Huawei Sets Bumper Sales Target

While 2007 may have been an annus horribilis for the likes of Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Nokia Networks in terms of sales growth, one of their major rivals, Huawei Technologies Co. Ltd. , saw its orders leap by 45 percent last year, and believes 2008 will be another bumper year.

(See Profit Warning Slams Ericsson , Ericsson Cuts Jobs as H2 Bites, AlcaLu Cuts 2007 Outlook by $1.25B, AlcaLu Reports Q4 Loss of €2.6B, Nokia Siemens Suffers Merger Blues, Instant Revamp for Nokia Siemens, and Nokia Siemens Ramps in Q4.)

Huawei says it recorded global contract sales for 2007 worth about $16 billion, a 45 percent rise from 2006. However, it should be noted that Huawei's "contract sales" represent the value of contracts signed during the calendar year, and are not the same as revenues. (See Huawei Sales Hit $11B.)

Huawei uses that metric to help make its business look even stronger, and, as a private company, it is not obliged to issue revenue numbers based on any public accounting methods.

Huawei's growth appears to have come from multiple industry segments, including mobile, access, and optical infrastructure, and even managed services. In announcing a new deal in Saudi Arabia, the vendor stated that "contract sales for managed service projects around the world grew by 355 percent in 2007." (See Huawei Wins Mobily Deal, Optical Gear Hits Record, Huawei Touts Leadership, Dell'Oro Reports on WCDMA, and Huawei Wins at TIM.)

Primarily, that growth is coming from its international sales -- in Africa, Asia/Pacific (outside China), Eastern and Western Europe, the Middle East, and Latin America -- rather than its home market. Huawei says 72 percent of its contract sales, or $11.5 billion, came from the international market in 2007, compared with 65 percent ($7.2 billion) in 2006.

Now, financial analysts at Dresdner Kleinwort are reporting that Huawei is expecting that total contract sales figure to rise by a further 37 percent, to $22 billion in 2008. That figure is believed to come from the vendor's U.S. marketing director, Charlie Chen, talking at the CTIA event in Las Vegas, though a company representative in Europe could not confirm that 2008 projection.

That potential growth is even more remarkable given that Huawei's key rivals are forecasting flat to mid-single digit growth for this year's revenues.

So how does Huawei measure up financially against rivals AlcaLu, Cisco Systems Inc. (Nasdaq: CSCO), Ericsson, Nokia Siemens Networks (NSN), and Nortel Networks Ltd. ?

Well, while we can't compare Huawei's contract sales figures against the revenues of its rivals, the Chinese vendor does also produce an annual report that includes revenue numbers audited by KPMG International . Those numbers, according to Huawei, conform to International Financial reporting Standards (IFRS).

And while Huawei's 2007 annual report is not yet available, the figures from previous years give a decent guide as to how the Chinese giant performed last year.

Contract sales and revenue numbers from 2002 to 2006 show that Huawei's revenues are in the range of 68 to 78 percent of the reported contract sales. For example, contract sales in 2006 were $11 billion, while actual, audited revenues were $8.5 billion (77 percent of contract sales).

On average, in the years 2002 to 2006, audited revenues were 73.4 percent of reported contract sales. See the table below for a guide to Huawei's sales and revenues history.

Table 1: Huawei's Contract Sales and revenues, 2002-2007
Year Reported value of contract sales Reported audited revenues Audited revenues as % of reported contract sales
2007 $16 billion Not yet released*
2006 $11 billion $8.5 billion 77%
2005 $8.2 billion $6 billion 73%
2004 $5.6 billion $3.8 billion 68%
2003 $3.8 billion $2.7 billion 71%
2002 $2.7 billion $2.1 billion 78%
* Light Reading estimates 2007 revenues of $11.7 billion

If that average is applied to 2007's reported contract sales of $16 billion, Huawei's 2007 revenues would be $11.7 billion.

If that figure is in any way accurate, Huawei will have leaped above Nortel in the revenues charts for 2007, but would still be some way behind the big four. See the table below.

Table 2: How Huawei Stacks Up Against Major Rivals
2007 revenues in US$* 2007 revenues in local currency
Cisco $34.9 billion** Not applicable
Ericsson $31.4 billion 187.8 billion Swedish kroner
Alcatel-Lucent $27.9 billion �17.8 billion
Nokia Siemens Networks $21 billion*** �13.4 billion
Huawei $11.7 billion**** Not applicable
Nortel $10.95 billion Not applicable
* Converted at exchange rates sourced on April 3 2008
** Fiscal 2007 ending July 28 2007
*** Full year includes three quarters of Nokia Siemens Networks (Q2-Q4) revenues and one quarter (Q1) of Nokia infrastructure revenues only
**** Light Reading estimate

And what of 2008? Taking Huawei's target of a 37 percent rise in contract sales, and applying our equation that Huawei's revenues average 73.4 percent of contract sales, then 2008 revenues could shift up to more than $16 billion.

Maybe Nokia Siemens had better keep an eye over its shoulder.

— Ray Le Maistre, International News Editor, Light Reading

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