All hail Huawei

At this year’s Mobile World Congress in Barcelona – the telecom industry’s biggest annual trade show – Huawei was causing a lot of excitement.

The networking and telecommunications equipment provider which had only a small booth a few years ago, had reserved an entire building for itself.

If this was a statement of intent, it was not lost on industry rivals. Ericsson’s CEO Carl-Henric Svanberg admitted: “It’s impressive what they have done in a short period of time.”

Svanberg was probably more surprised when he found out that Telenor, the Norwegian mobile phone operator, had chosen Huawei over Ericsson to build a 4G mobile network in Norway.

Whatever happened to Nordic brotherhood?

The deal, which is worth $175.4 million, is the largest to date for the new long-term evolution (LTE) 4G technology in Europe, says Reuters.

“This is the biggest upgrade of the mobile network in Norway we have ever carried out,” says Ragnar Kaarhus, head of Telenor Norway.

He attributes the decision to go with Huawei to “a combination of technical quality, reliability in terms of handling a large-scale equipment replacement operation, and commercial terms.”

Founded in 1988 by Ren Zhengfei, a former officer of the People’s Liberation Army (see WiC15), Huawei is arguably the most disruptive infrastructure player in the mobile market.

By positioning itself as a low-cost alternative to big-name firms like Cisco and Ericsson – it offers discounts of as much as 50%, says the Economist – Huawei’s emerging presence is said to have contributed to the mergers of Alcatel and Lucent, and Nokia and Siemens, as well as Nortel’s collapse.

The Shenzhen-based firm has now overtaken Alcatel-Lucent to become the world’s number three in the equipment market (Ericsson and Nokia Siemens are still ahead).

The company has doubled its market share to 14% over the past year (Ericsson has 35% and Nokia Siemens 20%, says Bloomberg) even winning $3 billion of the $30 billion in contracts awarded in Europe last year.

It has made further breakthroughs in the US, including a three-year 4G wireless contract from US-based Clearwire.

In 2008 Huawei booked more than $17 billion in revenue, an increase of 36% from the year before.

The strong results are defying industry trends.

Just last week, NSN, a joint venture between Nokia of Finland and Siemens of Germany, unveiled plans to cut 5,800 jobs and $1.48 billion in costs. Similarly, market leader Ericsson posted a steeper-than-expected 71% drop in third-quarter profit, citing difficult market conditions and Chinese competition.

“[Huawei is] a tough competitor, always aggressive on new deals because they want to build their platform,” says Svanberg.

The Norway contract is important to Huawei as it wants to be taken seriously as an innovator and not just a low-cost provider.

But the next big push could be at home, where Huawei may end up capitalising on China Mobile’s TD-SCDMA difficulties.

The homegrown technology is proving unstable and Huawei is promoting the 4G (LTE) standard as an alternative. It could be a face-saving solution (if anyone asks, Huawei posits LTE is derived in some respects from TD-SCDMA, a line that ought to pacify China’s more nationalistic elements).

“The reality is that they are two completely different, incompatible technologies, but it’s a nice way to get away from TD-SCMDA by claiming it’s an upgrade or an evolution,” reports Signals Research, a consultancy.

Looks like Huawei next big 4G order may be a lot closer to home and somewhat bigger than Telenor’s.

---

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.