Fear of Huawei is Driving Telecom Mergers
The recent spate of mega-mergers involving some of the world's largest telecom technology suppliers is being triggered in large part by the emergence of China's Huawei Technologies as a major force in the global telecom equipment industry, and further consolidation is likely as Huawei continues to expand into emerging markets and Western Europe, according to a report from Heavy Reading.
"The most game-changing factor in the telecom supply market in the past five years has arguably been the expansion of Huawei outside of China," notes Scott Clavenna, Chief Analyst with Heavy Reading and author of the 48-page report. "Huawei has forced established suppliers such as Alcatel, Lucent Technologies, Ericsson, Nokia, and Siemens to merge and realign to better compete. With the benefit of an expanding Chinese telecom sector driving basic revenue growth and substantial economic support from China's government, Huawei has been able to broaden its product line and address emerging market opportunities throughout the globe with such speed and power that the global telecom supplier market has been able to do little more than watch in stunned silence."
Huawei recorded nearly US$6 billion in revenues in 2005 and now has 35,000 employees, with products deployed in more than 100 countries, and revenue growth exceeding 50 percent per year, Clavenna reports. "In 2005, Huawei was able for the first time in its brief history to sell more internationally than domestically, and also penetrate Western Europe's top carriers, with wins at BT, Vodafone, Telefonica, and KPN," he adds.
Other key findings of Remade in China: Huawei and the Future of the Global Telecom Market include:
Huawei can no longer be dismissed as a low-price, low-quality imitator in the telecom market. While it cannot be credited with leading innovations in telecom, it is able to compete head-to-head with major Western suppliers from handsets to core routers, and from access gear to advanced applications. Interviews with service providers in 2006 indicate that Huawei is catching up in all but the most technically demanding areas, such as core routing. That said, it's R&D budget is behind many Western rivals; however, its R&D costs are relatively quite low.
Huawei's primary weakness is not in its product line, but in its ability (or inability) to operate and maintain high-quality professional services and sales support in Western markets. It has, however, made great strides toward this goal and is poised to reach a par with Western suppliers within the next three years. It still faces the difficulty of building a track record of multi-billion-dollar contracts with major suppliers outside of China -- particularly with regard to wireless infrastructure, on which it bases much of its revenue growth forecasts. Building a stable of reference customers is critical to Huawei's long-term growth prospects.
Huawei's margins are under severe pressure due to global telecom equipment price erosion -- brought on, to a significant extent, by Huawei's own sales tactics. Thus, in some respects, Huawei is caught in a tempest of its own making. Price erosion has been most acute in wireless handsets, DSLAMs, wireless base stations, and core optical gear. Huawei now claims it is profit-focused and does not compete on price, but the effects of the global price war continue to be felt in its slimmer margins."
Posted to the site on 24th July 2006
