Huawei overtakes Alca-Lu in mobile networks

The latest figures on the mobile infrastructure market show Huawei overtaking Alcatel-Lucent to claim third place, in the first quarter, behind Ericsson and Nokia Siemens. This reawakened speculation that, if Alca-Lu’s strategies to grow its convergence, services and Telco 2.0 businesses do not start to bear fruit quickly, CEO Ben Verwaayen may have to rethink his decision to stay in the cellular market, where the Chinese firm is making its biggest strides, and which so many analysts wanted him to exit.

According to Dell'Oro Group, the first quarter saw Huawei and ZTE enjoying the fastest growth rates in the mobile infrastructure market, almost doubling their combined share over the past year, to take 20% between them. The sector as a whole fell in value by 9% year-on-year, despite record shipments of 3G base stations, and the researchers expect the revenue decline for the full year to be 11% on 2008. The first quarter saw record sales of base stations in unit terms, at over 100,000, but revenues fell to $9.43bn from $11.51bn in the fourth quarter of 2008, and from $10.38bn a year earlier.

Huawei doubled its share year-on-year to 15%, overtaking Alcatel-Lucent in the ratings. The company is adding a wide range of products and services to its established reputation for aggressive pricing, and is just starting to penetrate some formerly closed markets, notably the tier one carriers in Western Europe – last week it announced its latest deal, to supply LTE RAN and core networks for Telenor's field trial.

So far it has not got a contract with a national US cellco, though it is supplying cableco Cox for its 3G roll-out and is reported to be close to a deal at Clearwire. It should also gain a major GSM order from state-owned Indian telco BSNL, despite government concerns over security.

The Chinese leader is not yet hurting market leader Ericsson, which has an almost equal ability to price aggressively, because of its huge scale and its bundling of different products and services. The Swedish firm expanded its share slightly despite a tough year, to 33% of the market in Q109. But while most of Huawei's gains are at the expense of the more troubled vendors – Alca-Lu, Motorola and Nortel are all going through various degrees of reorganization – it also seems to be eating at second ranked Nokia Siemens, whose share fell from 24% in Q108 to 21% in the most recent quarter.

Alca-Lu lost two percentage points of share, to end up with 14%., while Nortel's halved to just 4%, pushing it behind ZTE, which achieved about 5% (Motorola was in fifth, between Alca-Lu and ZTE). Both Chinese vendors have been helped in their strategy of undercutting rivals on price, by their access to credit – via the support of the Chinese state banks – at a time when most firms elsewhere are seeing credit lines frozen.

ZTE, in particular, has made a point of this advantage, heralding a return to the sort of vendor financing deals that were commonplace (and sometimes disastrous) in the 3G bubble around the turn of the decade. ZTE secured a $15bn line of credit China Development Bank in March to help fund its expansion and provide financing to carrier customers. Now the vendor has formed a "strategic partnership" with the Export-Import Bank of China (China Exim Bank), which is providing the vendor with a further $10bn for the same purposes.

ZTE said carriers were under pressure worldwide to deploy next generation networks, but that during the economic crisis, "a majority of mainstream financing agencies based in Europe and the US are trying to find ways to address issues such as inadequate liquidity and credit crunch."

Rethink Wireless