Founded 20 years ago by a retired Chinese army officer, Huawei Technologies has carved a niche for itself as a vendor of cost-effective network solutions and telecom equipment. It has won lucrative contracts from telecom carriers eager to cut costs, from across multiple industry segments including mobile, access, optical infrastructure and even managed services.
The company has been growing rapidly. It signed contracts totalling $23.3 billion in 2008, up by 46 per cent from $16 billion in 2007. In 2007 too, the company registered a 45 per cent increase in global contract sales. Huawei's contract sales figures indicate its future revenue to an extent as revenue from a contract is recognised only after the project is completed.
Huawei has benefited immensely from its low-cost equipment offerings while competing with multinational counterparts in overseas markets, and more so amidst the current slowdown in which order books are shrinking for most telecom equipment makers. While Nortel Networks has filed for bankruptcy protection in the US and Canada, Ericsson, Alcatel-Lucent and Cisco Systems are facing a considerable slowdown in orders.
Huawei's products and solutions are deployed in over 100 countries and serve more than 300 operators. The company has established 14 research and development (R&D) centres at places such as the Silicon Valley, Dallas, Stockholm, Moscow and Bangalore.
India operations
Huawei entered India in 1999 by establishing an R&D centre in Bangalore at a cost of $100 million. It consolidated its position in the country by setting up Huawei Telecommunications India in 2001, which has since made huge inroads into the domestic telecom market.
Employing over 1,600 engineers, the Bangalore R&D centre is the largest overseas development centre outside China for Huawei as well as a key platform and component development centre for the company. The products developed here have found use in multiple product lines such as wireless, core networks, applications and software, and have been deployed for a large number of customers including BT, Vodafone, T-Com and China Mobile.
According to a senior Huawei official, the Bangalore R&D centre has emerged as one of the company's top intellectual property generators. Huawei has filed for over 200 patents from the centre and is currently expanding operations with an accent on localisation.
The company has a big client base in India. From state-owned Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) to private operators like Bharti Airtel and Reliance Communications (RCOM), Huawei has served almost every telecom operator in India.
However, the company ran into trouble with BSNL in 2005 when it, in partnership with Himachal Futuristic Communications Limited and Semiconductors India, failed to supply equipment for 1.05 million CDMA lines under a contract worth Rs 1.4 billion. This threw a spanner into BSNL's rural telephony plans, prompting the state-owned operator to serve a show-cause notice to Huawei. Following this, Huawei lost out to fellow Chinese equipment vendor ZTE in the race to form a 50:50 joint venture with BSNL to manufacture CDMA mobile handsets and fixed wireless terminals.
But there since seems to have been a thaw in the relations between BSNL and Huawei. In mid-2008, BSNL placed an order for 18 million lines (both 3G and 2G) with ITI Limited, which will be serviced by Alcatel-Lucent in the western region and Huawei in the southern region. Software solutions provider Prithvi Information has also tied up with Huawei to service a Rs 3.09 billion transmission equipment order from BSNL.
Key contracts in India
Huawei is working with leading Indian telecom operators in areas such as mobile, IP and fixed line networks, GSM/CDMA, broadband, optical fibre, MPLS and terminal devices.
Tata Teleservices Limited has selected Huawei's all-IP-based CDMA core network solution and radio access equipment to replace its existing network in Delhi, Kolkata and other major cities, to enable the transition to 3G.
For Reliance Telecom, the GSM arm of RCOM, Huawei has supplied technology to set up GSM networks in the Bihar, Orissa, Madhya Pradesh, West Bengal, Himachal Pradesh, Assam and Northeast circles. Huawei is the sole vendor for the company's countrywide GSM expansion.
It also services CDMA contracts for RCOM. Its latest deal with the operator is worth $200 million and involves supplying and providing services for base stations, including base station controllers and switches, and helping create an all-IP next-generation network infrastructure. Earlier, RCOM awarded Huawei a threeyear GSM network contract worth $500$600 million for supply of hardware and solutions to support network expansion in 14 telecom circles.
In March 2008, BPL Mobile awarded a one-year network expansion contract worth $20 million to Huawei. Under the contract, Huawei supplied and provided deployment services for GSM base station subsystems, CS core and PS core networks, microwave equipment and routers.
Bharti Airtel roped in Huawei for a managed networks deal for its Sri Lanka operations. The three-year deal is valued at approximately $150 million and includes supply of 3G mobile equipment and software.
Huawei's services have also been used by MTNL for the deployment of an MPLS backbone network.
Financials
India contributes about 8 per cent to Huawei's global revenues, which stood at $16 billion in 2007. The estimated global revenue for 2008 is $23 billion, an increase of 44 per cent. This is in sharp contrast to other international vendors that are experiencing a slump in revenues and profit margins.
Riding on the telecom growth wave, Huawei India booked sales revenue of $1.3 billion on $2 billion worth of contracts in 2008. This was a big increase from $700 million in 2007. With 3G services scheduled to be launched soon in the country, the growth rate is likely to increase.
Huawei officials believe that despite the global economic slowdown, the growth prospects in India are still bright. "Even though the average revenue per user in India is low, the sector is still witnessing strong growth and we expect this to continue," says Sethumadhavan Srinivasan, deputy director, marketing, Huawei India.
Global advances
Huawei has made significant headway in the global telecom equipment market in the past 10 years. It has been a major success in developing countries, and though it has struggled in the important US market, it recently made inroads into other developed countries. For example, in February 2009, Huawei won a contract to supply equipment for an advanced "fourth-generation" mobile network in Oslo, Norway. The bid shows that the company has highend as well as cost-competitive technologies in its portfolio.
Huawei has bagged several other global contracts in the past six months as well:
Future plans
While telecom vendors in India are still getting business from urban areas in terms of network upgradation and capacity expansion, the growing rural market has become a key focus area for them as service providers look to launch greenfield networks. Huawei is hopeful of obtaining a large share of this market. Cost effectiveness is a big factor for operators rolling out rural networks, and this offers a huge scope for Huawei to push its low-cost equipment. Moreover, the Chinese company is eyeing contracts from the half a dozen new operators that are readying themselves to enter the Indian telecom space.
For its R&D centre, Huawei is recruiting more engineers and plans to ramp up the employee count to over 2,000 in a year's time. The company has already spent $200 million for R&D in India, and is investing an additional $100 million to set up a second development centre in Bangalore.
Huawei could not participate in BSNL's previous tender for 45.5 million GSM lines as the operator had specified that only companies with manufacturing facilities in India were eligible. However, BSNL has now allowed vendors without manufacturing facilities in India to participate in its tender for 93 million GSM lines. Going by Ericsson's lowest bid in the previous tender, the new contract is likely to be worth as much as Rs 400 billion. Huawei is aiming for a major share of the contract and has submitted its bids.
Globally, with carrier capex marking a downward trend, the telecom vendor community is preparing for tougher times ahead. But Huawei is talking about potential growth in 2009. The company is aiming to grow by 29 per cent as well as sign $30 billion worth of contracts in the current year. This might be a big task in the face of the current climate, but Huawei is confident that it has what it takes to defy the odds.