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Huawei still eyes developed markets from outside

Owen Fletcher | Oct. 23, 2009
Huawei's surging growth has come mainly in developing countries

BEIJING, 23 OCTOBER 2009 - Chinese networking giant Huawei Technologies has struggled to break into developed markets for communications equipment, despite long-standing fear among the vendor's Western rivals that it could overtake their business, according to analysts.

Revenue at Huawei, one of China's top aspirants to become a world-class IT vendor, has surged continually in recent years as the company has built its business overseas. Its expansion has sparked concern among rivals in the U.S. and elsewhere that the company's low-cost production base in China could help it steal a large share of the global network equipment market.

Huawei grew to become the world's fourth-biggest provider of infrastructure to network operators by the end of last year, with 11.5 percent of the market, according to Gartner. The market was led by Nokia Siemens, Alcatel-Lucent and Ericsson.

But Huawei's specialty and the core of its business have remained the developing world, spanning from China to Africa to South America, rather than the more lucrative U.S. and Western European markets. In those regions, where the company has had limited success seeking deals with top-tier vendors, Huawei remains largely locked out.

"It has been difficult for Huawei to break into the U.S. market especially," said Tina Tian, a principal analyst at Gartner. "There are many reasons, including culture, politics and the reputation of Chinese companies."

Huawei declined to comment for this article. A representative said questions about the company's strategic direction touched on trade secrets.

Huawei, based in the southern Chinese city of Shenzhen, has largely followed other equipment makers and done little innovation in past years, said Tian. The company has relied mainly on low pricing for its products to win market share. Huawei, which is not a listed company and only gives financial figures once each year, reported revenue of US$18.3 billion last year, a more than 40 percent rise from the year before.

But Huawei is increasingly developing its own technologies as well, Tian said. One example is a product that lets an operator unify its 2G and 3G switching tools. The Huawei "softswitch," which leads similar offerings from rivals in market share, allows unified IP (Internet Protocol) switching of calls by an operator that controls both a 2G and a 3G network, said Tian. IP switching is usually only done for 3G networks, so the Huawei product targets mainly developed countries where operators are likely to be introducing 3G alongside 2G service, she said.

"Huawei came up with this relatively early," Tian said.

Still, the softswitch highlights Huawei's continued reliance on developed markets. Huawei has benefited from many Chinese government aid projects in Africa and other parts of the developing world, where governments often receive big loans for direct spending on contracts from Chinese companies such as Huawei, said Tian. That practice has appeared less often outside of those markets.


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