From Shenzhen Post (
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Huawei Being Close to Ericsson but Far Away from Cisco
Published on November 27, 2009 by Rebecca | This story has been viewed 401 times
On the road of climbing to the peak of world-class enterprises, Huawei beats an important rival again. According to the data recently released by the market research firm Dell’Oro, Huawei has surpassed Nokia and Siemens to become the second-largest telecom equipment supplier in the global telecom equipment market. As of this third quarter, Huawei’s share has risen to 20% from last year’s corresponding figure of 11%, and leaped into second place; while Ericsson continues to take first place with a share of 32%.
At present, Huawei’s direct aim is to compete with Ericsson. Among telecom equipment manufacturers, Ericsson has not only maintained its boss position in revenue and market share for many years, but also has strongest capacity of profitability. However judging from development momentum of Huawei, it is promising for Huawei to prevail over Ericsson in term of scare. In recent years, since Huawei’s growth has always been higher than Ericsson, its sales revenue continually approximates to Ericsson’s: in 2004, Huawei’s sales revenue was $3.827 billion, while Ericsson 132 billion Kronor (about $17.16 billion at the exchange rate by the end of 2008); in 2008, Huawei $18.33 billion, and Ericsson 208.9 billion Kronor (about $27.16 billion). If both sides keep growth at the current rate, Huawei will be able to transcend Ericsson in term of revenue in 2 years.
Of course, Ericsson will not wait for Huawei’s chasing, and their “seesaw battle” will get more acute. Ericsson has recently completed a $1.13 billion purchase transaction of CDMA and LTE assets of the Canadian insolvent company Nortel Networks, and further strengthened its leading market position. Huawei has taken the new-generation LTE mobile networks as a strategic key. What’s more, Huawei recently beat Ericsson and won the contract of construction MAGNET in Norway, which will replace the old network constructed by Nokia and Siemens. This deal is the largest LTE transaction in European market so far.
Although the distance is getting closer, it is still not easy to exceed. In the business layout, Huawei has a broader business line, which is conducive to seize more market opportunities and wide business scale. But there is some gap between Huawei and Ericsson — Huawei inadequately focuses on business, whose specialized business is less prominent. In addition, compared to the century-old Ericsson with a 133-year history, Huawei still lags far behind Ericsson in comprehensive strength such as management, brand and cultural foundation. Huawei mainly depended on products cost-effective and rapid execution before, but now it increasingly matches directly with the “peak” enterprises like Ericsson. Thus, the function of “soft power” such as management, brand and cultural foundation will be more projected.
However, the officers of Huawei believe that Ericsson “is there”, and it is not a difficult aim for Huawei to surpass Ericsson. The management innovations of finance transformation in Huawei are goning on for emulating the world-class companies such as Ericsson in “soft power”.
At one time, Cisco was “very close” to Huawei who became a threat to Cisco, which is the background in January 2003 when the case of Cisco suing Huawei for infringing intellectual property occurred. At that time, Huawei was once called the “the nightmare of Chambers”; but Cisco got away from the Huawei “nightmare” long ago, and successfully switched to high-margin domain. Cisco’s competitors are now no longer Huawei, but Microsoft, Google, Hewlett-Packard, even IBM and other new rivals. Since fewer and fewer elements in common between Huawei and Cisco’s business, their competition is no longer in the same level.
Under the general trend of ICT fusion, Cisco, Alcatel and other telecom equipment giants have turned to industry-enterprise networking market. At the same time, HP, Microsoft and other IT companies are penetrating through telecom industry, based on which HP acquired 3COM.
Two years ago, Huawei tried to join Bain Capital to acquire 3Com at the price of $2.2 billion but failed because of the US government’s concerning about national security. It may be able to narrow the distance with Cisco if Huawei successfully purchased 3COM, but unfortunately HP took 3COM at last. Huawei’s business is now still focused on telecom network, while enterprise network business is very small and limited. On the way of ICT integration progress, the gap between Huawei and Cisco is growing, and there is a long way to chase after Cisco for Huawei.
Shenzhen Post Rebecca Contributes to the Story.
WSJ piece on how Huawei won the contracts:
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China's Huawei Challenges European Rivals on Quality
By GUSTAV SANDSTROM
STOCKHOLM—Huawei Technologies Co.'s challenge to European rivals has largely focused on its pricing advantage. But industry watchers say the Chinese network-equipment vendor, which last week won a contract from Belgian telecommunications provider Belgacom SA, now has another key selling point: the quality of its technology.
Analysts say Huawei Technologies is increasingly competing on quality, not just prices, especially in Europe. Above, a Huawei convention booth.
As the telecom industry emerges from the global economic slump, European telecommunication-gear companies—global market leader Telefon AB L.M. Ericsson; Nokia Siemens Networks, a joint venture between Finland's Nokia Corp. and Germany's Siemens AG; and Paris-based Alcatel-Lucent SA—are likely to face increased pressure from world No. 2 Huawei in their own backyard.
Huawei, which like smaller peer ZTE Corp. is based in the southern Chinese city of Shenzhen, was founded 1988, and revenue and earnings have risen steadily.
Its sales increased to $18.33 billion last year, the latest figure available, from $5.98 billion in 2005, while profit rose to $1.15 billion from $681 million.
While European vendors have, to some extent, been able to keep these low-cost Chinese rivals at bay through superior equipment, Huawei is growing quickly both because it offers lower prices than most rivals and because the quality of its equipment is getting better, said analyst Scott Siegler at research firm Dell'Oro, based in Redwood, Calif. "When we talk to service providers that use Huawei's equipment, we have been told that it is excellent technology, he said."
Huawei's share of the global infrastructure market almost doubled in revenue terms to 20.1% from 10.9% in the third quarter from a year earlier, leaving behind Nokia Siemens and Alcatel-Lucent, according to Dell'Oro.
In the same period, Ericsson's market share remained largely flat at 31.6%. Nokia Siemens's share of the market fell to 19.4% from 23.7%, and Alcatel-Lucent's, to 13.1% from 14.3%. ZTE remained the fifth-largest vendor, but its market share rose to 6.8% from 4.2%.
It is in Europe where the battle is really heating up. Norway's largest telecom operator, Telenor ASA, this month selected Huawei to supply its new Norwegian wireless network, replacing gear supplied by Ericsson and Nokia Siemens.
The six-year contract, which includes services and maintenance, was handed to Huawei on the basis of several criteria, including price and technical specifications, Telenor Norway Chief Executive Ragnar Karhus said.
The quality of Huawei's equipment has improved and the company is now "completely in line" with the European vendors in terms of technology and services, Mr. Karhus said.
Last week, Huawei won another European deal, to upgrade Belgacom's radio-access networks under a long-term agreement. Belgacom is Belgium's largest telecommunications operator.
Telecom operators typically sign contracts with equipment vendors running for several quarters or even years, and this could slow the entry of new vendors to some extent.
Still, operators across Europe are expected from next year onward to gradually introduce equipment based around a fourth-generation standard known as Long Term Evolution. This should give the Chinese vendors another opportunity.
"We expect the transition to 4G will allow Huawei to gain momentum in Europe," Goldman Sachs said in a recent note to investors. "Clearly there are rising competitive risks in Western Europe."
That risk was spelled out clearly by Nokia Chief Financial Officer Rick Simonson, who said recently there is increasing price competition "primarily from the Chinese competitors ZTE and Huawei."
Telenor's Mr. Karhus said Huawei supplies particularly effective multibase stations, which support several transmission frequencies and technical standards in the same box, increasing operators' flexibility.
Nokia Siemens in October posted a 21% drop in third-quarter revenue from a year earlier and said it will lose more market share this year than expected, even as it gave a more positive outlook for the overall market.
As Nokia Siemens is consolidated in Nokia's balance sheet, it has a significant impact on the handset maker's financial performance. Nokia reported a worse-than-expected third-quarter loss after it booked a €908 million ($1.36 billion) goodwill impairment on the joint venture because of "challenging competitive factors and market conditions" in the network-infrastructure business.
Huawei has so far had much less success in overseas regions outside Europe, including in the big U.S. and Japanese markets. Last year, the Americas contributed only 12% of the company's contract sales, compared with 47% from Asia Pacific and 41% from Europe, Middle East and Africa, according to Huawei spokesman Ross Gan.
Due in part to political sensitivity, it has been difficult for Huawei to gain a foothold in North America and Japan, the world's third-largest telecom-equipment market, after the U.S. and China, said analyst Tina Tian at research firm Gartner Inc.
The U.S. government last year blocked Huawei from buying U.S.-based networking-equipment company 3Com Corp. because it had government contracts to provide security software.
Still, Huawei's Mr. Gan said the company expects business momentum to continue in North America and Japan, adding that its main competitive strength is still to provide services at a lower total cost of ownership.
In the U.S., it provides telecom equipment and services to Cox Communications Corp. and Clearwire Corp.
Robert Fox, chief branding officer of Huawei's branding division, said in a recent interview that next year it hopes to add 600 employees to its 900 existing staff in North America. Globally, it has more than 87,500 workers.
Despite its rapid growth, it will still take some time before Huawei approaches the position of market leader Ericsson, which has expanded its presence in North America through the acquisition of Nortel Networks Corp. assets and has won a number of large service contracts with operators including U.S.-based Sprint Nextel Corp.
Ericsson and Alcatel-Lucent earlier this year also won a major contract to supply Verizon Wireless with its fourth-generation wireless network. Vodafone Group PLC has a minority stake in Verizon Wireless, which is majority owned by Verizon Communications Inc.
Write to Gustav Sandstrom at
[email protected]
