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COMPANY PROFILE
— Huawei Technologies
June 2005
MarketAvenue
www.marketavenue.cn
COMPANY PROFILE
Table of Contents
A Guide To Investment In China
List of Figures
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COMPANY PROFILE
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COMPANY PROFILE
Huawei Headquarters
Huawei Technologies Co., Ltd.
Bantian, Longgang District
Shenzhen 518129
People’s Republic of China
Tel: +86-755-28780808
Corporate website: www.huawei.com
2. Corporate Structure
2.1 Organizational Structure
The president of Huawei Technologies is Huawei’s founder Ren Zhengfei.
Together with Huawei’s chairwoman Sun Yafang, they have complete decision-
making powers of Huawei. Huawei’s Product Solutions Department is in charge of
manufacturing, R&D, and technical support and maintenance.
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COMPANY PROFILE
Ren Zhengfei
President
Sun Yafang
Chairwoman
Huawei’s global market is divided into eight different zones that report directly
to the Marketing Management Committee:
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COMPANY PROFILE
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COMPANY PROFILE
1. 3Com-Huawei
3Com and Huawei set up a joint venture in Hangzhou in November 2003.
Huawei owns 51% of the joint venture’s shares and 3Com the remaining 49%.
This joint venture operates in China and Japan under a united brand, while 3Com
and Huawei are branded separately in the rest of the world.
This joint venture enjoys Huawei’s strength in data communication products
and 3Com’s Japanese market resources and know-how. The 3Com-Huawei joint
venture earned revenues of USD 216 million in 2004, but had a net deficit of
USD 14.5 million.
2. TD Tech
TD Tech was set up in February 2004 in Beijing, as a joint venture between
Huawei (49%) and Siemens (51%). TD Tech mainly conducts TD-SCDMA
research and employs approximately 600 staff. As of July 2005, TD Tech
announced that its TD-SCDMA system would be commercially ready by the third
quarter of 2005.
Although the future of TD-SCDMA is somewhat unclear, TD Tech is one of the
best-positioned companies in this sector prior to China’s 3G launch. With the
combination of high quality R&D backed by Huawei and resources from Siemens,
MarketAvenue believes that TD Tech will play a key role in the TD-SCDMA
market.
Partner Function
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COMPANY PROFILE
Motorola R&D
Intel R&D
Microsoft R&D
SUN R&D
3 Market Analysis
3.1 Major Products
Figure 3-1: Huawei Technologies Product Lines
Wireles NGN Access Switching Optical Datacom Value Added Handsets Video
Network Networks Networks Networks Networks Service & OSS Communication
WCDMA Softswitches MSAN Softswitches NG-SDH Router SMS CDMA Handsets MCU
GPRS UMG IP DSLAM STP NG-SONET IP Switch MMS WCDMA Handsets Video Phones
GSM TMG ADSL Modems BITS DWDM VOIP CRBT Wireless Data Cards Video Conferencing
EDGE SG VDSL Modems MSTP WLAN LBS
CDMA2000 AMG WiFI VPN Billing
TD-SCDMA IAD BRAS CRM
SLTS
Call Centers
NGN Products
SoftX3000-Softswitch, UMG8900-Universal Media Gateway, SHLR-Smart HLR,
MRS6100-Media Resource Server, SG7000-Signaling Gateway, RM9000-Resource
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COMPANY PROFILE
OSS Products
TopEng Billing System
In China, Huawei’s main clients are the telecom operators and financial
institutions, as well as various other companies that maintain their own
networks. China Mobile, China Telecom, China Unicom, and China Netcom
are all major Huawei clients. Government institutions, oil companies such as
PetroChina, financial institutions such as China Commercial Bank, Industrial &
Commercial Bank of China, Bank of Communications, and the Ping An Insurance
Company are other main clients.
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COMPANY PROFILE
In the international market, Huawei clients include British Telecom, ANTEL,
Royal KPM, OMANTEL, Tele2, Etisalat, and CoTeCal. However, Huawei mostly
A Guide To Investment In China
targets developing countries in Latin America, Africa, the Middle East, and the
former Soviet Union (CIS).
6000 5566
5000
4000
2000
1000
187 145
0
Huawei UTStarcom ZTE FiberHome Harbour
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COMPANY PROFILE
40
35.6
35
31.3
30
25
20 17.0
14.9
15
9.8 9.0
10
5.6
5
0
Nokia Motorola Ericsson Alcatel Nortel Lucent Huawei
In the domestic market Huawei’s brand is as famous as the above international
vendors. Huawei holds a leading position, higher than that of Nokia, Siemens,
and Nortel, in China in several product lines such as optical transmission and
switching.
Huawei’s total sales have been increasing since 2002 and while domestic sales
are relatively stable, sales from international markets are expected continue to
grow steadily. Although MarketAvenue does not expect Huawei to make headway
in the North American market due to Huawei’s difficulty entering developed
markets, MarketAvenue believes that Huawei’s sales in Latin America, Africa and
other developing markets will continue to grow substantially.
12
10
0
1999 2000 2001 2002 2003 2004 2005E 2006F 2007F 2008F
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COMPANY PROFILE
1999 2000 2001 2002 2003 2004 2005E 2006F 2007F 2008F
A Guide To Investment In China
Intl.
0.05 0.13 0.33 0.55 1.05 2.28 5.00 7.20 8.80 10.20
Contracts
Dom.
1.34 2.44 2.74 2.11 2.77 3.29 3.50 3.60 3.50 3.30
Contracts
Total
1.39 2.57 3.07 2.66 3.82 5.57 8.50 10.80 12.30 13.50
Contracts
Huawei’s domestic revenues in the first half of 2005 are mostly from traditional
products like transmission and switching, accounting for more than two thirds of
its total revenue.
In the international market, the bulk of Huawei’s sales are of wireless
equipment.
In the first half of 2005, Huawei signed foreign contracts worth approximately
USD 2.47 billion, exceeding the total amount of foreign contracts in 2004, and
making up 61% of Huawei’s total contracts in 2005.
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COMPANY PROFILE
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COMPANY PROFILE
2005
Figure 3-9: Huawei China Transmission Market Share and Revenue, 2003
- 1H 2005
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COMPANY PROFILE
Figure 3-10: Huawei China Switching Market Share and Revenue, 2003 -
1H 2005
Figure 3-11: Huawei China DSLAM Market Share and Revenue, 2003 - 1H
2005
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COMPANY PROFILE
Revenue, 03 - 1H05
Figure 3-13: Huawei China GSM Equipment Market Share and Revenue,
2003 - 1H 2005
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COMPANY PROFILE
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F
Between 1999 and 2001, almost 5,000 new employees joined Huawei each
year. At that period, Huawei hired many graduates from China’s top universities
such as Tsinghua and, Beijing University of Post and Communication. Most new
employees joined the R&D and sales departments. Huawei offered these new
graduates high salaries of approximately USD 750 to USD 1000 per month, a
very high salary in China in those years—particularly for recent college graduates
without work experience.
Huawei has established and is continuously opening R&D centers both in A Guide To Investment In China
China as well as in international markets including the USA, Russia, India, and
Israel. Huawei is currently the largest investor in R&D in China, having invested
between nine percent and thirteen percent of its annual sales revenue into R&D
in recent years.
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COMPANY PROFILE
1000 15.0%
830
800
9.7% 9.8%
8.6% 10.0%
600
481
400 371
5.0%
200
0 0.0%
2003 2004 2005E
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COMPANY PROFILE
5. Executive Summary
1. Huawei’s Low-cost Advantage
Huawei’s main forte still remains its low cost advantage. With engineers,
R&D personnel, marketing staff, and sales people all costing a fraction of their
counterparts in developed countries; Huawei has been able to enter markets in
developing countries where price is of great importance. Although Huawei could
not have succeeded with a cost advantage alone, it is hard to believe it would
have succeeded internationally without it.
With the military background of its founder, Huawei still resembles a military
organization in some ways. Ren Zhengfei still runs Huawei in a very strict
and inflexible hierarchical structure. With branches opening up abroad and an
increasing number of foreign employees, this method of management is already
beginning to cause friction. A growing multinational company facing distinctly
different foreign markets and different customer needs to give more decision
power to their regional branches and local managers. Huawei is still run from the
top, and largely by one man.
Huawei also faces serious questions about Ren Zhengfei’s successor. Ren
is well into his sixties now. However, the company does not have a board of
directors to select a new president. More over, while many of the vice presidents
are certainly capable in their current jobs, none is believed to have the ability
or backing to ensure a smooth succession. Thus the future of Huawei upon Ren’
s departure or death is unclear. Some industry experts believe that when Ren is
gone, the current companies may become more independent of one another and
possibly even split up completely.
As China’s telecom market awaits 3G license issuance, Huawei is currently A Guide To Investment In China
focused on winning 3G contracts abroad. The experience gained in these
networks is expected to improve its chances in winning major 3G contracts at
home; as is the fact that it has had success in foreign markets.
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COMPANY PROFILE
4. Venturing Abroad
Although much smaller than its competitors, Huawei won substantial market
shares in developing regions such as Africa, Asia Pacific, Latin America, and the
CIS. Huawei is now trying to enter the more lucrative and developed markets in
Europe and North America. Being selected for British Telecom’s 21CN project is
starting to make Huawei’s competitors nervous.
Going abroad and entering the international market could not have been done
without the help of the Chinese government. In addition to ample financial
support from the government through low-interest loans the Chinese government
has also supplied financial aid to several developing countries in order to help
Huawei gain more contracts. This was especially the case in the African market.
We must not forget, however, that in developing countries where cost is a larger
issue than in Europe and North America, Huawei has found success through its
cost advantage over European and American vendors.
5. International Competition
Until recently, most international vendors did not regard Huawei as a threat.
Huawei’s target market of small developing countries helped it avoid too much
direct competition with multinational vendors. With Huawei trying to enter
the European markets, these international vendors are beginning to recognize
Huawei as a serious competitor.
Facing these international vendors in major markets will not be easy for
Huawei. Huawei’s cost advantage can only take it so far. Huawei will have
to compete with established brand names, companies with experienced
management, and extensive marketing and sales networks. Furthermore, in
some markets Huawei will be competing on these vendors’ home turf.
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