Ovum comment: Huawei focuses growth in EMEA

Huawei's Analyst Event in Shenzhen last week highlighted its progress in EMEA and its continued allegiance to the unique corporate culture that has helped it to grow revenues at a 41% CAGR since 2002 to $8.5 billion in 2006.

In 2006, revenues grew 42% but net income dropped by 25%, as Huawei is starting to feel the pain of its EMEA build out. By region, China and EMEA accounted for 35% and 39% of sales respectively. Asia-Pacific outside of China added 18%, and Central and Latin America another 8%.

North America was negligible. Relative to 2005, China and Asia-Pacific declined on a percentage basis while both EMEA and Central and Latin America saw gains. Year-on-year comparisons are not possible due to segment redefinition, but it's clear that growth in both terminals (12% of sales) and wireless infrastructure (31% of sales) have been handily outpacing the company average.

Ovum senior analyst Matt Walker comments:

 

For many analysts, this event marked their first time in Shenzhen if not Asia, and most were impressed at Huawei's customer base, size, scope and professionalism.

Outside of China and the rest of Asia-Pacific, Huawei has been focusing on growing in EMEA, and its paying off: it has racked up a number of major contracts in EMEA across all product segments, including sizable deals with Vodafone (approved UMTS supplier); Telefonica (IP DSLAM and other); Orange (Softswitch and GSM BSS); KPN (2G/3G Softswitch); Telecom Italia (WDM); and Deutsche Telekom (IMS). And Huawei claims BT is 'happier than expected' (to paraphrase) with Huawei's performance to date in the 21CN project.

All of this has followed a tremendous investment into local facilities, staff, and marketing which has left Huawei at risk of being over-extended. Clearly Huawei is taking some bold risks in the region. However, if sales don't ramp up as fast as expected Huawei's capital cushion with China's government banks will come in handy.

Despite struggling there to date, Huawei is not pulling back from India, as - like many other vendors - it views it as an opportunity too big to ignore, even if it is full of challenges (both political - and pricing-related in Huawei's case).

Huawei has become a top five global supplier more quickly than it had hoped to back in 2000. But Huawei faces serious challenges in the coming years: western suppliers' consolidation; Chinese suppliers (including startups founded by ex-Huawei employees) chipping away at Huawei's market and labour pool; and, most important, in implementing all of its recently-won mega projects effectively over time. If it doesn't succeed with the latter, Huawei will quickly find out how fickle service providers can be when performance is sub-par.

Matt Walker is based in Thailand.

 

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