Fear of Huawei driving mega-mergers

Stuart Corner
Sunday, 23 July 2006 12:33

IT Industry - Strategy

The report concludes that while Huawei cannot be credited with leading innovations in telecom, it is able to compete head-to-head with major Western suppliers from handsets to core routers, and from access gear to advanced applications. "Interviews with service providers in 2006 indicate that Huawei is catching up in all but the most technically demanding areas, such as core routing. It notes that while its R&D budget is behind many Western rival its R&D costs are relatively low so it is likely to be able to get more' bang for buck' from research spending than its western counterparts.Heavy reading identifies Huawei's primary weakness as being its inability to operate and maintain high-quality professional services and sales support in Western markets." It has, however, made great strides toward this goal and is poised to reach a par with Western suppliers within the next three years," Heavy Reading claims."[Huawei] still faces the difficulty of building a track record of multi-billion-dollar contracts with major suppliers outside of China - particularly with regard to wireless infrastructure, on which it bases much of its revenue growth forecasts. Building a stable of reference customers is critical to Huawei's long-term growth prospects."

Hoist with its own petard
On the downside, the report claims that Huawei's margins are under severe pressure due to global telecom equipment price erosion brought on to a significant extent by Huawei's own sales tactics. "Price erosion has been most acute in wireless handsets, DSLAMs, wireless base stations, and core optical gear. Huawei now claims it is profit-focused and does not compete on price, but the effects of the global price war continue to be felt in its slimmer margins."