Is There No Stopping Huawei?

Sore losers about finishing third for Olympic golds, the Chinese have put together their own medals table, based on overall awards, to suggest this ignominy never occurred. But no such chicanery is necessary when it comes to measuring success in the global market for network equipment and services. Appraising the results of its rivals over the first six months, Huawei must have felt like Jamaica's sprint relay team, crossing the finish line far ahead of the chasing pack.

As in that race, the gap between Huawei Technologies Co. Ltd. -- China's biggest vendor -- and its rivals has continued to widen. In local currency terms, Huawei's revenues soared by 40% in the first six months, to some 245.5 billion Chinese yuan ($36.8 billion), compared with the first half of 2015. Sales at Sweden's Ericsson AB (Nasdaq: ERIC) sank by 7% over the same period, to 106.3 billion Swedish kronor ($12.7 billion), while Finland's Nokia Corp. (NYSE: NOK) suffered a 10% decline, to about €12.3 billion ($12.8 billion), and saw revenues at its networks business fall by the same percentage, to around €10.4 billion ($11.8 billion). San Jose-based Cisco Systems Inc. (Nasdaq: CSCO) did a little better, generating $24.7 billion in sales over its February-to-July half, 1.6% more than a year earlier. (See Huawei Reports 40% H1 Sales Growth But Margins Suffer, Ericsson 'Doubles' Savings Goal as Sales Slump, Cisco Throws 5,500 Overboard on Cruise to Richer Waters and Eurobites: Nokia Plans More Cost Savings.)

If Huawei claimed gold for sales growth, then ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), its smaller domestic rival, took silver. Reporting its own figures earlier this week, the company flagged a 4.1% rise in operating revenues, to RMB47.8 billion ($7.2 billion). Viewed as a team, the Chinese double-act of Huawei and ZTE are putting the global titans of the equipment industry to shame. (See ZTE Gains Ground on Ericsson, Nokia in H1.)

None of these companies are directly comparable, of course. Huawei and ZTE have massive consumer-devices businesses that are contributing to their growth. Cisco competes mainly in the enterprise sector, while Ericsson and Nokia specialize in carrier network equipment. Yet to varying degrees, all of them have a stake in the communications service provider (CSP) market.

While that market accounts for almost everything that Ericsson and Nokia's networks business do, ZTE generated about 60% of its sales from CSP customers in the first six months. Its "carriers' networks" business was also the fastest growing of its three divisions (the others being "government and corporate" and "consumer"), reporting a 5.1% year-on-year increase in revenues. Cisco does not break out CSP revenues but is estimated by Analysys Mason , a market research company, to have made about $11.1 billion in 2015, about 23% of the $49.5 billion it earned in sales between February 2015 and January 2016 (its last financial year). Assuming the proportion remained the same, Cisco should have made about $5.7 billion from CSP customers between February and July.

Unfortunately, Huawei remains secretive about the details of its success until the end of its financial year. But it dropped a few clues about growth at its three divisions (which closely resemble ZTE's) in its end-of-July press statement. "We achieved steady growth across all three of our business groups, thanks to a well-balanced global presence and an unwavering focus on our pipe strategy," said Sabrina Cheng, Huawei's chief financial officer. "We are confident that Huawei will maintain its current momentum."

Steady growth. Current momentum. Huawei's carrier business grew revenues by more than 21% in 2015, when overall revenues rose by 37% -- a slightly lower rate than over the first six months of 2016. If first-half CSP revenues accounted for the same 59% of total sales they did in 2015, Huawei would have generated about RMB145 billion ($21.7 billion) in this market between January and June, or 63% of CSP revenues over the whole of last year. That is an impressive sum, by any reckoning. (See Huawei: New King of the CSP Market.)

Next page: Defying the odds