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