Where Does Huawei Go From Here?

By Zhou Xiaoyan

China’s telecom giant won’t give up on the U.S. market,but a strategic shift is underway

Ren Zhengfei, founder and CEO of Chinese telecom giant Huawei, was recently chosen as one of the 100 most influential people in the world by Time magazine. Ironically enough, his company Huawei, the world’s second largest telecoms equipment maker and third largest smartphone vendor, is less recognized in the United States, the world’s largest telecom market.

After years of seeking entry into the U.S.market as a leading telecom network equipment supplier, Huawei only found itself rebuffed over alleged “national security concerns.”

Some foreign media reported that Eric Xu,Senior vice President and one of the three men who jointly run the company as rotating chief executives, said the company was not interested in the U.S. market any more.

However, Huawei refuted those reports by telling Beijing Review that Xu’s words were misunderstood and Huawei doesn’t intend to abandon the U.S. market.

What about the U.S. market?

Over the past decade, Huawei has grabbed a dominant share of many segments of the global telecom market by displacing many rivals such as Nortel, Motorola, Alcatel-Lucent and Nokia Siemens Networks, to become the second largest by revenue and is breathing down the neck of industry leader Ericsson.

The company now provides products and services to 45 of the 50 top operators in the world. However, the vast U.S. market seems to be a place beyond reach. Huawei managed to ramp up revenues in the market from just $51 million in 2006 to $1.34 billion in 2011, but the growth curve has flattened out since then. The company says its 2012 Americas revenue grew only 4.3 percent, the slowest among all regions.

Huawei has failed to ink any contracts with first-tier operators in the United States, a result of U.S. government intervention. Back in 2008, the company canceled a bid for the U.S.technology company 3Com, failing to obtain regulatory approval from Washington.

In 2010, Huawei bid for a multibillion-dollar contract to supply network infrastructure to Sprint Nextel, one of the top U.S. operators, but lost the bid after the U.S. Government again intervened.

On October 8, 2012, the U.S. House of Representatives Intelligence Committee issued a report alleging that Huawei and ZTE, another Chinese telecom company, posed a possible threat to U.S. national security. Committee Chairman Mike Rogers urged the U.S.Government and the private sector to boycott the two companies.

Because of these setbacks, the company has turned to the promising and more lucrative U.S. smartphone market where political interference is less. In 2010 and 2011, Huawei’s consumer business in the United States grew by over 100 percent, the company told Beijing Review. The company recently launched a number of smartphone models in the United States, including the Huawei Premia 4G, an LTE smartphone.

HI-TECH AND EYECATCHING: A model shows off a Huawei tablet at the 2012 Combined Exhibition of Advanced Technologies in Japan on October 2, 2012

Richard Yu, CEO of Huawei’s Consumer Business Group, told CNN in an interview that the company is committed to growing inside the U.S. smartphone market. “Gradually, step by step, more and more people will trust Huawei,”Yu said. “I think with a brand, the most important thing is trust.”

According to research firm IDC, Huawei recorded a shipment of 10 million units of smartphones in the last quarter of 2012, rising to become the world’s third biggest smartphone maker behind Apple and Samsung. Last year, shipments of Huawei smartphones totaled 32 million units, up 60 percent from 2011. The company plans to expand shipments to 60 million units this year. At present, Huawei has courted both the mass market with inexpensive models and high-end consumers with its superfast smartphones. “We want people to know that, when it comes to the best smartphones,there are not only Apple and Samsung. Huawei produces the great smartphones as well,” said Yu.

The company is strategically shifting from an over-reliance on carrier networks and adjusting its strategy to include consumers and enterprises that it hopes will make up for slower growth in the maturing carrier network sector. Apart from selling network infrastructuregear to operators, the company now increasingly targets consumers with mobile devices such as smartphones and is building up IT and telecom offerings for its business clients.“Consumers and enterprises will be engines of future growth,” said the company on its official microblog.

Huawei’s carrier network business drives more than 70 percent of its business but is now its slowest-growing division. By 2017, the company expects its carrier network business to fall to 60 percent of total sales from the current 73 percent, consumer business to grow to 25 percent from the current 22 percent, and the enterprise segment to grow to 15 percent from the current 5 percent.

A more pragmatic approach

If Huawei can’t crack the U.S. telecom equipment market, where should it look?

“Apparently, due to whatever geopolitical reasons, we are not focusing on the U.S.market,” said Li Sanqi, Huawei’s CTO for the carrier network division. Huawei has rejected the national security allegations and insists that its telecommunication equipment is safe to use.But for now, the company’s carrier networking group is dropping the United States from its priorities, said Li. He estimates that the United States accounts for about 30 percent of the world’s carrier business.

“Don’t get me wrong. I’d love to get into the U.S. Thirty percent, it’s a high-value market,” he said. But the carrier business in other parts of the world continues to expand, which he said was an encouraging sign for the company.

One major market expected to help Huawei’s carrier networking group is China, the home market, which is preparing to launch its first 4G network. China has over a billion mobile phone accounts, and the nation’s technology regulators are expected to issue commercial 4G licenses in 2013.

The other side of the pond from the United States is another focus. “Huawei is shifting its focus on the carrier network side to the stronger growth markets such as Europe,” said Roland Sladek, a company spokesman. The company began operations in Europe in 2000 and got its first major deal from Telfort, a Dutch mobile telecommunication company, in 2005. “Huawei wants Europe to be its second largest market,only next to China,” said Li. European governments have not raised security concerns of the kind that are holding Huawei back in the United States, allowing the Chinese company to firmly establish itself as a major hardware supplier to leading carriers.Huawei has 7,500 employees in Europe,already outnumbering its 1,800 in the United States. It has stopped hiring in America but plans to increase its workforce in Europe to 13,000 over the next five years. Over the past 16 months, the company announced the establishment of four new research and development centers in Italy, Britain, Finland and Ireland, and promised to spend $2 billion on investment and procurement in Britain by 2017.

Huawei’s devotion to the EU has already begun to pay off. The company’s products and services were recognized and approved by top operators in Europe, including BT of Britain, France Telecom, vodafone, T-Mobile of Germany and Telecom Italia. Huawei’s products and services have been used by 32 of the current 60 commercial LTE networks in Europe. In April 2013, the company announced a contract under which it will manage vodafone’s mobile and fixed-line networks in Spain for the next five years, and a 1-billion-euro ($1.32 billion) deal under which it will build and manage the Long Term Evolution network for Wind, Italy’s third largest operator. ■

Huawei Technologies Co. Ltd.

Huawei is a leading global ICT (information and communications technology) solutions provider.

The company made its name by selling telecom equipment globally, and specializes in building the routers and switches needed for national communication systems. To date, the company has expanded its businesses to end-to-end capabilities and has strengths across carrier networks,enterprises, consumers, and cloud computing fields.

Its products and services have been deployed in over 140 countries and regions,serving more than one third of the world’s population.

Founded in 1987, Huawei is a private Chinese company headquartered in Shenzhen, south China’s Guangdong Province. It is a Fortune 500 company.

Huawei raked in 220.2 billion yuan($35.4 billion) in business revenue and 15.4 billion yuan ($2.5 billion) in net profit in 2012. Among total business revenue, 66 percent is from overseas markets, a sharp rise from 4 percent in 1999.

(Source: www.huawei.com)