Huawei Aims for Optical Crown

Huawei Technologies Co. Ltd. has a chance to overtake Alcatel-Lucent (NYSE: ALU) for the top market share in optical networking gear, according to the latest numbers from Ovum Ltd.

The research firm figures Huawei just fell short of the top spot, building a 20.5 percent market share in the second quarter of 2009. AlcaLu's share was 20.7 percent. (Those numbers are based on data from the previous four quarters.)

But Huawei has seen revenues grow during the past year, reporting second-quarter sales that were 21 percent higher than in the same quarter last year. That's because of strong demand in China, driven largely by 3G wireless build-outs and the associated backhaul requirements, says Ovum analyst Ron Kline.

Those build-outs disproportionately favor the Chinese vendors. So, ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) saw revenues grow as well, by 62 percent over the previous year's second quarter.

By contrast, pretty much everybody else is seeing revenues decline, a predictable side-effect of the decline in, well, everything since October. For instance, AlcaLu's second-quarter optical revenues were down 22 percent from the previous year, and Ericsson AB (Nasdaq: ERIC) was off by 18 percent, Kline reports.

That points out another "benefit" for Huawei, if you want to call it that: It doesn't have a strong North American presence, so it's got less weight offsetting its growth in China. (The overall optical networking market shrank 9 percent, to $3.9 billion, compared with the second quarter of 2008.)

Huawei is also benefiting from a favorable exchange rate, Kline says -- especially compared with AlcaLu, which reports in Euros.

Huawei fell just $40 million short of Alcatel-Lucent in market share. And the next set of market-share numbers won't include the second quarter of 2008, which was relatively weak for Huawei, Kline says. (That could be another reason why Huawei's showing gains compared with a year ago.) Add it all up, and he thinks Huawei has a good shot at being the market-share leader in the third quarter.

But how long can that lead last? In part, that could depend on whether Huawei can pick up the slack in North America. "If they could build a decent business here, they could give Alcatel-Lucent a run for their money," Kline says.

— Craig Matsumoto, West Coast Editor, Light Reading

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cw.774 12/5/2012 | 3:58:49 PM
re: Huawei Aims for Optical Crown

Yes newday!,

Congradualtions to Huawei, ZTE, the Chinese Government and the liberal benevolent US GOv't staffed by folks who cannot spell 'IT' never mind 'LASER' and who wisely gave away the intelectual farm in my unfortunately chosen field of study and practice over the course of my adult life.

A conspiracy for which all the responsible idiots in DC can claim total innocence by laughing off questins about domestic educational responsibilities and workforce developemnt with a martini in-hand saying "well I don't understand all this tehcnical stuff.. who does?".

Please thank your local representatives everyday for looking after your ineterests over this last generation

newday3000 12/5/2012 | 3:58:49 PM
re: Huawei Aims for Optical Crown I think the master plan must be to assemble cars and dominate the automotive industry (based on government funding to keep this alive) ohh but wait the big 3 three aren't market leaders... Honda, Hyndai, Toyota lead this market. If the economy isn't based on manufacturing (give me a break), or technology (since no one cares all the leaders are slowing moving over seas) what the hell is important!!!!
newday3000 12/5/2012 | 3:58:49 PM
re: Huawei Aims for Optical Crown One can only assume that ZTE & HuaweiGs price advantage (they make really cheap products) comes from extremely high volumes of commodity components and they have mastered the art of negotiation with component suppliers (the same suppliers the rest of the industry uses to compete with Huawei) (FYI IGm being sarcastic, for those that canGt read between the lines)GǪGǪ. OR more likely lack of regulation on dumping practices (illegal in North America) debt financed by the Chinese government to allow ZTE and Huawei to gain foot print outside of China.

ItGs nice to see all the governments look the other way when dumping (selling products at or below cost) tactics are used to gain market share.

Congratulations ZTE and Huawei, all you need to do now is reverse engineer Windows and Office and take out Microsoft.
abashford 12/5/2012 | 3:58:49 PM
re: Huawei Aims for Optical Crown

Kudos to ZTE & Huawei, they are clearly executing well.

One thing that causes me a bit of worry about their growth, is the huge amount of vendor financing that seems to be available to them.

When a company with single-digit billions of revenue is provided with 10's of billions of vendor financing cash, does it not create something that looks a lot like the tech bubble of 2000-2001?  

That is, not real growth based on sound business fundamentals, but money lent to people with questionable business cases or balance sheets (i.e. those that the banks won't give money to) to buy their product?  Are we destined for a bunch of grey market ZTE and Huawei gear when some of these companies fail?  

Or is this now a strategic advantage due to the current limited avaiability of credit and the Chinese government's willingness to back this debt?

Any observations the LR staff or readership has on this?  

cw.774 12/5/2012 | 3:58:48 PM
re: Huawei Aims for Optical Crown

Well I think I know the Gov't Master Plan (but do they?):

Auto Industry: Feel guilty about winning a world war, Let MacArthur settle everyone down and as a political favour, proceed to pressure the industry to hand over the Auto Industry know-how to JPN.  Then, forget the doemstic auto industry, they are big and rich and never did any political favours for us.  Dupe the union into thinking they are much more important than the folks who design cars (they have more votes anyway).  Who cares what wedges get driven between them via class perception politics.

Telecom/Semi: Feel Guilty about ????, Let Liberal Tehcnologists from MA and Si Valley and Bell Labs hand over the know how for routing and silicon technology for some nice consulting fees or Gov't kick backs, again, again and again slowly over the course of 10 years.  As years pass, decide Broadband policy with a bunch of lawyers and B.A's at the helm.  Meanwhile, make up rules about service provisioning and content decency that make no sense in a sustaining business model or in general.. extending into the future indefinetly.

The global economy became more important to the US Gov't than it's very own.  World order Utopians redistributing the wealth while not policing the good policy in place already.  We let it happen (although I was in diapers during Nixon, but knew I din't care for Bush Sr. foreign rhetoric and the silliness with Willy's administartion that lead to the transfer of military technology).  Feeling unrepresented...

idafmool 12/5/2012 | 3:58:47 PM
re: Huawei Aims for Optical Crown Look for Huawei to pick up a few deals in the valley this year.
jepovic 12/5/2012 | 3:58:46 PM
re: Huawei Aims for Optical Crown

"hey have mastered the art of negotiation with component suppliers (the same suppliers the rest of the industry uses to compete with Huawei)"

Isn't this just a classic case of a high-tech product becoming a commodity? If providing optical systems is only about buying cheap and assembling cheap, then chinese vendors will prevail. If all the R&D of the western companies can't be converted into higher prices, it's worthless.

quicktime 12/5/2012 | 3:58:46 PM
re: Huawei Aims for Optical Crown

You guys are scared?  Don't complain here and just go to study

engineering instead of finance!!

60 years ago, we have Detroit for auto. Now We have Silcon Valley,

will Silicon Valley become another Detroit and wait for the bailout

from the government?

Stefan Sip 12/5/2012 | 3:58:46 PM
re: Huawei Aims for Optical Crown

I think Tom Tancredo has a spot in his bunker for you.

Balet 12/5/2012 | 3:58:46 PM
re: Huawei Aims for Optical Crown

I agree that Huawei has taken, sorry "engineered",  most of their technologies and US educated Asian employees with US government turning its blunt eye to the whole problem. I am a bit ashamed how much has been alowed by our government and how little it does even now to protect the US market.

We need a few techies in the Cabinet, not a bunch of lawyers regulating Telecom internally and letting other country's businesses prosper on our R&D initiatives. Sorry if it sounds political in pretty much technical talk board.

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