buying Marconi's optical business, Huawei represents more than 10% of Bookham's revenues, and in 2004 Bookham received Huawei's sole gold award.
jsittko 12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi? The should buy Tellabs or ADC.

I think Tellabs or ADC will be bought by somebody maybe Siemens or Fujistu.


Not technology. The customer contact list and entry into the door.. period.
OptoScot 12/5/2012 | 3:16:50 AM
re: Could Huawei Buy Marconi? The suggestion that the UK Govt would step in to stop Marconi being bought by anyone is ridiculous. No White Knight would rush in from the City of London mainly because most of our financial institutions are foreign owned anyway. Apart from that they're too busy trading in hedge funds and other rubbish..... The UK has absolutely no concept of a loss of prestige. We are quite content to let other countries invest in and develop technology so we can buy what we want when we need it. Napoleon once said that England was a nation of shopkeepers and it won't be long before he's proven 100% right. We're up for sale - offers anyone?
laserbrain2 12/5/2012 | 3:16:51 AM
re: Could Huawei Buy Marconi? interesting that the last bits of Marconi-Fore ATM business tends to be in US government contracts.

You gotta figure Huawei would be the last nail in the Pittsburgh coffin.
DZED 12/5/2012 | 3:16:55 AM
re: Could Huawei Buy Marconi? The British government had no difficulty watching Bookham get up and walk out of the UK, taking bundles of Nortel and Marconi IP with it.

I can't imagine they would have a problem seeing Marconi go.

It is a bit of a surprise BT have dropped Marconi for Huawei when they have no experience with the legacy systems.
issey 12/5/2012 | 3:16:55 AM
re: Could Huawei Buy Marconi? So if Huawei won and critics say they don't have a support structure in place in UK then what the hell is several hundred people in UK doing? eating and drinking ??, What were BT's criteria if service as support isn't one of them ?
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