huawei
Content
NETWORK BUSINESS QUARTERLYSM
Huawei
Second Calendar Quarter 2011
Second Fiscal Quarter 2011 Ended June 30, 2011
TBR OUTLOOK ‐ POSITIVE
TBR SCORE (0‐10 SCALE)
4.83
Publish Date: Sept. 8, 2011
Author: Ken Hyers ([email protected]), NMP Senior Analyst
Content Editor: Scott Dennehy, NMP Senior Analyst
TBR
T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
Contents
TBR
Company Analysis
2
3
TBR Position
4
6
8
9
12
16
19
20
21
22
Executive Summary
Strategy Overview
Corporate SWOT Analysis
Scenario Discussion
Financial Model Strategy
Go‐to‐Market & Product Strategies
Alliance & Acquisition Strategies
Geographic Analysis
Resource Management Strategy
Appendix
Huawei 2Q11 | Network Business Quarterly
Company Data Models
22
23
24
25
26
27
28
30
31
32
34
37
48
50
51
Income Statement
Balance Sheet
Revenue Model
Geographic Model
Operating Expense Model
Forecast Model
Financial Graphs
Go‐to‐Market & Resource Graphs
Acquisitions Table
Strategic Alliance and Partnerships Table
Product Announcement Table
Customer Deals Table
Facilities Table
Management Table
About TBR
©2011 Technology Business Research, Inc.
TBR Position
TBR
Revenue growth will slow as Huawei focuses on the enterprise market
through the remainder of 2011
TBR Assessment
Company Strategic Objectives
In Millions USD
Deliver cloud solutions to enterprises and network
Huawei experienced healthy revenue growth in the first
half of 2011, albeit slower than in 2010, which was strong operators
due to international sales. The company reorganized its
Huawei will offer its cloud solutions directly to
business units to focus on opportunities in cloud services
enterprise and network operators, who will then
and infrastructure and a strategy it has informally dubbed
market the cloud solutions to their own customers.
“Cloud‐Pipe‐Devices.” The Cloud‐Pipe‐Devices strategy
Focus on the enterprise sector for new growth
enables Huawei to deliver cloud‐ready equipment,
The enterprise, and particularly SMEs, lie at the
software and services from the cloud to the network and
center of Huawei’s cloud solutions strategy. With
to mobile devices, which it intends to market to network
significant experience providing voice, video and
providers and directly to enterprise customers. TBR
data solutions to fixed and mobile operators,
believes that by pursuing cloud services, Huawei will
Huawei believes it can deliver many of the same
increase higher‐margin services and equipment sales. In
services to enterprise customers, using a cloud
doing so, however, it will be more difficult for the company
platform it dubs Huawei SingleCLOUD. The
to dominate the way it has as equipment supplier.
SingleCLOUD platform is intended to meet SMEs’
HUAWEI PROFITABILITY AND GROWTH
needs for a private cloud solution and to provide a
TBR
$35,000
60%
public cloud solution for network operators.
$30,000
50%
Become a top‐five global handset vendor by 2013
$25,000
40%
Huawei intends to become the fifth‐largest
$20,000
$15,000
handset manufacturer, by units shipped, by 2013.
30%
$10,000
That would place the company behind Nokia,
20%
$5,000
Samsung, LG and RIM but ahead of Apple,
10%
$0
Motorola and Sony Ericsson – a goal TBR believes
2007
2008
2009
2010
2011 Est.
is ambitious but achievable.
Total Revenue
Gross Profit
Operating Profit
Year‐to‐Year Revenue Growth
SOURCE: TBR ESTIMATES AND HUAWEI
3
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Executive Summary
TBR
TBR believes Huawei will exceed its 2011 revenue growth projections as
4G network contracts and an enterprise focus on cloud drive sales
TBR assessment of Huawei’s strategic outlook
Key takeaways
Strategic outlook
Financial: Huawei will beat its revenue growth
projections by at least 50% in 2011.
•
Go to Market: Huawei intends to become a top‐
five leader in Android handsets by 2013, but the
company will face challenges as other vendors
fight to retain share.
Resource: Huawei’s focus on end‐to‐end cloud
solutions for enterprises and telcos is a direct
result of its reorganization in early 2011 and its
new structure of four core businesses: Carrier,
Enterprise, Devices and Other.
TBR
•
HUAWEI FULL YEAR REVENUE AND OPERATING MARGIN
RESULTS AND TBR PROJECTIONS
Operating Margin
18.0%
16.0%
C2010
C2011 Est.
14.0%
C2009
•
C2008
12.0%
10.0%
5.0%
15.0%
25.0%
35.0%
45.0%
Year‐to‐Year Revenue Growth
SOURCE: TBR ESTIMATES AND HUAWEI
4
Huawei 2Q11 | Network Business Quarterly
Huawei expects to grow revenue by 10% in 2011, down from 26% in
2010. The company attributes the decline in growth to the
reorganization of its business and to lower domestic revenue as
China’s operators largely complete their network buildouts. TBR
believes Huawei’s revenue growth guidance is unduly conservative,
and while it will not achieve 2010 levels, it will achieve revenue
growth of at least 15% to 18% in 2011.
Huawei’s mobile device strategy will concentrate on developing
Android smartphones for the mass market. TBR believes Huawei is
well‐positioned to develop mass market smartphones by leveraging
its extensive internal R&D capabilities and outsourcing production to
ODMs, such as Foxconn. Huawei is developing a broader product
portfolio, creating devices for specific market segments including
young fashion‐conscious consumers and professional users. Its
devices, including tablets, for professionals are part of its Cloud‐Pipe‐
Device strategy and will be used by enterprise customers for
delivering productivity apps to mobile workers.
Huawei’s private cloud strategy for SMEs is to deliver distributed IT
through the cloud so that services and functions are no longer
localized and are instead available on a distributed basis to
employees in multiple locations. On the telco side, Huawei sees itself
delivering public cloud solutions for operators that do not have the
resources or experience to deliver cloud solutions themselves. In
developed markets the target telcos will be Tier 2 operators, such as
Leap or MetroPCS in the U.S., while in emerging markets the solution
will be offered to a wider group of operators.
©2011 Technology Business Research, Inc.
Executive Summary
TBR
Huawei’s financial metrics score is no longer inflated by above average
revenue growth, exposing a weak balance sheet
TBR SCORING SUMMARY:
CALENDAR QUARTER RESULTS
TBR
2Q10 3Q10 4Q10 1Q11 2Q11 FINANCIAL METRICS
Fi na ncia l Model Stra tegy:
6.01 5.96 6.00 5.74 5.72 Revenue Growth Yea r‐to‐Yea r
Go‐to‐Ma rket & Servi ces Stra tegi es : 3.68 3.79 3.60 3.38 3.45 Revenue/Empl oyee
Gros s Ma rgi n
Res ource Ma na gement Stra tegy:
5.45 5.79 5.80 5.39 5.31
SG&A a s % of Sa l es
TOTAL AVERAGE TBR SCORE:
5.05 5.18 5.13 4.84 4.83
R&D a s % of Sa l es
Opera ti ng Ma rgi n
Da ys Ca s h Outs ta ndi ng
Huawei has the weakest days sales
Tota l As s et Turns
outstanding metric among its peers due to its Current Ra ti o
liberal credit policies. Huawei routinely
Debt/As s ets
accepts IOUs from customers to boost sales
Return on As s ets
Return on Equi ty
and encourage investment. TBR believes this
practice could weaken Huawei’s balance
sheet if cash‐strapped operators struggle to
pay back outstanding debt.
Key
■ Represents an area where Huawei is currently
challenged versus peers
■ Represents an area where Huawei is outperforming
its peers
■ Represents an area where Huawei is neither
significantly outperforming nor underperforming its
peers
Company
TBR Score
Figure
4.52
13.2%
3.24 $ 248,920
5.31
41.0%
4.99
17.0%
6.89
9.0%
6.83
14.7%
3.86
74.00
6.87
1.23
4.00
1.61
3.24
0.60
8.91
15.8%
10.00
48.2%
5.72
TOTAL AVERAGE TBR SCORE
GO‐TO‐MARKET & SERVICES METRICS
Network/Comm. Equi pment Ma rket Sha re
Mobi l e Phone Ma rket Sha re
Da ys Sa l es Outs ta ndi ng
TBR Score
5.61
3.73
1.00
Company
Figure
14.0%
2.7%
135.63
TOTAL AVERAGE TBR SCORE
Average in
Class
11.6%
10.0%
68.84
Standard
Deviation/2
4.0%
5.8%
16.70
3.45
TOTAL AVERAGE TBR SCORE
RESOURCE MANAGEMENT METRICS
Inventory Turns /Yea r
Fi xed As s et Turns /Yea r
Average in
Standard
Class
Deviation/2
15.3%
4.3%
$ 417,045 $ 95,270
38.8%
7.0%
17.0%
2.8%
13.3%
2.3%
8.1%
3.6%
127.90
47.19
0.95
0.15
1.90
0.29
0.47
0.07
6.4%
2.4%
14.5%
6.5%
TBR Score
4.22
6.40
Company
Figure
7.05
21.00
Average in
Class
8.45
15.73
Standard
Deviation/2
1.80
3.75
5.31
VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK
BUSINESS QUARTERLY VENDOR BENCHMARK
5
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Strategy Overview
TBR
Huawei will have a difficult time penetrating the U.S. telecommunications
market, even with a new strategy to quell security concerns
Function
Key Strategies
TBR Assessment
►
Build on initial success in
North America to become
a key supplier to network
operators.
Overall
Grow business in India by
localizing presence.
►
Employ three‐pronged
security strategy to allay
U.S. concerns.
►
Financial
Grow sales 10% in 2011
by focusing on enterprise
customers.
Invest 10% of revenue in
R&D.
: Huawei has yet to land an equipment contract with a Tier 1
operator in the United States, though the vendor is finding
success among Tier 2 and 3 companies.
; With security clearance in hand, Huawei can realize the full
potential of its extensive resources in India, which include a
skilled local workforce and domestic manufacturing and R&D
assets.
; Huawei’s plan includes establishing a national security
committee headed by Huawei CTO Matt Bross, using third‐
party test labs to check Huawei’s source code and using U.S.
citizens to deliver and install Huawei equipment.
►
; Huawei is focusing on enterprise customers for cloud
services as it attempts to enter new higher‐value market
segments.
►
; TBR expects Huawei will continue to keep its R&D spend
steady at 10% of revenue in 2011. This reflects the need to
maintain heavy investment in new technologies as it
continues to move from a low‐cost to a high‐value business
model.
Key: ; Working: Short‐term impact expected on bottom/top line : Not working: No major impact or differentiation expected
6
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Strategy Overview
TBR
Huawei will focus on developing low‐cost Android smartphones as it
attempts to become a top‐five global handset vendor
Function
Go to
Market
R&D and
Delivery
Key Strategies
Establish leadership
position in 4G (WiMAX
and LTE).
Leverage Android to gain
traction in smartphone
and tablet markets.
TBR Assessment
►
►
Establish R&D centers in
strategic cities to leverage ►
local talent pools.
Invest heavily in India to
capitalize on growth
opportunities as the
country modernizes and
►
expands its mobile
networks.
; Huawei is positioning itself to become a leader in TD‐LTE, the
4G technology of choice for Chinese operators. The vendor
aims to double its commercial LTE contracts from 18 in 2010 to
36 in 2011 and expects LTE‐related revenue to become a
meaningful contributor to overall revenue by 2014.
; Selling low‐cost Android‐powered devices via carriers will help
Huawei quickly gain market share in smartphones and tablets.
The low‐end smartphone space is one where Huawei thrives,
due to the company’s low‐cost operating structure and
resistance to pursuing expensive advertising programs.
; Huawei operates R&D centers near the headquarters of most
of its major customers in markets worldwide, which allows it to
work closely with customers and be more responsive to their
requests and needs.
; Using a localization strategy, Huawei is creating a stronghold in
India while improving its reputation with the Indian
government.
Key: ; Working: Short‐term impact expected on bottom/top line : Not working: No major impact or differentiation expected
7
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Corporate SWOT Analysis
TBR
Huawei will face growing challenges as it focuses on delivering cloud
services to enterprises and service providers
Corporate SWOT Analysis
Strengths
• Leader in 4G technologies by number of contracts
• SingleRAN platform is a key differentiator for
winning contracts in developed regions
• Able to provide vendor‐linked financing through ties
to state‐run banks in China
• Low operating costs support low‐cost pricing
strategy
• Extensive installed base of Tier 2 and 3 telecom
operators in emerging markets
Opportunities
• Develop TD‐LTE technology for the Chinese market
• Use strategic partnerships to build expertise and enter
new markets
• Utilize Service Delivery Platform to establish Web 2.0
leadership
• Establish a foothold in the North American market
• Develop lower‐cost, high‐end smartphones to grow
share in Western markets
Weaknesses
• Increasing size brings a challenge to maintaining
historical efficiency
• Relatively small managed services base
• Ties to Chinese government could limit
international investment opportunities
• Lack of United States presence
Threats
• Nokia Siemens prioritizing market share gains over
profitability puts downward pressure on contract pricing
• The reshuffling of the Chinese telecom industry could
dampen Huawei’s growth prospects in its home market
• A tighter monetary policy by China could limit Huawei’s
domestic growth
• Huawei intends to become a leading cloud supplier but
will face strong competition from other vendors and
telcos
8
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei Symantec virtualization strategy lays the groundwork for building
the converged datacenter network
Scenario Discussion: Virtualization strategy sees joint venture work with key hypervisor vendors
Scenario SWOT Assessment
•
Strength: Huawei Symantec is a hardware‐
focused company and is not tied to a specific
management software vendor.
Weakness: Huawei Symantec’s multivendor
strategy risks alienating its strongest partner,
VMware.
Opportunity: Huawei Symantec is positioning
itself to be a viable player in the emerging
virtualization space.
Threat: Huawei is a new entrant in a space
dominated by Cisco and crowded by other
leading vendors.
•
•
•
•
9
Huawei 2Q11 | Network Business Quarterly
Huawei Symantec, a joint venture between the two companies,
announced at VMworld a comprehensive strategy for optimizing its
datacenter infrastructure for virtualized environments. The move is
part of an overall strategy to combine networking, computing,
storage, and software solutions from various vendors. This is very
similar to the strategy pioneered by Cisco with its Unified Computing
System architecture and mirrored by other best‐of‐breed suppliers
that are following Cisco’s lead.
Huawei Symantec, which makes storage and network security
solutions, announced a new strategy that intends to optimize its
datacenter infrastructure for virtualized environments. Core to the
strategy is working with all key partners in virtualization.
Huawei Symantec as a equipment vendor does not develop its own
management software, instead turning to virtualization management
software partners. While VMware is an important partner, the joint
venture is working with multiple companies that offer hypervisors for
managing datacenters.
To support its virtualization strategy, the company introduced Huawei
Symantec Power Steering for VMware 1.0, which is a suite of plugins
for managing the JV’s storage systems from administrators vCenter
consoles.
Huawei Symantec sees its unique value proposition coming from the
fact that it also offers security solutions, and is able to leverage its
total stack from a security and networking perspective.
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei is moving its smartphone portfolio upmarket to become a leading
Android handset vendor
Scenario Discussion: Huawei introduces higher‐end smartphones as it moves into new markets
Scenario SWOT Assessment
Strength: Huawei already has a strong
presence in many markets as a supplier of
low‐end and operator‐branded devices.
Weakness: Huawei has little experience as a
high‐end device maker, and its brand is not
well known in Western markets
Opportunity: If Huawei can “crack the code”
in developing high‐end but less expensive
smartphones, it will rapidly gain market
share.
Threat: The Android smartphone market is
crowded and it will be difficult for Huawei to
gain share.
•
•
•
•
•
Huawei Vision
Smartphone
10
Huawei 2Q11 | Network Business Quarterly
Huawei is looking to become a high‐end smartphone developer. It hopes
to leverage its expertise as a volume producer of low‐cost mobile devices
to produce highly capable smartphones at a price point that undercuts
those of competing devices from leading OEMs, such as HTC, Motorola
and Samsung.
Huawei already has a number of Android devices on the market, such as
its iDEOS smartphone, but to date these devices have emphasized price
over bleeding‐edge capabilities, have generally lagged competitors in
terms of components and software, and have generally appealed to more
cost‐conscious consumers that are buying their first smartphone.
While Huawei’s goal is to move beyond its status as a fast‐follower,
imitating popular smartphones from competitors, and become a genuine
developer of innovative devices, its latest flagship offerings, such as the
Vision smartphone, continue to follow a path blazed by other
manufacturers in terms of hardware.
The Vision, despite a 1 GHz Snapdragon processor and Android 2.3 OS, is
neither first to market with the Gingerbread OS nor can it match dual‐
processor offerings from leading Android OEMs. Where it differs is in
introducing Huawei’s concept of a cloud‐based phone, in which apps are
hosted in and downloaded from the cloud.
TBR believes Huawei’s efforts to bring more advanced devices to market at
a lower price‐point is a winning strategy as the mass‐market phone‐buying
public in Western markets looks for lower‐cost devices that do not
sacrifice functionality.
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei’s goal is to provide all aspects of cloud delivery, from platform
to device to apps
Scenario Discussion: Huawei intends to become a leading cloud‐delivery supplier
Scenario SWOT Assessment
Strength: Huawei is able to offer elements
and equipment for all aspects of cloud
networks.
Weakness: Huawei has a small market
presence in one of the most important
cloud markets: North America.
Opportunity: Huawei can leverage deep
partnerships with IT providers, such as
IBM, to drive its enterprise‐focused
strategy.
Threat: Potential customers will turn to
better known vendors, such as Cisco.
•
•
•
•
•
Huawei believes that over the next decade, IT apps will replace voice
services and web technology will replace public‐switched telephone
networks. Based on a distributed computing architecture, this structure will
result in lower costs and greater competitive advantages for network
providers that embrace cloud delivery. Huawei intends to become a leading
provider of all aspects of cloud delivery, from platforms to apps.
Huawei will take two approaches to delivering cloud solutions, offering
them directly to enterprises as well as to network operators that will then
market the cloud solutions to their own customers.
Huawei’s private cloud strategy for SMEs is to deliver distributed IT through
the cloud so services and functions are no longer localized and are instead
available on a distributed basis to employees in multiple locations.
On the telco side, Huawei sees itself delivering public cloud solutions for
operators that do not have the resources or experience to deliver cloud
solutions themselves. In developed markets the target telcos will be Tier 2
operators, such as Leap or MetroPCS in the U.S., while in emerging markets
the solution will be offered to a wider group of operators.
On the device side, Huawei introduced a handset, its Vision smartphone,
that stores users’ content, including applications, photos, videos, and music,
in the cloud. Customers can store up to 160 GB of content on the cloud and
can access that content as needed. A weakness of this strategy is that it
requires high‐speed/high‐bandwidth 4G networks to support content
downloads, but the Vision handset only supports 3G networks.
Source: Huawei
11
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
TBR believes Huawei will continue to grow revenue due to the appeal of
its low‐cost consumer devices
Revenue Performance and Strategies
$35,000
$31,000
$30,000
In Millions
2011 Est. Revenue: $31 billion
HUAWEI REVENUE AND YEAR‐TO‐YEAR GROWTH
TBR
$27,381
$25,000
60.0%
50.0%
$21,821
•
In 1H11, Huawei reported revenue of CNY 98.3 billion,
or $15.2 billion, amounting to growth of 11% year‐to‐
year.
•
Huawei was able to weather economic turmoil in
developed nations and fears of a double‐dip recession
by expanding its enterprise offerings and increasing
device shipments by over 40%.
40.0%
$18,071
$20,000
30.0%
$12,840
$15,000
20.0%
$10,000
10.0%
$5,000
$‐
0.0%
2007
2008
2009
Revenue
2010
2011 Est.
Year‐to‐year Growth
SOURCE: TBR ESTIMATES AND HUAWEI
2011 Revenue and Growth Outlook
HUAWEI GROSS MARGIN & OPERATING MARGIN
TBR
50%
40%
39.7%
38.2%
41.0%
41.9%
39.6%
•
TBR expects Huawei’s revenue to reach $31 billion for
2011 – an increase of 13.2% year‐to‐year – as growth
will span all geographies and segments, with the
exception of optical.
•
Device sales growth will accelerate in 2H11 as the
distribution of low‐cost Android smartphones and
tablets expands to the mass market in developed
markets.
30%
20%
10%
12.9%
9.7%
14.1%
15.8%
14.7%
0%
2007
2008
Gross Margin
2009
2010
Operating Margin
2011 Est.
SOURCE: TBR ESTIMATES AND HUAWEI
12
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
To maintain momentum in LTE sales, Huawei has launched new microcell
products designed for the North American market
Segment Revenue Performance and Strategies
Huawei has achieved considerable success in
winning 4G contracts but has not won the
most lucrative contracts due to being
essentially shut out of the U.S. Tier 1 market.
• Huawei is betting that its microcell solutions
will prove appealing to 4G operators. Huawei
points out that its small‐cell solutions are
ready for market now, while competitors’
more advanced solutions are still in the
testing phases. TBR believes that while
Huawei does have a time‐to‐market
advantage, the small‐cell market will not see
significant growth until at least late 2012, at
which point solutions from competitors will
be available.
•
HUAWEI REVENUE BY SEGMENT
TBR
$32,000
Revenue in Millions
$6,000
$4,545
$24,000
$16,000
$2,106
$1,965
$1,200
$2,190
$1,400
$3,980
$8,000
$0
$3,600
$4,900
$3,790
$2,792
$1,265
$3,176
$1,446
$3,644
$1,527
$5,193
$1,527
$2,400
$5,602
$6,328
2007
2008
2009
Handset
Service & Software
Data
$5,635
$2,800
$5,286
$5,265
$1,750
$1,800
$8,500
$9,500
2010
Optical
Fixed
Wireless
$9.5 billion
2011 Est.
Wireless
SOURCE: TBR ESTIMATES AND HUAWEI
HUAWEI REVENUE COMPOSITION
TBR
40%
Fixed
$1.8 billion
30%
20%
10%
Huawei has established a narrow lead in terms
of revenue in the broadband CPE market as
the shift to FTTH continues on the basis of
contract sales in China, Latin America and the
Middle East.
0%
2007
2008
2009
2010
2011 Est.
Wireless
Fixed
Optical
Data
Services & Software
Handset
SOURCE: TBR ESTIMATES AND HUAWEI
13
Huawei 2Q11 | Network Business Quarterly
Optical
$5.3 billion
Huawei’s T‐series launched in North America
in 1H11, giving the company a new option as it
seeks to win metro and core optical transport
equipment contracts.
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
Data remains a fast‐growing business for Huawei as the company pushes
deeper into the enterprise IT segment
Segment Revenue Performance and Strategies
Revenue (in $ Millions)
$31,500
Data
$2.8 billion
$1,455
$30,000
$28,500
$1,000
$50
$21
$735
$400
$27,000
$25,500
$31,000
$27,381
$24,000
$22,500
2010 Wireless
Revenue
Fixed
Optical
Data
Huawei continues to launch new products,
such as its AR G3 Access Router, as it focuses
its attention on the enterprise market.
• As part of its expansion into the enterprise IT
space, Huawei is introducing a line of servers,
low‐end switches, security, VoIP and storage
products in 2011. TBR believes the move will
position Huawei to directly compete with
Cisco’s low‐end switching business.
•
HUAWEI 2011 SEGMENT REVENUE GROWTH
TBR
Service & Handset 2011 Est.
Software
Revenue
SOURCE: TBR ESTIMATES AND HUAWEI
TBR
HUAWEI YEAR‐TO‐YEAR SEGMENT REVENUE GROWTH
120%
Service &
Software
$5.6 billion
Huawei continues to see strong growth from
rollout, maintenance, professional and
managed services, but it has yet to win the kind
of mega‐deal won by leaders Ericsson, NSN and
Alcatel‐Lucent.
Handset
$6 billion
While continuing to expand into the low‐end
smartphone market, Huawei is introducing
higher‐quality flagship devices to improve brand
recognition.
100%
80%
60%
40%
20%
0%
‐20%
2007
2008
2009
2010
2011 Est.
Wireless
Fixed
Optical
Data
Services & Software
Handset
SOURCE: TBR ESTIMATES AND HUAWEI
14
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
Huawei continues to invest in sales staff and TD‐LTE technology ahead of
commercial rollouts in China in 2012
Expense Performance and Strategies
2011 Est. Operating Expenses: $26.4 billion
HUAWEI OPERATING EXPENSES
TBR
$2,790
In $ Millions
$25,000
$2,448
$20,000
$1,953
$1,511
$15,000
$1,284
$10,000
$13,188
$2,350
$5,000
$5,271
$4,583
$3,538
$3,236
$18,290
$15,920
$10,890
$7,937
Cost of Revenue
$18.3 billion
$0
2007
2008
2009
Research & Development
SG&A
TBR believes cost of revenue will grow
14.9% in 2H11, outpacing revenue
growth.
• Gross margin will fall 90 basis points in
2H11 to 41% due to competition from
other low‐cost Android smartphone
vendors and pricing battles with NSN in
the telecom infrastructure space.
•
$30,000
2010
2011 Est.
Cost of Revenue
SOURCE: TBR ESTIMATES AND HUAWEI
SG&A
$5.3 billion
TBR estimates total 2011 SG&A will grow
15% year‐to‐year as Huawei increases
sales headcount and marketing spend to
support its mobile device releases.
• Total 2011 operating margin will be
14.7%, a 110‐basis‐point decrease from
2010. In 1H11, Huawei reported
operating income of CNY 12.4 billion, or
$1.9 billion.
R&D
$2.8 billion
TBR believes Huawei’s 2011 R&D spend
will be 14% higher than 2010 as the
company invests in cloud computing and
continues innovation around TD‐LTE.
•
HUAWEI OPEX AS A PERCENTAGE OF REVENUE
TBR
70%
60%
50%
40%
30%
20%
10%
0%
2007
2008
Cost of Revenue
2009
SG&A
2010
Research & Development
SOURCE: TBR ESTIMATES AND HUAWEI
15
2011 Est.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
With the U.S. 4G market largely closed to Huawei, the company is looking
to China for major contracts
TBR Assessment of Huawei’s Telecom Network Infrastructure Segment
Strategy
•
Huawei 4G sales are bolstering the company’s
position as the second‐largest infrastructure
vendor. While Huawei continues to win contracts
in Europe, North America (the world’s largest
telecom market) remains closed to Huawei due to
concerns within the U.S. government and with
companies that the government does business
with that Huawei software and equipment may
compromise the security of U.S. communications
networks.
•
As a result, Huawei continues to be left out of
Tier 1 operator contracts in the United States,
making it difficult to pass Ericsson as the world’s
leading vendor by revenue. Establishing more
R&D centers, adding employees, and growing
handset share in the U.S. may help ease
regulators’ fears.
•
TBR believes Huawei has placed itself in an
advantageous position for the long term. The
small 2G and 3G deals it is winning from operators
in developing markets will likely lead to upgrades
and expansions in the coming years as consumers
adopt smartphones and increase their data usage.
16
Huawei 2Q11 | Network Business Quarterly
Key Developments
•
Huawei secured 4G buildout contracts with Genius Brand,
M1, and Manitoba NetSet.
o
Huawei is rolling out an LTE network for Genius Brand,
a joint venture between Hutchison and Hong Kong
Telecom. The network will support download speeds
up to 120 Mbps and cover the entire city. Huawei will
deploy 2,000 base stations throughout Hong Kong,
providing customers with faster internet speeds,
access to wireless applications, and the ability to
stream mobile content.
o
In the course of a two‐phased project, Huawei will
build a WiMAX network for Manitoba NetSet,
providing 5,000 households in rural Canada with
broadband internet access. Huawei will prepare the
network for a transition to LTE by deploying its
SingleRAN solution.
o
M1, a mobile broadband and communications
provider, awarded Huawei a five‐year, S$280 million
contract to build Singapore’s first nationwide LTE
network. Huawei’s end‐to‐end LTE solution includes
installation of base stations and Evolved Packet Core
equipment.
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
Huawei’s plans to become a top‐five handset vendor will put it in direct
competition with both traditional OEMs and Chinese rival ZTE
TBR Assessment of Huawei’s Devices Segment
Strategy
•
Huawei remains in the back of the pack in terms of device
revenue but has ambitious plans to continue to introduce new
mass‐market Android devices in both emerging and developed
markets through 2011, which will lead to substantial market
share gains in 2H11.
•
Huawei is working to sell 60 million mobile phones in 2011 –
twice as many as 2010 – of which 20% to 25%, or 12 to 15
million, will be Android smartphones (up from just over
3 million in 2010). If Huawei is successful in shipping this many
smartphones, it will achieve its goal of becoming a top‐five
smartphone vendor.
•
Huawei is targeting the mass‐market late‐adopter segment of
smartphone customers. These are first‐time buyers of
smartphones that are looking for low‐cost entry level
smartphones and that expect to pay no more than $100 to $150
for a new device
•
While leading Android smartphone vendors such as HTC,
Motorola and Samsung are not targeting entry‐level
smartphone buyers, ZTE, which hopes to become the second‐
largest smartphone vendor within the next two years, is on a
direct collision course with Huawei. TBR believes ZTE will be
able to leverage its greater experience in developing low‐cost
handsets to outpace Huawei in overall smartphone sales.
17
Huawei 2Q11 | Network Business Quarterly
Key Developments
•
Huawei introduced the Vision smartphone,
which features a 3D user interface and runs
Android Gingerbread 2.3 OS. The Vision
boasts Bluetooth V2.1 technology, high‐speed
internet, and messaging capabilities. Available
in September, the Vision also includes a 5‐
megapixel camera and 720p video recording.
•
The E392 USB modem is the first device
capable of connecting to FDD and TDD LTE, as
well as GSM and CDMA networks, making it a
truly global device. Most operators are
deploying FDD LTE, due to their possession of
paired spectrum, but China Mobile, the
largest operator in China and an important
Huawei customer, will deploy TDD LTE. The
E392 will be available in 3Q11.
•
The MediaPad is Huawei’s 7‐inch tablet
featuring built‐in Wi‐Fi, GPS, and front‐ and
rear‐facing cameras. The MediaPad offers a
217‐pixels‐per‐inch touch panel, a dual‐core
1.2 GHz Qualcomm processor, and Android
3.2 OS. The slate weighs less than one pound
and is just one‐half‐inch thick.
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
Huawei is attempting to come from behind in the services space while
making a play for the enterprise with cloud and datacenter solutions
TBR Assessment of Huawei’s Services and Software Segments
Services
•
•
18
Huawei opened a new Network Operations Center in
Madrid to support the operation and management of
telecommunications networks, an area in which
Huawei is far behind Ericsson and Nokia Siemens. The
Madrid NOC will service customers in Spain and
Western Europe, as Huawei commits to improving its
share of service contracts and beefs up capabilities to
attract customers. The new NOC will provide network
surveillance, corrective and preventive maintenance,
security management, and IT platform management
for several network technologies, including UMTS,
GSM, and optical.
Software
•
Huawei is working to expand its offerings to
enterprise customers. The company is specifically
pushing its cloud and datacenter solutions, which are
seeing adoption from companies in a range of
verticals, including healthcare and government, due
to Huawei’s price leadership. Additionally, Huawei has
shipped 1,000 Telepresence solutions, including 500
in 1H11, bringing it into competition with Cisco.
•
Huawei launched India’s first commercial mobile
number portability (MNP) solution for IDEA. Huawei’s
MNP solution is based on the signaling transfer point
technology. In the process of implementing the
solution, Huawei migrated 470 sets of equipment
without interruption of services.
Huawei’s underdeveloped service base received a
boost from a GSM provider in its home country. In
May, Huawei secured a contract to provide managed
• Huawei provided China Telecom with an intelligent
services for over half of China Unicom Shanghai’s base
optical distribution network (iODN) solution to China
station sites, covering 11 districts within Shanghai.
Telecom’s fiber‐to‐the‐home deployment. iODN uses
Huawei will be responsible for maintenance of the
eID technology to automate deployment and
GSM network, including preventive, planned, and
management within the optical distribution network.
corrective services. While Huawei is chasing revenue
in overseas markets, the domestic Chinese market still
provides a strong base for service contracts.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Alliance Strategy
TBR
Huawei looks to leverage alliances and partnerships to add to its
capabilities in areas where its expertise is limited
TBR Assessment of Huawei’s Alliance Strategy
Alliance Strategy
• As Huawei has extended its capabilities across a wide
spectrum of the telecom space, from equipment to
software to services, it continues to enter new areas
where its experience and reputation are weak, seeking
partnerships if needed.
• Huawei Symantec is one of the most visible
partnerships, with the joint venture helping the
company become a serious contender in the security,
storage and networking segments in North America. In
July, the joint venture announced a new channel
program, dubbed the Wingman Partner Program, that
provides partners with marketing, sales, and
educational resources to help drive sales and business
development.
• Huawei is looking for alliances in the area of M2M,
where it recently proposed a partnership program for
M2M standards, signed a $1.4 million deal with Telus in
June to establish a research lab at Carleton University in
Canada, and teamed with Deutsche Telekom to develop
M2M solutions and applications in 2010.
19
Huawei 2Q11 | Network Business Quarterly
Key 1H11 Alliances
Nucleus Connect
Nucleus Connect and Huawei will collaboratively
study 10G GPON (Gigabit Passive Optical Network)
technology. The two companies will leverage their
research on Fiber to the Premises network
technology to increase bandwidth and uplink and
downlink speeds within Nucleus Connect’s Next
Generation Passive Optical Network.
Phones 4U
U.K.‐based retailer Phones 4U will sell two of
Huawei’s Android handsets in its retail locations in
4Q11. Phones 4U will carry the Huawei Blaze and
Vision smartphones, which cater to the youth
segment of the market. Both companies will invest in
marketing and launching the devices.
Simms International
Simms International will roll out the Huawei
Enterprise Advantage Partner (HEAP) program, a
strategic endeavor to increase partnerships with
Australian businesses. Through HEAP, Huawei will
attract value‐added resellers, systems integrators,
and technology suppliers to its partner network.
©2011 Technology Business Research, Inc.
Geographic Analysis
TBR
TBR expects strong growth in all of Huawei’s geographic regions,
resulting from its push to ship 60 million mobile phones this year
Geographic Performance and Strategies
HUAWEI REVENUE BY REGION
TBR
$33,000
$750
Revenue in Millions
$438
$408
$22,000
$11,000
$0
$231
$6,040
$146
$4,399
$900
$3,799
$3,595
$1,539
$5,743
$9,693
$11,625
$6,500
$923
$3,843
$1,780
$2,108
$5,887
$6,597
$10,147
$9,583
$9,920
2010
2011 Est.
$4,518
2007
2008
North America
EMEA
2009
CALA
APAC (ex‐China)
China
North America
$750 million
EMEA
$11.6 billion
SOURCE: TBR ESTIMATES AND HUAWEI
150%
APAC
(ex‐China)
100%
$6.6 billion
TBR
HUAWEI YEAR‐TO‐YEAR REVENUE GROWTH BY REGION
Government intervention continues to keep
Huawei from securing Tier 1 contracts in the U.S.,
but with device launches and network buildout
deals from Canadian operators, TBR believes
Huawei will grow North American revenue 71.2% in
2011.
Huawei now places its brand on handsets in
Europe, after previously making only carrier‐
branded devices. The company is having success
with low‐cost Android smartphones in Europe and
mass‐market feature phones in MEA.
Huawei’s feature phones are strong sellers in India
and other emerging Asian markets. The company is
taking significant market share from Nokia, the
longtime regional leader. The MediaPad tablet, at a
lower price than competitors, is poised to become
a hit in this market.
50%
0%
China
‐50%
2007
China
2008
APAC (ex‐China)
2009
CALA
2010
2011 Est.
EMEA
North America
SOURCE: TBR ESTIMATES AND HUAWEI
$9.9 billion
CALA
$2.1 billion
20
Huawei 2Q11 | Network Business Quarterly
Growth in China will turn positive in 2011,
rebounding from a weak 2010 that saw the 3G
investment cycle end. Looking toward 2012,
Huawei has positioned itself to be a major player in
the 4G LTE investment cycle.
TBR believes CALA revenue will increase 18.4% in
2011, as Huawei expands its mobile device
offerings to include more smartphones.
©2011 Technology Business Research, Inc.
Resource Management Strategy
TBR
Huawei focused on expanding operations in the West, appointing new
executives and opening several facilities
HUAWEI HEADCOUNT BY REGION
TBR
120,000
1,500
100,000
1,000
7,300
4,200
9,000
80,000
1,200
18,500
9,800
4,500
8,000
11,500
23,000
60,000
66,002
68,000
2008
2009
59,000
40,000
North America
EMEA
CALA
2010
APAC (ex‐China)
China
SOURCE: TBR ESTIMATES AND HUAWEI
HUAWEI ANNUAL REVENUE PER EMPLOYEE
TBR
Revenue In Thousands
$300
$230
$250
$200
$249
$258
$207
$159
$150
$100
$50
$‐
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
21
Huawei 2Q11 | Network Business Quarterly
2011 Est.
Personnel Changes
• TBR estimates Huawei had 120,000 employees worldwide
as of June, an increase of 10,000 from the end of 2010.
• In May, Huawei hired former Samsung and Nokia mobile
device executive Mark Mitchinson to head its U.K. mobile
device marketing and sales operations. Mitchinson will be
responsible for expanding sales in the U.K. and Ireland.
• John Suffolk was named global cybersecurity officer,
effective Oct. 1. Suffolk was previously the CIO of the U.K.
government. He will report to Huawei’s CEO and oversee
the company’s expansion deeper into the consumer and
enterprise security markets.
Investments/R&D Focus
• Huawei opened an R&D center in Silicon Valley that will
focus on next‐generation communications solutions.
Huawei’s seven R&D facilities and eleven branch offices in
the United States employ 1,100 people.
• Despite Huawei being forced to divest 3Leaf, the company
remains open to smaller U.S. acquisitions. Huawei opened
communications with the U.S. government and encouraged
an investigation into its operations, though the
government has not yet taken the offer.
• Huawei opened a Network Operations Center in Madrid to
provide managed and professional services to Spain and
Western Europe.
©2011 Technology Business Research, Inc.
Appendix – Income Statement
TBR
HUAWEI TECHNOLOGIES CORPORATION
Consolidated Income Statement
(i n $ Thous a nds )
TBR
CALENDAR YEAR
FISCAL YEAR
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Revenue
Cost of Sales
Gross Profit
$ 8,503,897
5,424,011
3,079,886
$ 12,840,113
7,936,732
4,903,381
$ 18,070,917
10,890,002
7,180,916
$ 21,820,963
13,188,406
8,632,557
$ 27,381,153
15,920,093
11,461,060
$ 31,000,000
18,290,000
12,710,000
R&D
SG&A
Total Operating Expenses
Other Operating Income/Loss
Operating Income
850,390
1,502,472
2,352,862
106,029
620,995
1,284,011
2,349,741
3,577,867
77,655
1,247,859
1,510,853
3,235,871
4,746,724
96,692
2,337,499
1,952,862
3,538,135
5,490,997
59,728
3,081,833
2,448,062
4,583,241
7,031,303
101,584
4,328,173
2,790,000
5,270,727
8,060,727
100,000
4,549,273
Net financing costs
Share of losses of associates
Income before income taxes
Income taxes expense
Minority Interest
Net Income
38,918
15,025
567,052
54,664
200
$ 512,188
198,881
7,273
1,041,705
84,807
‐
$ 956,898
955,810
27,853
1,353,836
221,238
(1,010)
$ 1,133,608
(183,721)
23,862
3,241,692
566,535
3,074
$ 2,672,083
271,038
1,331
4,055,804
542,962
444
$ 3,512,399
275,000
15,069
4,259,204
553,697
‐
$ 3,705,508
PERCENTAGE OF REVENUE
Revenue
Cost of Revenues
Gross Profit
R&D
SG&A
Operating Income
Net Income
100.0%
63.8%
36.2%
10.0%
17.7%
7.3%
6.0%
100.0%
61.8%
38.2%
10.0%
18.3%
9.7%
7.5%
100.0%
60.3%
39.7%
8.4%
17.9%
12.9%
6.3%
100.0%
60.4%
39.6%
8.9%
16.2%
14.1%
12.2%
100.0%
58.1%
41.9%
8.9%
16.7%
15.8%
12.8%
100.0%
59.0%
41.0%
9.0%
17.0%
14.7%
12.0%
42.2%
52.4%
27.2%
44.6%
48.2%
‐27.0%
‐24.8%
51.0%
46.3%
59.2%
51.0%
56.4%
100.9%
86.8%
40.7%
37.2%
46.4%
17.7%
37.7%
87.3%
18.5%
19.0%
19.4%
18.5%
27.4%
7.8%
30.0%
132.4%
24.2%
19.5%
31.4%
24.1%
28.2%
39.0%
30.1%
13.2%
14.9%
10.9%
14.0%
15.0%
5.1%
5.5%
YEAR‐TO‐YEAR CHANGE
Revenue
Cost of Revenues
Gross Profit
R&D
SG&A
Operating Income
Net Income
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei reports annual results only
22
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Balance Sheet
TBR
HUAWEI NETWORKS
Consolidated Balance Sheet
(i n $ Thous a nds )
CALENDAR YEAR
FISCAL YEAR
ASSETS
Cash and cash equivalents
Trade and other receivables
Investments
Inventories
Total Current Assets
Plant and Equipment, Net
Intangible Assets
Other Assets
Total Assets
TBR
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
$ 1,056,042
3,650,086
64
1,420,455
6,126,647
939,784
10,937
418,815
$ 7,496,183
$ 1,892,266
5,488,077
‐
2,267,276
9,647,619
931,721
15,038
502,556
$ 11,096,934
$ 3,033,106
7,627,720
‐
3,325,636
13,986,463
1,051,348
18,328
2,007,880
$ 17,064,019
$ 4,279,315
9,263,944
1,045,967
3,652,028
18,241,253
1,217,538
80,954
904,260
$ 20,444,005
$ 5,628,059
10,174,481
1,231,720
4,076,062
21,110,322
1,378,551
95,669
1,198,303
$ 23,782,845
$ 332,883
163,312
4,183,046
80,122
4,759,363
39,790
25,894
4,825,047
4,286
2,666,850
$ 7,496,183
$ 158,628
94,513
6,029,505
151,201
6,433,847
215,280
336,417
6,985,544
127,539
3,983,851
$ 11,096,934
$ 1,873,665
195,549
8,735,208
183,860
10,988,281
148,069
522,427
11,658,777
4,762
5,400,479
$ 17,064,019
$ 1,154,589
541,063
10,249,305
172,010
12,116,967
1,242,863
743,083
14,102,913
9,223
6,331,869
$ 20,444,005
$ 397,019
618,670
11,881,146
230,079
13,126,913
1,324,136
1,162,075
15,613,125
4,288
8,165,432
$ 23,782,845
LIABILITIES AND EQUITY
Interest‐bearing loans and borrowings
Income tax payable
Trade and other payables
Provision for warranties
Total Current Liabilities
Interest‐bearing loans and borrowings
Other payables
Total Liabilities
Minority Interest in Subsidiary Companies
Total Capital and Reserves
Total Liabilities and Equity
FINANCIAL RATIOS
Days Sales Outstanding
Turns on Inventory
Days Inventory Outstanding
Fixed Asset Turnover
Days Cash Outstanding
Total Asset Turnover
Debt/Asset Ratio
Current Ratio
Return on Assets
Return on Equity
Average Annual Revenue per Employee
Employee Count
CNY/USD Exchange Rate
SOURCE: TBR AND HUAWEI
NOTE: Huawei only reports Balance Sheet annually
23
Huawei 2Q11 | Network Business Quarterly
156.67
156.01
154.07
154.96
135.63
4.12
6.96
6.46
6.25
7.09
88.67
52.41
56.48
58.36
51.51
9.27
13.72
18.23
19.23
21.09
44.71
53.05
60.42
70.60
74.00
1.28
1.38
1.28
1.16
1.24
0.64
0.63
0.68
0.69
0.66
1.29
1.50
1.27
1.51
1.61
7.7%
10.3%
8.1%
14.2%
15.9%
20.2%
28.8%
24.2%
45.6%
48.5%
$ 139,408 $ 158,520 $ 206,520 $ 229,694 $ 248,920
61,000 81,000 87,502 95,000 110,000
6.9292
6.831
6.763
©2011 Technology Business Research, Inc.
Appendix – Revenue Model
TBR
HUAWEI REVENUE MODEL
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Reported Revenue
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Wireless
$ 2,636,208
$ 3,980,435
$ 5,601,984
$ 6,328,079
$ 8,500,000
$ 9,500,000
Fixed
$ 1,165,034
$ 1,399,572
$ 1,445,673
$ 1,527,467
$ 1,750,000
$ 1,800,000
Optical
$ 1,360,624
$ 2,189,790
$ 3,175,937
$ 5,193,389
$ 5,285,882
$ 5,265,000
Data
$ 807,870
$ 1,200,000
$ 1,264,964
$ 1,527,467
$ 2,400,000
$ 2,800,000
Service & Software
$ 901,413
$ 1,964,537
$ 2,791,957
$ 3,644,101
$ 4,900,000
$ 5,635,000
Handset
$ 1,003,460
$ 2,105,779
$ 3,790,401
$ 3,600,459
$ 4,545,271
$ 6,000,000
Reported Revenue
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Wireless
31.0%
31.0%
31.0%
29.0%
31.0%
30.6%
Fixed
13.7%
10.9%
8.0%
7.0%
6.4%
5.8%
Optical
16.0%
17.1%
17.6%
23.8%
19.3%
17.0%
PERCENTAGE OF REVENUE
Data
9.5%
9.3%
7.0%
7.0%
8.8%
9.0%
Service & Software
10.6%
15.3%
15.5%
16.7%
17.9%
18.2%
Handset
11.8%
16.4%
21.0%
16.5%
16.6%
19.4%
YEAR‐TO‐YEAR CHANGE
24
Reported Revenue
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
Wireless
29.5%
51.0%
40.7%
13.0%
34.3%
11.8%
Fixed
6.6%
20.1%
3.3%
5.7%
14.6%
2.9%
Optical
38.2%
60.9%
45.0%
63.5%
1.8%
‐0.4%
Data
33.5%
48.5%
5.4%
20.8%
57.1%
16.7%
Service & Software
31.1%
117.9%
42.1%
30.5%
34.5%
15.0%
Handset
96.6%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei reports annual results only
109.9%
80.0%
‐5.0%
26.2%
32.0%
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Geographic Model
TBR
HUAWEI REVENUE BY GEOGRAPHIC REGION
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Sales
$ 2,950,852
$ 3,595,232
$ 4,517,729
$ 10,146,748
$ 9,583,404
$ 9,920,000
Orders
$ 3,850,000
$ 4,853,563
$ 6,356,168
$ 10,042,746
$ 10,544,883
$ 10,000,000
Sales
$ 5,553,045
$ 9,244,881
$ 13,553,188
$ 11,674,215
$ 17,797,749
$ 21,080,000
Asia Pacific (excl. China)
$ 2,740,511
$ 3,799,383
$ 5,743,188
$ 3,842,815
$ 5,886,948
$ 6,597,000
$ 186,000
$ 600,000
$ 1,300,000
$ 1,560,000
$ 1,670,250
$ 3,100,000
CALA
$ 450,000
$ 900,000
$ 1,539,000
$ 923,400
$ 1,779,775
$ 2,108,000
EMEA
$ 2,270,000
$ 4,399,296
$ 6,040,000
$ 6,500,000
$ 9,692,928
$ 11,625,000
Europe
$ 770,000
$ 2,099,296
$ 2,981,000
$ 3,000,000
$ 4,791,702
$ 6,510,000
MEA
$ 1,500,000
$ 2,300,000
$ 3,059,000
$ 3,500,000
$ 4,901,226
$ 5,115,000
North America
$ 92,533
$ 146,203
$ 231,000
$ 408,000
$ 438,098
$ 750,000
International Orders
$ 7,150,000
$ 11,146,437
$ 16,943,832
$ 20,115,650
$ 25,455,117
$ 30,000,000
Asia Pacific (excl. China)
$ 2,000,000
$ 2,500,000
$ 4,650,000
$ 6,649,500
$ 6,981,975
$ 7,500,000
$ 350,000
$ 700,000
$ 2,000,000
$ 2,400,000
$ 3,360,000
$ 4,200,000
$ 2,200,000
China
International
India
India
CALA
$ 566,500
$ 750,000
$ 1,250,000
$ 1,562,500
$ 1,796,875
EMEA
$ 4,479,000
$ 7,354,316
$ 10,064,091
$ 10,404,646
$ 10,676,267
$ 17,800,000
North America
$ 104,500
$ 542,121
$ 979,741
$ 1,499,004
$ 2,000,000
$ 2,500,000
Total Revenue
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Total Orders
$ 11,000,000
$ 16,000,000
$ 23,300,000
$ 30,158,396
$ 36,000,000
$ 40,000,000
PERCENTAGE OF REVENUE
China
34.7%
28.0%
25.0%
46.5%
35.0%
32.0%
International
65.3%
72.0%
75.0%
53.5%
65.0%
68.0%
Asia Pacific (excl. China)
32.2%
29.6%
31.8%
17.6%
21.5%
21.3%
2.2%
4.7%
7.2%
7.1%
6.1%
10.0%
CALA
5.3%
7.0%
8.5%
4.2%
6.5%
6.8%
EMEA
26.7%
34.3%
33.4%
29.8%
35.4%
37.5%
Europe
9.1%
16.3%
16.5%
13.7%
17.5%
21.0%
MEA
17.6%
17.9%
16.9%
16.0%
17.9%
16.5%
North America
1.1%
1.1%
1.3%
1.9%
1.6%
2.4%
India
YEAR‐TO‐YEAR GROWTH (REVENUE)
China
‐17.8%
21.8%
25.7%
124.6%
‐5.6%
3.5%
International
132.1%
66.5%
46.6%
‐13.9%
52.5%
18.4%
Asia Pacific (excl. China)
N/A
38.6%
51.2%
‐33.1%
53.2%
12.1%
86.0%
222.6%
116.7%
20.0%
7.1%
85.6%
CALA
N/A
100.0%
71.0%
‐40.0%
92.7%
18.4%
EMEA
N/A
93.8%
37.3%
7.6%
49.1%
19.9%
N/A
172.6%
42.0%
0.6%
59.7%
35.9%
MEA
N/A
53.3%
33.0%
14.4%
40.0%
4.4%
North America
2993.7%
58.0%
58.0%
76.6%
7.4%
71.2%
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
India
Europe
Total Revenue
PERCENTAGE OF ORDERS
China
35.0%
30.3%
27.3%
33.3%
29.3%
25.0%
International
65.0%
69.7%
72.7%
66.7%
70.7%
75.0%
YEAR‐TO‐YEAR GROWTH (ORDERS)
China
10.3%
26.1%
31.0%
58.0%
5.0%
‐5.2%
International
51.7%
55.9%
52.0%
18.7%
26.5%
17.9%
Total Orders
34.1%
45.5%
45.6%
29.4%
19.4%
11.1%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
25
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – OPEX Model
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
TBR
HUAWEI OPERATING EXPENSE MODEL
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Total Revenue
$ 8,503,897
$ 12,560,356
$ 18,328,956
$ 21,500,000
$ 27,381,153
$ 31,000,000
SG&A Expense
$ 1,502,472
$ 2,349,741
$ 3,235,871
$ 3,538,135
$ 4,583,241
$ 5,270,727
Sales & Marketing Expense
$ 901,483
$ 1,409,844
$ 1,941,523
$ 2,122,881
$ 2,749,945
$ 3,162,436
General and Administrative Expense
$ 600,989
$ 939,896
$ 1,294,349
$ 1,415,254
$ 1,833,296
$ 2,108,291
R&D Expense
$ 850,390
$ 1,284,011
$ 1,510,853
$ 1,952,862
$ 2,448,062
$ 2,790,000
SALES AND MARKETING EXPENSE BREAKOUT
Sales Expense
$ 540,890
$ 845,907
$ 1,164,914
$ 1,273,729
$ 1,649,967
$ 1,897,462
Partner and Channel Spending
$ 135,223
$ 211,477
$ 291,228
$ 318,432
$ 412,492
$ 474,365
Marketing Spending
Advertising
Total Sales and Marketing Expense
$ 225,371
$ 352,461
$ 485,381
$ 530,720
$ 687,486
$ 790,609
$ 135,223
$ 211,477
$ 291,228
$ 318,432
$ 412,492
$ 474,365
$ 901,483
$ 1,409,844
$ 1,941,523
$ 2,122,881
$ 2,749,945
$ 3,162,436
Total SG&A Expense
17.7%
18.7%
17.7%
16.5%
16.7%
17.0%
Sales and Marketing Expense
10.6%
11.2%
10.6%
9.9%
10.0%
10.2%
Sales Expense
6.4%
6.7%
6.4%
5.9%
6.0%
6.1%
Partner and Channel Spending
1.6%
1.7%
1.6%
1.5%
1.5%
1.5%
Marketing Spending
2.7%
2.8%
2.6%
2.5%
2.5%
2.6%
1.6%
1.7%
1.6%
1.5%
1.5%
1.5%
7.1%
7.5%
7.1%
6.6%
6.7%
6.8%
R&D
29,280
34,830
37,626
40,850
47,300
51,600
Marketing, Sales and Customer Service
23,180
32,400
35,001
38,000
44,000
48,000
Supply Chain
4,880
Admin.
3,660
Total Employees
61,000
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
8,100
5,670
81,000
8,750
6,125
87,502
9,500
6,650
95,000
11,000
7,700
110,000
12,000
8,400
120,000
Advertising
General and Administrative
CORPORATEWIDE HEADCOUNT
26
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Forecast Model
TBR
TBR
HUAWEI FINANCIALS AND TBR QUARTERLY PROJECTION
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
Net Sales
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Gross Profit
$ 3,079,886
$ 4,903,381
$ 7,180,916
$ 8,632,557
$ 11,461,060
$ 12,710,000
SG&A
$ 1,502,472
$ 2,349,741
$ 3,235,871
$ 3,538,135
$ 4,583,241
$ 5,270,727
R&D
$ 850,390
$ 1,284,011
$ 1,510,853
$ 1,952,862
$ 2,448,062
$ 2,790,000
Operating Income
$ 620,995
$ 1,247,859
$ 2,337,499
$ 3,081,833
$ 4,328,173
$ 4,549,273
Net Income
$ 512,188
$ 956,898
$ 1,133,608
$ 2,672,083
$ 3,512,399
$ 3,705,508
38.2%
39.7%
39.6%
41.9%
41.0%
PERCENTAGE OF REVENUE
Gross Margin
36.2%
SG&A
17.7%
18.3%
17.9%
16.2%
16.7%
17.0%
R&D
10.0%
10.0%
8.4%
8.9%
8.9%
9.0%
Operating Margin
7.3%
9.7%
12.9%
14.1%
15.8%
14.7%
Net Margin
6.0%
7.5%
6.3%
12.2%
12.8%
12.0%
Net Sales
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
Gross Profit
27.2%
59.2%
46.4%
20.2%
32.8%
10.9%
YEAR‐TO‐YEAR GROWTH
SG&A
48.2%
56.4%
37.7%
9.3%
29.5%
15.0%
R&D
44.6%
51.0%
17.7%
29.3%
25.4%
14.0%
Operating Income
‐27.0%
100.9%
87.3%
31.8%
40.4%
5.1%
Net Income
‐24.8%
86.8%
18.5%
135.7%
31.4%
5.5%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
27
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Financial Graphs
TBR
Financial Graphs
HUAWEI SELLING, GENERAL, & ADMINISTRATIVE
EXPENSE
$6,400
In Millions
$3,200
20.0%
$5,271
$4,583
$3,236
$4,800
17.0%
$2,350
16.0%
$1,600
$2,790
19.0%
18.0%
$3,538
$3,200
HUAWEI RESEARCH & DEVELOPMENT EXPENSE
TBR
$2,448
In Millions
TBR
$2,400
10.0%
$1,953
$1,511
$1,600
10.5%
9.5%
$1,284
9.0%
15.0%
$800
8.5%
14.0%
$0
2007
2008
SG&A
2009
2010
2011 Est.
$0
8.0%
2007
SG&A as % of Total Revenue
2008
R&D
SOURCE: TBR AND HUAWEI
2009
2010
2011 Est.
R&D as % of Total Revenue
SOURCE: TBR AND HUAWEI
HUAWEI RETURN ON ASSETS
TBR
HUAWEI RETURN ON EQUITY
TBR
20%
60%
15.9%
16%
12%
8%
50%
14.2%
28.8%
30%
8.1%
20%
4%
24.2%
20.2%
10%
0%
0%
2006
2007
2008
2009
SOURCE: TBR AND HUAWEI
28
48.5%
40%
10.3%
7.7%
45.6%
Huawei 2Q11 | Network Business Quarterly
2010
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
©2011 Technology Business Research, Inc.
Appendix – Financial Graphs
TBR
Financial Graphs
HUAWEI DAYS CASH OUTSTANDING
TBR
90.00
Number of Days
60.42
60.00
45.00
74.00
70.60
75.00
53.05
44.71
30.00
15.00
0.00
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
HUAWEI DEBT/ASSET RATIO
TBR
HUAWEI CURRENT RATIO
TBR
2.00
0.80
0.64
0.68
0.69
0.63
0.66
1.50
0.60
1.50
0.40
1.00
0.20
0.50
0.00
2006
2007
2008
2009
2010
1.29
1.51
1.61
1.27
0.00
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
SOURCE: TBR AND HUAWEI
29
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Go‐to‐Market and Resource Management Graphs
TBR
Go‐to‐Market and Resource Management Graphs
HUAWEI INVENTORY TURNS
TBR
1.75
8.00
6.96
6.46
7.09
1.50
6.25
6.00
Number of Turns
Number of Turns
HUAWEI TOTAL ASSET TURNOVER
TBR
4.12
4.00
1.38
1.28
1.28
1.16
1.25
1.24
1.00
0.75
0.50
2.00
0.25
0.00
2006
2007
2008
2009
2010
0.00
2006
FIXED ASSET TURNS
TBR
180.00
Number of Turns
19.23
9.27
2010
0.00
Huawei 2Q11 | Network Business Quarterly
2010
135.63
60.00
0.00
2009
154.96
90.00
30.00
2008
154.07
120.00
5.00
2007
156.01
150.00
13.72
SOURCE: TBR AND HUAWEI
30
156.67
21.09
Number of Days
18.23
20.00
2006
2009
HUAWEI DAYS SALES OUTSTANDING
TBR
25.00
15.00
2008
SOURCE: TBR AND HUAWEI
SOURCE: TBR AND HUAWEI
10.00
2007
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
©2011 Technology Business Research, Inc.
Appendix – Acquisitions
TBR
Huawei Acquisitions
Company
M4S
October 2010
31
Description
Huawei purchased Option’s RF (radio frequency) semiconductor unit M4S for €8 million (or
$11 million). Both companies had been working together to develop mobile broadband
solutions, such as USB modems, embedded modules, chipsets, software and services, for
the European market, and Huawei’s decision to make the purchase highlights its aspirations
to become an integral supplier to developed markets. Huawei and Option may establish an
R&D center in Belgium.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Alliances
TBR
Huawei Alliances
Company
Scope of Partnership
Beetel Teletech
Huawei was a partner in the development of Beetel Teletech’s 7‐inch, Android‐powered Beetel
Magiq tablet computer. The tablet supports 3G and Wi‐Fi connections. Beetel is a fixed‐line
telephone maker in India.
United Kingdom‐based telecom company Phones 4U will sell two of Huawei’s Android handsets in
its retail locations in 4Q11. Phones 4U will carry the Huawei Blaze and Vision. Both companies will
invest in the marketing and launch plan for the two devices.
Huawei and Simms International formed the Huawei Enterprise Advantage Partner (HEAP)
program, a strategic move to increase partnerships with Australian businesses. Through HEAP,
Huawei will attract VAR’s, systems integrators, and technology suppliers.
Huawei is integrating Finisar Australia’s Wavelength Selective Switches with its next‐generation
fiber broadband network systems. Huawei also will trial Finisar’s Flexgrid technology.
August 2011
Phones 4U
August 2011
Simms International
August 2011
Finisar Australia
July 2011
TELUS
Carleton University
June 2011
Nucleus Connect
June 2011
Intertrust
Technologies
March 2011
Force10 Networks
February 2011
SPIRIT DSP
February 2011
32
Huawei, TELUS, and Carleton University partnered to build an enterprise cloud services research
lab within Carleton University’s engineering lab. The Huawei‐TELUS Innovation Center will address
cloud computing security and performance themes.
Nucleus Connect and Huawei will collaboratively study 10G GPON (Gigabit Passive Optical
Network) technology. The two companies will leverage their research on the Fiber to the Premises
network technology to increase bandwidth and uplink and downlink speeds within Nucleus
Connect’s Next Generation Passive Optical Network.
Huawei entered into a licensing agreement to use Intertrust’s Sushi Marlin Client SDK and
Bluewhale Marlin Broadband Server. Both companies also will explore business opportunities
globally.
Huawei‐Symantec and Force10 Networks in long‐term partnership to combine security, storage and
networking expertise to better address vertical markets in North America, particularly healthcare,
finance and telecom.
Huawei extended licensing agreement to use SPIRIT’s voice and video engines in its IMS, UC and
fixed mobile convergence platforms.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Alliances
TBR
Huawei Alliances (continued)
Company
Scope of Partnership
Carrier IQ
Companies entered into global software licensing agreement with Huawei, integrating Carrier
IQ’s solutions into its mobile broadband data terminals.
Companies are working together to develop next‐generation optical transport and access
solutions to build “smart cities.” Huawei will provide an end‐to‐end optical transport solution,
and Smartworld will deploy and manage the solution for Dubai World Central (DWC) and Al‐
Maktoum International Airport, both in the United Arab Emirates.
February 2011
Smartworld
January 2011
Qatar Telecom
January 2011
TeleCommunication
Systems (TCS)
January 2011
Sequans
Communications
Jointly develop telecom solutions for key industries in Qatar and other Middle Eastern countries
Entered Master Purchase Agreement to give Huawei access to TCS’ location‐based services (LBS)
technology; TCS will let Huawei use its end‐to‐end Xypoint LBS solutions in its own products and
services. Both companies will provide operators with professional and managed services for
their LBS solutions.
Accelerating development and commercialization of TD‐LTE technology for global market.
October 2010
Amerilink Telecom
August 2010
IPWireless
July 2010
PerSay
April 2010
33
Huawei partnered with Amerilink Telecom, a startup run by former Sprint employees, to help
the vendor penetrate the North American market. Amerilink has become a key U.S. distributor
of Huawei equipment. Huawei hopes its partnership will better position the firm to win deals
with Tier 1 operators, particularly Sprint.
Huawei and IPWireless will jointly conduct interoperability testing and service provider trials for
each company’s Integrated Mobile Broadcast (IMB) technology. IMB technology offloads data
traffic from 3G networks, allowing live video streaming and broadcasting and storage of content
on mobile devices. Huawei and IPWireless are conducting these tests to ensure mobile devices
are compatible with IMB networks.
Huawei and PerSay, a biometric speaker verification product supplier, have entered a
partnership that will see PerSay’s VocalPassword and FreeSpeech voice biometrics offerings
integrated with Huawei’s IP contact center product suite.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements
Product Series
Configuration
Vision
The Huawei Vision smartphone features a 3D user interface and runs Android Gingerbread 2.3 OS.
The Vision boasts Bluetooth V2.1 technology, high‐speed internet, and messaging capabilities.
Available in September, the Vision also includes a 5‐megapixel camera and 720p video recording.
August 2011
HiLink E353
August 2011
E392
August 2011
E586 MiFi
August 2011
Series S Switches
July 2011
iManager U2100
June 2011
MediaPad
June 2011
xDSL Cards
May 2011
34
The HiLink E353 data card allows users to connect to the internet within 15 seconds after it is
plugged into a USB port. This is the first Huawei HiLink product to support HSPA+.
Huawei introduced the E392 USB modem, the first device capable of connecting to FDD and TDD
LTE, along with GSM and CDMA networks, making it a truly global device. The E392 will be available
in 3Q11.
The E586 MiFi is a mobile Wi‐Fi hotspot offering secure internet access. It has a 4.5‐hour battery life
and comes with a charging base, along with a micro SD card slot for internal memory storage.
Designed for enterprise users, Series S Switches feature increased scalability, improved security,
faster processing capabilities, and Huawei’s network operating system with its versatile routing
platform
The iManager U2100 is Huawei’s new unified network management system for large‐scale bearer
networks. It can be used with Huawei’s U2000 to create an operation and management solution for
large‐scale all‐IP networks.
Huawei’s MediaPad is a 7‐inch tablet featuring built‐in Wi‐Fi, GPS, and front‐ and rear‐facing
cameras. The MediaPad offers a 217‐pixels‐per‐inch touch panel, a dual‐core 1.2 GHz Qualcomm
processor, and Android 3.2 OS. The tablet weighs less than one pound and is only one‐half‐inch
thick.
Huawei’s new xDSL copper access cards, the 48‐port COMBO Card and the 64‐port VDSL2 Card, help
simplify public switched telephone network migration for operators. The COMBO Card combines
ADSL2+, voice, and splitter functions to efficiently use space in telecommunications rooms. The
VDSL2 Card provides 50M of bandwidth. Both cards feature MELT line testing to identify line faults.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements (continued)
Product Series
Configuration
200G Line Card
The 200G high‐speed line card for high‐end routers allows operators to increase bandwidth and
run more efficient networks. Decreased power consumption enabled by Huawei’s 200G line card
reduces operating costs for the network provider.
April 2011
AR G3 Enterprise
Access Router
March 2011
OptiX RTN 980
February 2011
“Any Connection”
Mobile Broadband
Backhaul (MBB)
Configured with third‐generation router architecture to support mobile and fixed WAN access as
well as multiservice processing; uses multicore CPUs and non‐blocking switching architecture; has
3M PPS processing performance and 80 Gbps switching capacity. The AR G3 supports
CDMA2000/WCDMA/TD‐SCDMA wireless standards as well as fixed standards including ETH, e!,
XDSL, XPON (scalable to 10G PON).
Integrates hybrid and pure‐packet microwave transmissions; upgraded version (OptiX 900)
provides throughput of 1 Gbps per frequency carrier, while basic versions range from 400 Mbps to
1 Gbps; supports aggregation of microwave transmissions in 14 RF directions and is upgradable to
28 RF directions; also supports TDM and packet cross‐connections.
Seamlessly evolves from UMTS and HSPA to LTE; features on‐demand routing modes between
dynamic and static with 300‐mm‐depth edge routers installed in outdoor cabinets.
February 2011
iCare
February 2011
E398
December 2010
WiMAX – TD‐LTE
SingleRAN
November 2010
35
Professional service solution that is applicable to IP, optical transmission, microwave and FTTx
networks; iCare provides network planning, network evaluation and optimization for live networks
as well as aids in service migration and network evolution.
World’s first triple‐mode modem; supports 2G (GSM), 3G (UMTS) and LTE; the modem is initially
available in select European markets.
Contains dual‐mode remote radio unit (RRU) and dual‐mode base band unit (BBU) to support both
WiMAX and TD‐LTE in the 2.3GHz, 2.5GHz and 3.5GHz frequency bands; also supports MIMO and
Beamforming technologies.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements (continued)
Product Series
Configuration
Intelligent Optical
Distribution Network
(iODN)
Lets operators locate and operate optical fibers in an FTTH environment; supplements Huawei’s
portfolio of FTTH solutions ranging from equipment to delivery and services
October 2010
Digital Shopping Mall
(DSM)
October 2010
Oceanspace S2600
Oceanspace N8300
Secospace USG2000
BSR/HSR
Provides operators with a unified service platform that aggregates internet applications and delivers
cloud‐based services to end‐users; platform supports all major smartphone operating systems,
including Android, RIM and Symbian. At launch, the Mall featured 80,000 apps ranging from music
to e‐books to video. The store can be accessed via nearly any internet‐enabled electronic device
including tablets and televisions. App revenue is split 70:30, with 70% going to developers and 30%
to telecom operators.
Storage solution tailored to SMB; offers unified storage platform and multiservice gateway for
security and routing
October 2010
Easy ODN
Uses four twisted frequency pairs to achieve downstream speeds of 700 Mbps at a distance of 400
meters; addresses crosstalk between multiple twisted pairs and increases DSL bandwidth by 75%
from an average of 100 Mbps per twisted pair to 175 Mbps; deployable to FTTB/FTTC access and
private line applications, including base station access
• End‐to‐end solution that includes optical distribution frames, fiber distribution terminals, fiber
access terminals, optical filters, optical splitters, closures and access terminal boxes
June 2010
•
SuperMIMO
September 2010
•
OSN8800 T16
June 2010
36
•
Solution lets operators deploy optical distribution networks with easy operation, maintenance and
administration
Metropolitan OTN system accommodates data, video and storage while reducing operator costs
through energy efficiency, low maintenance and space‐saving features
Achieves 40G/100G transport and offers full‐service cross‐connection capabilities that support
ODUk wavelength and packet‐cross connections
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals
Company
Scope of Deal
Genius Brand
Huawei will roll out an LTE network for Genius Brand with download speeds up to 120 Mbps. Huawei
will deploy 2,000 base stations throughout Hong Kong, providing customers with faster internet
speeds, access to wireless applications, and the ability to stream mobile content.
Hong Kong
August 2011
China Telecom
China
August 2011
Etisalat Nigeria
Nigeria
August 2011
Manitoba NetSet
Canada
July 2011
IDEA
India
June 2011
KPN
Netherlands
June 2011
TDC
Denmark
June 2011
37
Huawei provided its intelligent storm solutions for China Telecom’s CDMA network at the Shenzhen
Summer Universiade event. Huawei’s CDMA solutions enable the network to manage up to 10 times
more traffic to cope with peak traffic times. Huawei also provided its Qchat push‐to‐talk service during
the event.
Through a $118 million contract, Huawei will expand Etisalat Nigeria’s 2G network and build out a 3G
network to improve coverage and data services. Huawei also will provide a complete array of
professional services.
In the course of a two‐phased project, Huawei will build a WiMAX network for Manitoba NetSet,
providing 5,000 households in rural Canada with broadband internet access. The network will be
prepared for a LTE upgrade using Huawei’s SingleRAN solution.
Huawei launched the first commercial mobile number portability (MNP) solution in India for IDEA.
Huawei’s MNP solution is based on the signaling transfer point technology. In the process of
implementing the solution, Huawei migrated 470 sets of equipment without interruption of services.
Huawei deployed coherent 100G services on KPN’s International WDM network. Huawei’s 100G
solution supports G.652 and G.655 fibers and can transmit service over a distance of
613 kilometers with needing regeneration at an electrical site.
Huawei will build a national and pan‐European Optical Transportation Network for TDC, enabling the
operator to provide customers with high bandwidth services, such as HD TV, video conferencing, and
gaming. In the six‐year contract, Huawei will deliver its industry‐leading Dense Wavelength Division
Multiplexing (DWDM) solutions.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
China Unicom
Huawei will provide managed services for over half of China Unicom Shanghai’s base station sites to
improve network reliability. Huawei will be responsible for network maintenance, including
preventative, planned, and corrective services.
China
May 2011
M1
Singapore
May 2011
China Telecom
China
May 2011
Everything
Everywhere
United Kingdom
M1, a leading mobile broadband and communications provider, awarded Huawei a five‐year, S$280
million contract to build Singapore’s first LTE network. Huawei’s end‐to‐end LTE solution includes
installation of base stations and the Evolved Packet Core equipment.
Huawei provided China Telecom with its intelligent optical distribution network (iODN) solution to
improve operations and efficiency of China Telecom’s fiber‐to‐the‐home deployment. iODN uses eID
technology to automate deployment and management within the optical distribution network.
In a four‐year contract, Huawei will provide Everything Everywhere, a U.K. operator, with increased
network capacity and coverage through a 2G GSM network upgrade. Huawei will upgrade all of
Everything Everywhere’s radio base stations and prepare for a transition to LTE.
May 2011
Superonline
Turkey
May 2011
Huawei installed the first colorless and directionless Wavelength Switched Optical Network (WSON)
application in the Istanbul metro network, greatly increasing security. Huawei provides Superonline
with Active Ethernet Access and Gigabit Passive Optical Access Network solutions.
MTC
Lebanon
Building end‐to‐end 3G network for MTC, including the provision of RAN and packet switching; also
providing a range of professional services
March 2011
38
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Vodafone Hutchison Huawei is replacing 5,800 base stations across Eastern Australia for VHA with its SingleRAN and radio
(VHA)
network controllers (RNC). The new network equipment lets VHA deliver 2G, 3G and 4G service from a
single base station at up to 42 Mbps downlink speed. VHA plans to replace an additional 2,200 base
Australia
stations over the next 18 months.
February 2011
Etisalat
United Arab
Emirates
Deploying commercial LTE network across United Arab Emirates for Etisalat.
February 2011
Cell C
South Africa
February 2011
Deployed NGBSS solution for Cell C, letting the operator generate real‐time usage data of its postpaid,
prepaid and hybrid services and provide its subscribers with converged billing.
NII Holdings
Brazil, Mexico
February 2011
Northeast Wireless
Networks
United States
Huawei providing end‐to‐end UMTS network, including RAN, backhaul and core, as well as TIS services
for NII Holdings Push‐to‐Talk service in Brazil and Mexico.
Deploying Huawei’s SingleRAN solutions to bring wireless coverage to rural areas in Maine and
Oregon.
February 2011
2degrees
New Zealand
February 2011
39
Investing NZ $100 million (or U.S. $77 million) over the next two years to build out 2G and 3G network
in New Zealand that is LTE‐ready; Huawei providing all equipment.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Telkom
South Africa
Telkom secured a $127 million seven‐year loan from a syndicate of international banks to build out its
8ta mobile network in South Africa. Huawei is providing most of the network infrastructure.
February 2011
WIND
Canada
January 2011
Public Telecom
(PTC)
Saudi Arabia
Deployed core network from Huawei to bring Wide Band AMR (also known as HD voice) services to its
customers across Canada.
PTC, owner of Bravo, is replacing its legacy billing system with Huawei’s BSS solution to improve
operational infrastructure efficiency.
January 2011
Libya Silphium
Mediterranean
Sea
Huawei Marine constructing and laying 440km submarine cable connecting Libya and Greece on behalf
of the Libyan International Telecom Company (LITC).
January 2011
Vodafone
Ghana
January 2011
TeliaSonera
Norway
January 2011
Kyivstar
Ukraine
Awarded Huawei five‐year managed services contract to assume operations and maintenance of
Vodafone’s mobile, microwave, SDH and fixed switching networking in Ghana.
Using Huawei’s SingleRAN@Broad solution to upgrade and expand operator’s GSM/HSPA+/LTE network
across southern Norway. The solution will make TeliaSonera’s HSPA+ network handle 42 Mbps with the
option of an upgrade to 84 Mbps.
Kyivstar is building out FTTB network across Ukraine using Huawei’s Ethernet switches.
January 2011
40
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
T‐Mobile
Austria
December 2010
Government
Guyana
December 2010
Millicom
International
Cellular (MIC)
Central America
Rolling out LTE network and upgrading T‐Mobile’s GSM network in Austria under a five‐year contract;
T‐Mobile plans to cover one quarter of Austria’s population with LTE by the end of 2013.
Guyana government is paying Huawei $35 million to deploy a wireless network at select hospitals,
police stations, military outposts and other government facilities across the country.
Huawei is deploying international long‐distance (ILD) network covering Guatemala, Honduras and El
Salvador for Millicom.
December 2010
TTST
Trinidad & Tobago
December 2010
Huawei was the exclusive supplier of an end‐to‐end WiMAX network covering the Caribbean islands of
Trinidad & Tobago for TSTT.
China Unicom
China
December 2010
SI Wireless
United States
Guangzhou Unicom, a subsidiary of China Unicom, is using Huawei’s Hybrid MSTP Transport solution to
provide EDGE, HSPA+ and WLAN service during the 2010 Asian Games in Guangzhou.
Building out CDMA EV‐DO network covering 1.2 million POPs in Illinois, Kentucky and Tennessee for SI
Wireless; the network includes 300 cell sites and will be finished by mid‐2012.
November 2010
Bite
Latvia
November 2010
41
Huawei upgraded all of Bite’s base stations to be LTE‐ready as well as deployed 80 additional sites.
Huawei also optimized Bite’s RAN to be 20% to 30% more energy efficient.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
CamGSM
Cambodia
November 2010
China Mobile
China
November 2010
Datame Oy
Finland
November 2010
Aero2
CamGSM is purchasing $500 million worth of network equipment and services from Huawei over five
years. CamGSM obtained financing via the Bank of China.
China Mobile chose Huawei to supply and build out an 80x40G Wavelength Division Multiplexing
national backbone network. Huawei’s 40G OTN solution will upgrade the wavelength capacity of China
Mobile’s network from 10G to 40G.
Huawei is building end‐to‐end WiMAX network for Datame Oy that will cover 70% of Finland’s
population by the end of 2013.
Awarded frame contract to deploy world’s first TD‐LTE network for Aero2 in Poland; Huawei is
providing an end‐to‐end LTE TDD/EPC solution.
Poland
November 2010
Movistar
Peru
November 2010
Grameenphone
Bangladesh
November 2010
MTN
Nigeria
October 2010
42
Movistar is replacing its CDMA equipment with Huawei’s Advanced Telecom Computing Architecture‐
based (ATCA) CDMA mobile softswitch all‐IP solution.
Huawei is supplying and rolling out end‐to‐end SingleRAN network across Bangladesh for
Grameenphone under a three‐year contract. Products supplied include SingleCORE, SingleEPC, ngHLR
and IP Signalling Transfer Point (STP) solutions. The new infrastructure will bulk up capacity of
Grameenphone’s existing network so it can handle an influx of voice and data traffic.
Huawei will deploy a wireless network covering 350 villages across Nigeria for MTN for
$40 million by the end of May 2011. MTN is planning further network expansion in late 2011 to cover
an additional 500 villages, and Huawei stands a good chance of winning that contract should it do a
good job on phase one.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Telekom Brunei
Berhad
Brunei
October 2010
MegaFon
Russia
October 2010
Vodafone
Italy
October 2010
Lattelecom
Latvia
Scope of Deal
Huawei is delivering end‐to‐end FTTH broadband network covering 40,000 subscribers in Brunei with
150 Mbps internet service. The project has been divided into four phases.
Using Huawei NE5000E routers to construct backbone nodes for a 40 GB IP/MPLS network in Moscow
and St. Petersburg; the routers will help MegaFon optimize its existing core network by bulking up
bandwidth.
Paying Huawei €1 billion (or $1.4 billion) to supply and deploy its HSPA+ SingleRAN solution to 12% of
Italy’s population (about 1,800 towns)
Huawei is supplying fiber optic access nodes and devices for end‐users to Lattelecom.
October 2010
du
United Arab
Emirates
September 2010
Bharti Airtel
India
September 2010
MTS
India
September 2010
43
Upgraded du’s HSPA+ 21 Mbps network to DC‐HSPA+ 42 Mbps
Huawei will plan, design, deploy and maintain a 3G HSPA network in three telecom circles in India for
Bharti Airtel. Ericsson and Nokia Siemens won similar contracts, with Ericsson garnering seven circles
and Nokia Siemens landing three circles. Bharti Airtel has 3G licenses for 13 telecom circles across
India.
MTS India outsourced the management of all 22 of its telecom circles in India to Huawei, ZTE and
Ericsson.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Safaricom
Kenya
September 2010
Mobyland
Poland
September 2010
Tata Teleservices
Deployed Convergent Billing Solution (CBS) in Kenya for Safaricom; Huawei’s CBS provides online rating,
real‐time control, and express billing for telecom operators.
Huawei launched an 1800MHz LTE/EPC network using its SingleRAN@Broad solution for Mobyland in
Poland, allowing for peak downlink speeds of 146 Mbps per user. Huawei first used a software upgrade
to make Mobyland’s 2G network support LTE. This is the first commercial LTE/EPC network based on
1800MHz spectrum with 20MHz bandwidth on a single radio unit.
Huawei will provide SingleRAN for 3G network in five of Tata’s nine telecom circles in India. Nokia
Siemens won the remaining four circles.
India
September 2010
Qtel
Qatar
August 2010
BT
United Kingdom
August 2010
Maxis Berhad
Malaysia
August 2010
Vodafone
United Kingdom
August 2010
44
Huawei will roll out FTTH for Qtel in Qatar. Huawei will replace copper connections with high‐speed
fiber, enabling downlink speeds up to 100Mbps. The project will last for three years.
Huawei is providing BT with optical access and transmission products, including Huawei’s SingleFAN
solution, to help with the deployment of BT’s new national fiber network. BT boosted its investment in
broadband by £1 billion ($1.5 billion) to bring faster internet services to two‐thirds of U.K. households
by 2015. Huawei has been an integral supplier of fiber access equipment to BT since the operator’s
broadband deployment began in 2008.
Huawei will build and manage an end‐to‐end turnkey FTTx high‐speed internet network using GPON
technology for Maxis Berhad. The duration of the managed services agreement is three years. Maxis
Berhad plans to cover 12 million customers across Malaysia, particularly targeting enterprise
customers.
Vodafone is offering customers in the United Kingdom a monthly Mi‐Fi package using the Huawei R201
router.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Telefonica
Telefonica has been using Huawei’s service delivery platform (SDP) in its Latin American operations and
now plans to deploy the software globally. The SDP fits Telefonica’s application development strategy by
establishing a foundation for these services to be created.
World
August 2010
Tata Teleservices
India
August 2010
PCCW
Hong Kong
Tata Teleservices installed Huawei’s MSC Pool solution, boosting service and reliability for the operator’s
1.5 million subscribers in the Mumbai metro area.
Huawei deployed its 40G Optical Transport Network solution for PCCW, allowing PCCW customers to
experience higher bandwidth and more flexible service features. Transport capacity increases to 3.2
Terabit and bandwidth per wavelength jumps 400% with the use of technologies like 80‐wavelength
40G, Reconfiguration Optical Add/drop Multiplexer, and optical and electrical cross‐connection.
August 2010
In a separate agreement also announced in August, Huawei deployed its 42Mb/s Dual Carrier HSPA+
solution, doubling the downlink peak data rate of PCCW’s existing HSPA+ network covering Hong Kong.
SingTel
SingTel deployed Huawei’s NE5000E 1+2 router cluster system in its converged IP backbone network.
This router system, the industry’s most energy efficient, achieves 2.56T port capacity and is scalable to
200T.
Singapore
August 2010
China TieTong
China
August 2010
StarHub
Singapore
July 2010
45
Huawei was selected by China TieTong Telecommunications, a subsidiary of China Mobile, to exclusively
provide equipment for the expansion of the operator’s CTTNET nationwide broadband IP network.
Huawei is supplying its Quidway NetEngine5000E core router, which achieve 2.56T port capacity and are
scalable to 200T.
StarHub adopted a smartphone signaling solution from Huawei that enhances network performance by
reducing smartphone signaling traffic. The solution reduces 56% of the redundant signaling loads in
StarHub’s smartphone mobile data service.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Vodafone
Vodafone selected Huawei and Ericsson to upgrade its base stations to LTE and roll out LTE‐compatible
base stations across rural regions of Germany. In all, Vodafone plans to have 1,500 base stations
installed by 2011. Vodafone Germany is embracing wireless broadband as a less expensive alternative
to rolling out fixed line access for internet services.
Germany
July 2010
ONO
Spain
July 2010
Wind
Italy
June 2010
Suddenlink
Communications
United States
ONO selected Huawei to upgrade and run its voice network under a 7‐year renewable contract.
Huawei will deploy softswitches, media gateways and other IMS solutions. Huawei also will provide
managed services for the network, taking on 40 ONO employees to help with activity monitoring,
workflow management and configuration management.
Huawei will deploy HSPA+ and LTE base stations for Italian operator Wind. Wind selected Huawei’s
SingleRAN platform because it can converge GSM, HSPA and LTE RAN onto one platform. The operator
also will purchase core network equipment supporting SDH and VoIP and IMS infrastructure from
Huawei to support its all‐IP strategy.
Deploying Digital Terminal Adapter’s (DTA) from Huawei to offer more Video on Demand, HDTV, and
Docsis 3.0 services. Suddenlink is an MSO with about 1.3 million customers, and the DTA boxes will be
offered to its customers across 20 markets in the southeastern United States.
June 2010
Vodafone
Spain
June 2010
NET
Brazil
May 2010
46
Vodafone Spain is offering femtocells manufactured by Huawei to its Office customers, which include
25,000 companies with over 500,000 lines across Spain. The femtocells enable Vodafone’s customers
to realize better voice and data access.
Huawei will deploy its IPTime broadband metro solution for Brazilian cable and broadband provider
NET. The deployment will enable high‐definition video service for NET subscribers using video packet
retransmission and fast channel change, which are part of Huawei’s SingleMetro and Multiplay
solutions.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
HiBeam Internet &
Voice
United States
Scope of Deal
Huawei supplied radio equipment to HiBeam to support broadband services to subscribers in the
Midwest and Southeast. Speeds can now reach 3 mbps to 6 mbps on average, with bursts up to 10
mbps. The new equipment supports migration to LTE.
May 2010
vividwireless
Australia
May 2010
Saudi Telecom
Company (STC)
Saudi Arabia
April 2010
47
Huawei and vividwireless launched Australia’s first commercial WiMAX network in Perth. The network
delivers wireless access speeds comparable to ADSL2+ connections using Beamforming and 4T4R
technology. The rollout in Perth took six months, and Huawei will build out additional WiMAX
networks for vividwireless in 2H10.
Huawei will deploy a pre‐commercial LTE network for STC covering several cities in Saudi Arabia,
including Riyadh and Dammam. Additionally, STC will use Huawei IP microwave products, specifically
the RTN900 series, in its LTE backhaul.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Facilities Table
TBR
Huawei’s Facilities
Location
Function
Shenzhen, China
Chinese Headquarters, East Pacific Headquarters
Dusseldorf, Germany
European Headquarters, Innovation Center
Darmstadt, Germany
Innovation & Demo Center
Moscow, Russia
CIS Headquarters
Plano, Texas, United States
United States Headquarters
Markham, Ontario, Canada
Canadian Headquarters
Cairo, Egypt
Middle East and North Africa Headquarters
Sao Paulo, Brazil
Latin American Headquarters
Johannesburg, South Africa
South African Headquarters
Kuala Lumpur, Malaysia
Asia Pacific Headquarters
Richardson, Texas, United States
LTE Laboratory
Otemahci, Tokyo, Japan
LTE Laboratory
Beijing, China
R&D Facility, WiMAX Interoperability Testing Laboratory
Shenzhen, China
R&D Facility
Shanghai, China
R&D Facility
Nanjing, China
R&D Facility
48
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Facilities Table
TBR
Huawei’s Facilities (continued)
Location
Function
Hangzhou, China
R&D Facility
Chengdu, China
R&D Facility
Wuhan, China
R&D Facility
Munich, Germany
R&D Facility – All‐IP Network, Core Network, High‐speed Transmission
Paris, France
R&D Facility – Telecom Standard, GSM‐R
Milan, Italy
R&D Facility – Microwave
Stockholm, Sweden
R&D Facility
Bangalore, India
R&D Facility – Software
Dallas, Texas, United States
R&D Facility – ASIC Technologies and Wireless Algorithm
Silicon Valley, California, United States
R&D Facility
Ottawa, Canada
R&D Facility – Wireline, Wireless, Optical, and IP Networking
Moscow, Russia
R&D Facility – Wireless Algorithm, Application and Software
Lagos, Nigeria
R&D Facility
Istanbul, Turkey
R&D Facility
South Africa
R&D Facility
Jakarta, Indonesia
R&D and Training Facility
Madrid, Spain
Network Operations Center
49
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Management Table
TBR
Huawei Key Management
Name
Ren Zhengfei
Position
Chief Executive Officer
Justin Chen
Chief Operating Officer
Matt Bross
Chief Technology Officer
Cathy Meng
Chief Financial Officer
Victor Xu
Chief Strategy and Marketing Officer, Huawei Device
Ken Hu
Executive Vice President
Wan Biao
President of Wireless
You Yiyong
President of Access Network
Christian Chua
President of Transport Network
Kevin Tao
CEO of Huawei Device
Ying Weimin
President of LTE Product Line
Yu Chengdong
President, Huawei Europe
Max Yang
CEO, Huawei India
Charles Ding
President, Huawei North America
Sean Yang
President, Huawei Canada
Charlie Chen
Senior Vice President of Marketing and Product Management, Huawei USA
John Roese
Senior Vice President and General Manager of North America R&D
John Suffolk
Global Cyber Security Officer
50
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
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Huawei
Second Calendar Quarter 2011
Second Fiscal Quarter 2011 Ended June 30, 2011
TBR OUTLOOK ‐ POSITIVE
TBR SCORE (0‐10 SCALE)
4.83
Publish Date: Sept. 8, 2011
Author: Ken Hyers ([email protected]), NMP Senior Analyst
Content Editor: Scott Dennehy, NMP Senior Analyst
TBR
T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
Contents
TBR
Company Analysis
2
3
TBR Position
4
6
8
9
12
16
19
20
21
22
Executive Summary
Strategy Overview
Corporate SWOT Analysis
Scenario Discussion
Financial Model Strategy
Go‐to‐Market & Product Strategies
Alliance & Acquisition Strategies
Geographic Analysis
Resource Management Strategy
Appendix
Huawei 2Q11 | Network Business Quarterly
Company Data Models
22
23
24
25
26
27
28
30
31
32
34
37
48
50
51
Income Statement
Balance Sheet
Revenue Model
Geographic Model
Operating Expense Model
Forecast Model
Financial Graphs
Go‐to‐Market & Resource Graphs
Acquisitions Table
Strategic Alliance and Partnerships Table
Product Announcement Table
Customer Deals Table
Facilities Table
Management Table
About TBR
©2011 Technology Business Research, Inc.
TBR Position
TBR
Revenue growth will slow as Huawei focuses on the enterprise market
through the remainder of 2011
TBR Assessment
Company Strategic Objectives
In Millions USD
Deliver cloud solutions to enterprises and network
Huawei experienced healthy revenue growth in the first
half of 2011, albeit slower than in 2010, which was strong operators
due to international sales. The company reorganized its
Huawei will offer its cloud solutions directly to
business units to focus on opportunities in cloud services
enterprise and network operators, who will then
and infrastructure and a strategy it has informally dubbed
market the cloud solutions to their own customers.
“Cloud‐Pipe‐Devices.” The Cloud‐Pipe‐Devices strategy
Focus on the enterprise sector for new growth
enables Huawei to deliver cloud‐ready equipment,
The enterprise, and particularly SMEs, lie at the
software and services from the cloud to the network and
center of Huawei’s cloud solutions strategy. With
to mobile devices, which it intends to market to network
significant experience providing voice, video and
providers and directly to enterprise customers. TBR
data solutions to fixed and mobile operators,
believes that by pursuing cloud services, Huawei will
Huawei believes it can deliver many of the same
increase higher‐margin services and equipment sales. In
services to enterprise customers, using a cloud
doing so, however, it will be more difficult for the company
platform it dubs Huawei SingleCLOUD. The
to dominate the way it has as equipment supplier.
SingleCLOUD platform is intended to meet SMEs’
HUAWEI PROFITABILITY AND GROWTH
needs for a private cloud solution and to provide a
TBR
$35,000
60%
public cloud solution for network operators.
$30,000
50%
Become a top‐five global handset vendor by 2013
$25,000
40%
Huawei intends to become the fifth‐largest
$20,000
$15,000
handset manufacturer, by units shipped, by 2013.
30%
$10,000
That would place the company behind Nokia,
20%
$5,000
Samsung, LG and RIM but ahead of Apple,
10%
$0
Motorola and Sony Ericsson – a goal TBR believes
2007
2008
2009
2010
2011 Est.
is ambitious but achievable.
Total Revenue
Gross Profit
Operating Profit
Year‐to‐Year Revenue Growth
SOURCE: TBR ESTIMATES AND HUAWEI
3
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Executive Summary
TBR
TBR believes Huawei will exceed its 2011 revenue growth projections as
4G network contracts and an enterprise focus on cloud drive sales
TBR assessment of Huawei’s strategic outlook
Key takeaways
Strategic outlook
Financial: Huawei will beat its revenue growth
projections by at least 50% in 2011.
•
Go to Market: Huawei intends to become a top‐
five leader in Android handsets by 2013, but the
company will face challenges as other vendors
fight to retain share.
Resource: Huawei’s focus on end‐to‐end cloud
solutions for enterprises and telcos is a direct
result of its reorganization in early 2011 and its
new structure of four core businesses: Carrier,
Enterprise, Devices and Other.
TBR
•
HUAWEI FULL YEAR REVENUE AND OPERATING MARGIN
RESULTS AND TBR PROJECTIONS
Operating Margin
18.0%
16.0%
C2010
C2011 Est.
14.0%
C2009
•
C2008
12.0%
10.0%
5.0%
15.0%
25.0%
35.0%
45.0%
Year‐to‐Year Revenue Growth
SOURCE: TBR ESTIMATES AND HUAWEI
4
Huawei 2Q11 | Network Business Quarterly
Huawei expects to grow revenue by 10% in 2011, down from 26% in
2010. The company attributes the decline in growth to the
reorganization of its business and to lower domestic revenue as
China’s operators largely complete their network buildouts. TBR
believes Huawei’s revenue growth guidance is unduly conservative,
and while it will not achieve 2010 levels, it will achieve revenue
growth of at least 15% to 18% in 2011.
Huawei’s mobile device strategy will concentrate on developing
Android smartphones for the mass market. TBR believes Huawei is
well‐positioned to develop mass market smartphones by leveraging
its extensive internal R&D capabilities and outsourcing production to
ODMs, such as Foxconn. Huawei is developing a broader product
portfolio, creating devices for specific market segments including
young fashion‐conscious consumers and professional users. Its
devices, including tablets, for professionals are part of its Cloud‐Pipe‐
Device strategy and will be used by enterprise customers for
delivering productivity apps to mobile workers.
Huawei’s private cloud strategy for SMEs is to deliver distributed IT
through the cloud so that services and functions are no longer
localized and are instead available on a distributed basis to
employees in multiple locations. On the telco side, Huawei sees itself
delivering public cloud solutions for operators that do not have the
resources or experience to deliver cloud solutions themselves. In
developed markets the target telcos will be Tier 2 operators, such as
Leap or MetroPCS in the U.S., while in emerging markets the solution
will be offered to a wider group of operators.
©2011 Technology Business Research, Inc.
Executive Summary
TBR
Huawei’s financial metrics score is no longer inflated by above average
revenue growth, exposing a weak balance sheet
TBR SCORING SUMMARY:
CALENDAR QUARTER RESULTS
TBR
2Q10 3Q10 4Q10 1Q11 2Q11 FINANCIAL METRICS
Fi na ncia l Model Stra tegy:
6.01 5.96 6.00 5.74 5.72 Revenue Growth Yea r‐to‐Yea r
Go‐to‐Ma rket & Servi ces Stra tegi es : 3.68 3.79 3.60 3.38 3.45 Revenue/Empl oyee
Gros s Ma rgi n
Res ource Ma na gement Stra tegy:
5.45 5.79 5.80 5.39 5.31
SG&A a s % of Sa l es
TOTAL AVERAGE TBR SCORE:
5.05 5.18 5.13 4.84 4.83
R&D a s % of Sa l es
Opera ti ng Ma rgi n
Da ys Ca s h Outs ta ndi ng
Huawei has the weakest days sales
Tota l As s et Turns
outstanding metric among its peers due to its Current Ra ti o
liberal credit policies. Huawei routinely
Debt/As s ets
accepts IOUs from customers to boost sales
Return on As s ets
Return on Equi ty
and encourage investment. TBR believes this
practice could weaken Huawei’s balance
sheet if cash‐strapped operators struggle to
pay back outstanding debt.
Key
■ Represents an area where Huawei is currently
challenged versus peers
■ Represents an area where Huawei is outperforming
its peers
■ Represents an area where Huawei is neither
significantly outperforming nor underperforming its
peers
Company
TBR Score
Figure
4.52
13.2%
3.24 $ 248,920
5.31
41.0%
4.99
17.0%
6.89
9.0%
6.83
14.7%
3.86
74.00
6.87
1.23
4.00
1.61
3.24
0.60
8.91
15.8%
10.00
48.2%
5.72
TOTAL AVERAGE TBR SCORE
GO‐TO‐MARKET & SERVICES METRICS
Network/Comm. Equi pment Ma rket Sha re
Mobi l e Phone Ma rket Sha re
Da ys Sa l es Outs ta ndi ng
TBR Score
5.61
3.73
1.00
Company
Figure
14.0%
2.7%
135.63
TOTAL AVERAGE TBR SCORE
Average in
Class
11.6%
10.0%
68.84
Standard
Deviation/2
4.0%
5.8%
16.70
3.45
TOTAL AVERAGE TBR SCORE
RESOURCE MANAGEMENT METRICS
Inventory Turns /Yea r
Fi xed As s et Turns /Yea r
Average in
Standard
Class
Deviation/2
15.3%
4.3%
$ 417,045 $ 95,270
38.8%
7.0%
17.0%
2.8%
13.3%
2.3%
8.1%
3.6%
127.90
47.19
0.95
0.15
1.90
0.29
0.47
0.07
6.4%
2.4%
14.5%
6.5%
TBR Score
4.22
6.40
Company
Figure
7.05
21.00
Average in
Class
8.45
15.73
Standard
Deviation/2
1.80
3.75
5.31
VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK
BUSINESS QUARTERLY VENDOR BENCHMARK
5
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Strategy Overview
TBR
Huawei will have a difficult time penetrating the U.S. telecommunications
market, even with a new strategy to quell security concerns
Function
Key Strategies
TBR Assessment
►
Build on initial success in
North America to become
a key supplier to network
operators.
Overall
Grow business in India by
localizing presence.
►
Employ three‐pronged
security strategy to allay
U.S. concerns.
►
Financial
Grow sales 10% in 2011
by focusing on enterprise
customers.
Invest 10% of revenue in
R&D.
: Huawei has yet to land an equipment contract with a Tier 1
operator in the United States, though the vendor is finding
success among Tier 2 and 3 companies.
; With security clearance in hand, Huawei can realize the full
potential of its extensive resources in India, which include a
skilled local workforce and domestic manufacturing and R&D
assets.
; Huawei’s plan includes establishing a national security
committee headed by Huawei CTO Matt Bross, using third‐
party test labs to check Huawei’s source code and using U.S.
citizens to deliver and install Huawei equipment.
►
; Huawei is focusing on enterprise customers for cloud
services as it attempts to enter new higher‐value market
segments.
►
; TBR expects Huawei will continue to keep its R&D spend
steady at 10% of revenue in 2011. This reflects the need to
maintain heavy investment in new technologies as it
continues to move from a low‐cost to a high‐value business
model.
Key: ; Working: Short‐term impact expected on bottom/top line : Not working: No major impact or differentiation expected
6
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Strategy Overview
TBR
Huawei will focus on developing low‐cost Android smartphones as it
attempts to become a top‐five global handset vendor
Function
Go to
Market
R&D and
Delivery
Key Strategies
Establish leadership
position in 4G (WiMAX
and LTE).
Leverage Android to gain
traction in smartphone
and tablet markets.
TBR Assessment
►
►
Establish R&D centers in
strategic cities to leverage ►
local talent pools.
Invest heavily in India to
capitalize on growth
opportunities as the
country modernizes and
►
expands its mobile
networks.
; Huawei is positioning itself to become a leader in TD‐LTE, the
4G technology of choice for Chinese operators. The vendor
aims to double its commercial LTE contracts from 18 in 2010 to
36 in 2011 and expects LTE‐related revenue to become a
meaningful contributor to overall revenue by 2014.
; Selling low‐cost Android‐powered devices via carriers will help
Huawei quickly gain market share in smartphones and tablets.
The low‐end smartphone space is one where Huawei thrives,
due to the company’s low‐cost operating structure and
resistance to pursuing expensive advertising programs.
; Huawei operates R&D centers near the headquarters of most
of its major customers in markets worldwide, which allows it to
work closely with customers and be more responsive to their
requests and needs.
; Using a localization strategy, Huawei is creating a stronghold in
India while improving its reputation with the Indian
government.
Key: ; Working: Short‐term impact expected on bottom/top line : Not working: No major impact or differentiation expected
7
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Corporate SWOT Analysis
TBR
Huawei will face growing challenges as it focuses on delivering cloud
services to enterprises and service providers
Corporate SWOT Analysis
Strengths
• Leader in 4G technologies by number of contracts
• SingleRAN platform is a key differentiator for
winning contracts in developed regions
• Able to provide vendor‐linked financing through ties
to state‐run banks in China
• Low operating costs support low‐cost pricing
strategy
• Extensive installed base of Tier 2 and 3 telecom
operators in emerging markets
Opportunities
• Develop TD‐LTE technology for the Chinese market
• Use strategic partnerships to build expertise and enter
new markets
• Utilize Service Delivery Platform to establish Web 2.0
leadership
• Establish a foothold in the North American market
• Develop lower‐cost, high‐end smartphones to grow
share in Western markets
Weaknesses
• Increasing size brings a challenge to maintaining
historical efficiency
• Relatively small managed services base
• Ties to Chinese government could limit
international investment opportunities
• Lack of United States presence
Threats
• Nokia Siemens prioritizing market share gains over
profitability puts downward pressure on contract pricing
• The reshuffling of the Chinese telecom industry could
dampen Huawei’s growth prospects in its home market
• A tighter monetary policy by China could limit Huawei’s
domestic growth
• Huawei intends to become a leading cloud supplier but
will face strong competition from other vendors and
telcos
8
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei Symantec virtualization strategy lays the groundwork for building
the converged datacenter network
Scenario Discussion: Virtualization strategy sees joint venture work with key hypervisor vendors
Scenario SWOT Assessment
•
Strength: Huawei Symantec is a hardware‐
focused company and is not tied to a specific
management software vendor.
Weakness: Huawei Symantec’s multivendor
strategy risks alienating its strongest partner,
VMware.
Opportunity: Huawei Symantec is positioning
itself to be a viable player in the emerging
virtualization space.
Threat: Huawei is a new entrant in a space
dominated by Cisco and crowded by other
leading vendors.
•
•
•
•
9
Huawei 2Q11 | Network Business Quarterly
Huawei Symantec, a joint venture between the two companies,
announced at VMworld a comprehensive strategy for optimizing its
datacenter infrastructure for virtualized environments. The move is
part of an overall strategy to combine networking, computing,
storage, and software solutions from various vendors. This is very
similar to the strategy pioneered by Cisco with its Unified Computing
System architecture and mirrored by other best‐of‐breed suppliers
that are following Cisco’s lead.
Huawei Symantec, which makes storage and network security
solutions, announced a new strategy that intends to optimize its
datacenter infrastructure for virtualized environments. Core to the
strategy is working with all key partners in virtualization.
Huawei Symantec as a equipment vendor does not develop its own
management software, instead turning to virtualization management
software partners. While VMware is an important partner, the joint
venture is working with multiple companies that offer hypervisors for
managing datacenters.
To support its virtualization strategy, the company introduced Huawei
Symantec Power Steering for VMware 1.0, which is a suite of plugins
for managing the JV’s storage systems from administrators vCenter
consoles.
Huawei Symantec sees its unique value proposition coming from the
fact that it also offers security solutions, and is able to leverage its
total stack from a security and networking perspective.
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei is moving its smartphone portfolio upmarket to become a leading
Android handset vendor
Scenario Discussion: Huawei introduces higher‐end smartphones as it moves into new markets
Scenario SWOT Assessment
Strength: Huawei already has a strong
presence in many markets as a supplier of
low‐end and operator‐branded devices.
Weakness: Huawei has little experience as a
high‐end device maker, and its brand is not
well known in Western markets
Opportunity: If Huawei can “crack the code”
in developing high‐end but less expensive
smartphones, it will rapidly gain market
share.
Threat: The Android smartphone market is
crowded and it will be difficult for Huawei to
gain share.
•
•
•
•
•
Huawei Vision
Smartphone
10
Huawei 2Q11 | Network Business Quarterly
Huawei is looking to become a high‐end smartphone developer. It hopes
to leverage its expertise as a volume producer of low‐cost mobile devices
to produce highly capable smartphones at a price point that undercuts
those of competing devices from leading OEMs, such as HTC, Motorola
and Samsung.
Huawei already has a number of Android devices on the market, such as
its iDEOS smartphone, but to date these devices have emphasized price
over bleeding‐edge capabilities, have generally lagged competitors in
terms of components and software, and have generally appealed to more
cost‐conscious consumers that are buying their first smartphone.
While Huawei’s goal is to move beyond its status as a fast‐follower,
imitating popular smartphones from competitors, and become a genuine
developer of innovative devices, its latest flagship offerings, such as the
Vision smartphone, continue to follow a path blazed by other
manufacturers in terms of hardware.
The Vision, despite a 1 GHz Snapdragon processor and Android 2.3 OS, is
neither first to market with the Gingerbread OS nor can it match dual‐
processor offerings from leading Android OEMs. Where it differs is in
introducing Huawei’s concept of a cloud‐based phone, in which apps are
hosted in and downloaded from the cloud.
TBR believes Huawei’s efforts to bring more advanced devices to market at
a lower price‐point is a winning strategy as the mass‐market phone‐buying
public in Western markets looks for lower‐cost devices that do not
sacrifice functionality.
©2011 Technology Business Research, Inc.
Scenario Discussion
TBR
Huawei’s goal is to provide all aspects of cloud delivery, from platform
to device to apps
Scenario Discussion: Huawei intends to become a leading cloud‐delivery supplier
Scenario SWOT Assessment
Strength: Huawei is able to offer elements
and equipment for all aspects of cloud
networks.
Weakness: Huawei has a small market
presence in one of the most important
cloud markets: North America.
Opportunity: Huawei can leverage deep
partnerships with IT providers, such as
IBM, to drive its enterprise‐focused
strategy.
Threat: Potential customers will turn to
better known vendors, such as Cisco.
•
•
•
•
•
Huawei believes that over the next decade, IT apps will replace voice
services and web technology will replace public‐switched telephone
networks. Based on a distributed computing architecture, this structure will
result in lower costs and greater competitive advantages for network
providers that embrace cloud delivery. Huawei intends to become a leading
provider of all aspects of cloud delivery, from platforms to apps.
Huawei will take two approaches to delivering cloud solutions, offering
them directly to enterprises as well as to network operators that will then
market the cloud solutions to their own customers.
Huawei’s private cloud strategy for SMEs is to deliver distributed IT through
the cloud so services and functions are no longer localized and are instead
available on a distributed basis to employees in multiple locations.
On the telco side, Huawei sees itself delivering public cloud solutions for
operators that do not have the resources or experience to deliver cloud
solutions themselves. In developed markets the target telcos will be Tier 2
operators, such as Leap or MetroPCS in the U.S., while in emerging markets
the solution will be offered to a wider group of operators.
On the device side, Huawei introduced a handset, its Vision smartphone,
that stores users’ content, including applications, photos, videos, and music,
in the cloud. Customers can store up to 160 GB of content on the cloud and
can access that content as needed. A weakness of this strategy is that it
requires high‐speed/high‐bandwidth 4G networks to support content
downloads, but the Vision handset only supports 3G networks.
Source: Huawei
11
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
TBR believes Huawei will continue to grow revenue due to the appeal of
its low‐cost consumer devices
Revenue Performance and Strategies
$35,000
$31,000
$30,000
In Millions
2011 Est. Revenue: $31 billion
HUAWEI REVENUE AND YEAR‐TO‐YEAR GROWTH
TBR
$27,381
$25,000
60.0%
50.0%
$21,821
•
In 1H11, Huawei reported revenue of CNY 98.3 billion,
or $15.2 billion, amounting to growth of 11% year‐to‐
year.
•
Huawei was able to weather economic turmoil in
developed nations and fears of a double‐dip recession
by expanding its enterprise offerings and increasing
device shipments by over 40%.
40.0%
$18,071
$20,000
30.0%
$12,840
$15,000
20.0%
$10,000
10.0%
$5,000
$‐
0.0%
2007
2008
2009
Revenue
2010
2011 Est.
Year‐to‐year Growth
SOURCE: TBR ESTIMATES AND HUAWEI
2011 Revenue and Growth Outlook
HUAWEI GROSS MARGIN & OPERATING MARGIN
TBR
50%
40%
39.7%
38.2%
41.0%
41.9%
39.6%
•
TBR expects Huawei’s revenue to reach $31 billion for
2011 – an increase of 13.2% year‐to‐year – as growth
will span all geographies and segments, with the
exception of optical.
•
Device sales growth will accelerate in 2H11 as the
distribution of low‐cost Android smartphones and
tablets expands to the mass market in developed
markets.
30%
20%
10%
12.9%
9.7%
14.1%
15.8%
14.7%
0%
2007
2008
Gross Margin
2009
2010
Operating Margin
2011 Est.
SOURCE: TBR ESTIMATES AND HUAWEI
12
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
To maintain momentum in LTE sales, Huawei has launched new microcell
products designed for the North American market
Segment Revenue Performance and Strategies
Huawei has achieved considerable success in
winning 4G contracts but has not won the
most lucrative contracts due to being
essentially shut out of the U.S. Tier 1 market.
• Huawei is betting that its microcell solutions
will prove appealing to 4G operators. Huawei
points out that its small‐cell solutions are
ready for market now, while competitors’
more advanced solutions are still in the
testing phases. TBR believes that while
Huawei does have a time‐to‐market
advantage, the small‐cell market will not see
significant growth until at least late 2012, at
which point solutions from competitors will
be available.
•
HUAWEI REVENUE BY SEGMENT
TBR
$32,000
Revenue in Millions
$6,000
$4,545
$24,000
$16,000
$2,106
$1,965
$1,200
$2,190
$1,400
$3,980
$8,000
$0
$3,600
$4,900
$3,790
$2,792
$1,265
$3,176
$1,446
$3,644
$1,527
$5,193
$1,527
$2,400
$5,602
$6,328
2007
2008
2009
Handset
Service & Software
Data
$5,635
$2,800
$5,286
$5,265
$1,750
$1,800
$8,500
$9,500
2010
Optical
Fixed
Wireless
$9.5 billion
2011 Est.
Wireless
SOURCE: TBR ESTIMATES AND HUAWEI
HUAWEI REVENUE COMPOSITION
TBR
40%
Fixed
$1.8 billion
30%
20%
10%
Huawei has established a narrow lead in terms
of revenue in the broadband CPE market as
the shift to FTTH continues on the basis of
contract sales in China, Latin America and the
Middle East.
0%
2007
2008
2009
2010
2011 Est.
Wireless
Fixed
Optical
Data
Services & Software
Handset
SOURCE: TBR ESTIMATES AND HUAWEI
13
Huawei 2Q11 | Network Business Quarterly
Optical
$5.3 billion
Huawei’s T‐series launched in North America
in 1H11, giving the company a new option as it
seeks to win metro and core optical transport
equipment contracts.
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
Data remains a fast‐growing business for Huawei as the company pushes
deeper into the enterprise IT segment
Segment Revenue Performance and Strategies
Revenue (in $ Millions)
$31,500
Data
$2.8 billion
$1,455
$30,000
$28,500
$1,000
$50
$21
$735
$400
$27,000
$25,500
$31,000
$27,381
$24,000
$22,500
2010 Wireless
Revenue
Fixed
Optical
Data
Huawei continues to launch new products,
such as its AR G3 Access Router, as it focuses
its attention on the enterprise market.
• As part of its expansion into the enterprise IT
space, Huawei is introducing a line of servers,
low‐end switches, security, VoIP and storage
products in 2011. TBR believes the move will
position Huawei to directly compete with
Cisco’s low‐end switching business.
•
HUAWEI 2011 SEGMENT REVENUE GROWTH
TBR
Service & Handset 2011 Est.
Software
Revenue
SOURCE: TBR ESTIMATES AND HUAWEI
TBR
HUAWEI YEAR‐TO‐YEAR SEGMENT REVENUE GROWTH
120%
Service &
Software
$5.6 billion
Huawei continues to see strong growth from
rollout, maintenance, professional and
managed services, but it has yet to win the kind
of mega‐deal won by leaders Ericsson, NSN and
Alcatel‐Lucent.
Handset
$6 billion
While continuing to expand into the low‐end
smartphone market, Huawei is introducing
higher‐quality flagship devices to improve brand
recognition.
100%
80%
60%
40%
20%
0%
‐20%
2007
2008
2009
2010
2011 Est.
Wireless
Fixed
Optical
Data
Services & Software
Handset
SOURCE: TBR ESTIMATES AND HUAWEI
14
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Financial Model Strategy
TBR
Huawei continues to invest in sales staff and TD‐LTE technology ahead of
commercial rollouts in China in 2012
Expense Performance and Strategies
2011 Est. Operating Expenses: $26.4 billion
HUAWEI OPERATING EXPENSES
TBR
$2,790
In $ Millions
$25,000
$2,448
$20,000
$1,953
$1,511
$15,000
$1,284
$10,000
$13,188
$2,350
$5,000
$5,271
$4,583
$3,538
$3,236
$18,290
$15,920
$10,890
$7,937
Cost of Revenue
$18.3 billion
$0
2007
2008
2009
Research & Development
SG&A
TBR believes cost of revenue will grow
14.9% in 2H11, outpacing revenue
growth.
• Gross margin will fall 90 basis points in
2H11 to 41% due to competition from
other low‐cost Android smartphone
vendors and pricing battles with NSN in
the telecom infrastructure space.
•
$30,000
2010
2011 Est.
Cost of Revenue
SOURCE: TBR ESTIMATES AND HUAWEI
SG&A
$5.3 billion
TBR estimates total 2011 SG&A will grow
15% year‐to‐year as Huawei increases
sales headcount and marketing spend to
support its mobile device releases.
• Total 2011 operating margin will be
14.7%, a 110‐basis‐point decrease from
2010. In 1H11, Huawei reported
operating income of CNY 12.4 billion, or
$1.9 billion.
R&D
$2.8 billion
TBR believes Huawei’s 2011 R&D spend
will be 14% higher than 2010 as the
company invests in cloud computing and
continues innovation around TD‐LTE.
•
HUAWEI OPEX AS A PERCENTAGE OF REVENUE
TBR
70%
60%
50%
40%
30%
20%
10%
0%
2007
2008
Cost of Revenue
2009
SG&A
2010
Research & Development
SOURCE: TBR ESTIMATES AND HUAWEI
15
2011 Est.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
With the U.S. 4G market largely closed to Huawei, the company is looking
to China for major contracts
TBR Assessment of Huawei’s Telecom Network Infrastructure Segment
Strategy
•
Huawei 4G sales are bolstering the company’s
position as the second‐largest infrastructure
vendor. While Huawei continues to win contracts
in Europe, North America (the world’s largest
telecom market) remains closed to Huawei due to
concerns within the U.S. government and with
companies that the government does business
with that Huawei software and equipment may
compromise the security of U.S. communications
networks.
•
As a result, Huawei continues to be left out of
Tier 1 operator contracts in the United States,
making it difficult to pass Ericsson as the world’s
leading vendor by revenue. Establishing more
R&D centers, adding employees, and growing
handset share in the U.S. may help ease
regulators’ fears.
•
TBR believes Huawei has placed itself in an
advantageous position for the long term. The
small 2G and 3G deals it is winning from operators
in developing markets will likely lead to upgrades
and expansions in the coming years as consumers
adopt smartphones and increase their data usage.
16
Huawei 2Q11 | Network Business Quarterly
Key Developments
•
Huawei secured 4G buildout contracts with Genius Brand,
M1, and Manitoba NetSet.
o
Huawei is rolling out an LTE network for Genius Brand,
a joint venture between Hutchison and Hong Kong
Telecom. The network will support download speeds
up to 120 Mbps and cover the entire city. Huawei will
deploy 2,000 base stations throughout Hong Kong,
providing customers with faster internet speeds,
access to wireless applications, and the ability to
stream mobile content.
o
In the course of a two‐phased project, Huawei will
build a WiMAX network for Manitoba NetSet,
providing 5,000 households in rural Canada with
broadband internet access. Huawei will prepare the
network for a transition to LTE by deploying its
SingleRAN solution.
o
M1, a mobile broadband and communications
provider, awarded Huawei a five‐year, S$280 million
contract to build Singapore’s first nationwide LTE
network. Huawei’s end‐to‐end LTE solution includes
installation of base stations and Evolved Packet Core
equipment.
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
Huawei’s plans to become a top‐five handset vendor will put it in direct
competition with both traditional OEMs and Chinese rival ZTE
TBR Assessment of Huawei’s Devices Segment
Strategy
•
Huawei remains in the back of the pack in terms of device
revenue but has ambitious plans to continue to introduce new
mass‐market Android devices in both emerging and developed
markets through 2011, which will lead to substantial market
share gains in 2H11.
•
Huawei is working to sell 60 million mobile phones in 2011 –
twice as many as 2010 – of which 20% to 25%, or 12 to 15
million, will be Android smartphones (up from just over
3 million in 2010). If Huawei is successful in shipping this many
smartphones, it will achieve its goal of becoming a top‐five
smartphone vendor.
•
Huawei is targeting the mass‐market late‐adopter segment of
smartphone customers. These are first‐time buyers of
smartphones that are looking for low‐cost entry level
smartphones and that expect to pay no more than $100 to $150
for a new device
•
While leading Android smartphone vendors such as HTC,
Motorola and Samsung are not targeting entry‐level
smartphone buyers, ZTE, which hopes to become the second‐
largest smartphone vendor within the next two years, is on a
direct collision course with Huawei. TBR believes ZTE will be
able to leverage its greater experience in developing low‐cost
handsets to outpace Huawei in overall smartphone sales.
17
Huawei 2Q11 | Network Business Quarterly
Key Developments
•
Huawei introduced the Vision smartphone,
which features a 3D user interface and runs
Android Gingerbread 2.3 OS. The Vision
boasts Bluetooth V2.1 technology, high‐speed
internet, and messaging capabilities. Available
in September, the Vision also includes a 5‐
megapixel camera and 720p video recording.
•
The E392 USB modem is the first device
capable of connecting to FDD and TDD LTE, as
well as GSM and CDMA networks, making it a
truly global device. Most operators are
deploying FDD LTE, due to their possession of
paired spectrum, but China Mobile, the
largest operator in China and an important
Huawei customer, will deploy TDD LTE. The
E392 will be available in 3Q11.
•
The MediaPad is Huawei’s 7‐inch tablet
featuring built‐in Wi‐Fi, GPS, and front‐ and
rear‐facing cameras. The MediaPad offers a
217‐pixels‐per‐inch touch panel, a dual‐core
1.2 GHz Qualcomm processor, and Android
3.2 OS. The slate weighs less than one pound
and is just one‐half‐inch thick.
©2011 Technology Business Research, Inc.
Go‐to‐Market & Product Strategies
TBR
Huawei is attempting to come from behind in the services space while
making a play for the enterprise with cloud and datacenter solutions
TBR Assessment of Huawei’s Services and Software Segments
Services
•
•
18
Huawei opened a new Network Operations Center in
Madrid to support the operation and management of
telecommunications networks, an area in which
Huawei is far behind Ericsson and Nokia Siemens. The
Madrid NOC will service customers in Spain and
Western Europe, as Huawei commits to improving its
share of service contracts and beefs up capabilities to
attract customers. The new NOC will provide network
surveillance, corrective and preventive maintenance,
security management, and IT platform management
for several network technologies, including UMTS,
GSM, and optical.
Software
•
Huawei is working to expand its offerings to
enterprise customers. The company is specifically
pushing its cloud and datacenter solutions, which are
seeing adoption from companies in a range of
verticals, including healthcare and government, due
to Huawei’s price leadership. Additionally, Huawei has
shipped 1,000 Telepresence solutions, including 500
in 1H11, bringing it into competition with Cisco.
•
Huawei launched India’s first commercial mobile
number portability (MNP) solution for IDEA. Huawei’s
MNP solution is based on the signaling transfer point
technology. In the process of implementing the
solution, Huawei migrated 470 sets of equipment
without interruption of services.
Huawei’s underdeveloped service base received a
boost from a GSM provider in its home country. In
May, Huawei secured a contract to provide managed
• Huawei provided China Telecom with an intelligent
services for over half of China Unicom Shanghai’s base
optical distribution network (iODN) solution to China
station sites, covering 11 districts within Shanghai.
Telecom’s fiber‐to‐the‐home deployment. iODN uses
Huawei will be responsible for maintenance of the
eID technology to automate deployment and
GSM network, including preventive, planned, and
management within the optical distribution network.
corrective services. While Huawei is chasing revenue
in overseas markets, the domestic Chinese market still
provides a strong base for service contracts.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Alliance Strategy
TBR
Huawei looks to leverage alliances and partnerships to add to its
capabilities in areas where its expertise is limited
TBR Assessment of Huawei’s Alliance Strategy
Alliance Strategy
• As Huawei has extended its capabilities across a wide
spectrum of the telecom space, from equipment to
software to services, it continues to enter new areas
where its experience and reputation are weak, seeking
partnerships if needed.
• Huawei Symantec is one of the most visible
partnerships, with the joint venture helping the
company become a serious contender in the security,
storage and networking segments in North America. In
July, the joint venture announced a new channel
program, dubbed the Wingman Partner Program, that
provides partners with marketing, sales, and
educational resources to help drive sales and business
development.
• Huawei is looking for alliances in the area of M2M,
where it recently proposed a partnership program for
M2M standards, signed a $1.4 million deal with Telus in
June to establish a research lab at Carleton University in
Canada, and teamed with Deutsche Telekom to develop
M2M solutions and applications in 2010.
19
Huawei 2Q11 | Network Business Quarterly
Key 1H11 Alliances
Nucleus Connect
Nucleus Connect and Huawei will collaboratively
study 10G GPON (Gigabit Passive Optical Network)
technology. The two companies will leverage their
research on Fiber to the Premises network
technology to increase bandwidth and uplink and
downlink speeds within Nucleus Connect’s Next
Generation Passive Optical Network.
Phones 4U
U.K.‐based retailer Phones 4U will sell two of
Huawei’s Android handsets in its retail locations in
4Q11. Phones 4U will carry the Huawei Blaze and
Vision smartphones, which cater to the youth
segment of the market. Both companies will invest in
marketing and launching the devices.
Simms International
Simms International will roll out the Huawei
Enterprise Advantage Partner (HEAP) program, a
strategic endeavor to increase partnerships with
Australian businesses. Through HEAP, Huawei will
attract value‐added resellers, systems integrators,
and technology suppliers to its partner network.
©2011 Technology Business Research, Inc.
Geographic Analysis
TBR
TBR expects strong growth in all of Huawei’s geographic regions,
resulting from its push to ship 60 million mobile phones this year
Geographic Performance and Strategies
HUAWEI REVENUE BY REGION
TBR
$33,000
$750
Revenue in Millions
$438
$408
$22,000
$11,000
$0
$231
$6,040
$146
$4,399
$900
$3,799
$3,595
$1,539
$5,743
$9,693
$11,625
$6,500
$923
$3,843
$1,780
$2,108
$5,887
$6,597
$10,147
$9,583
$9,920
2010
2011 Est.
$4,518
2007
2008
North America
EMEA
2009
CALA
APAC (ex‐China)
China
North America
$750 million
EMEA
$11.6 billion
SOURCE: TBR ESTIMATES AND HUAWEI
150%
APAC
(ex‐China)
100%
$6.6 billion
TBR
HUAWEI YEAR‐TO‐YEAR REVENUE GROWTH BY REGION
Government intervention continues to keep
Huawei from securing Tier 1 contracts in the U.S.,
but with device launches and network buildout
deals from Canadian operators, TBR believes
Huawei will grow North American revenue 71.2% in
2011.
Huawei now places its brand on handsets in
Europe, after previously making only carrier‐
branded devices. The company is having success
with low‐cost Android smartphones in Europe and
mass‐market feature phones in MEA.
Huawei’s feature phones are strong sellers in India
and other emerging Asian markets. The company is
taking significant market share from Nokia, the
longtime regional leader. The MediaPad tablet, at a
lower price than competitors, is poised to become
a hit in this market.
50%
0%
China
‐50%
2007
China
2008
APAC (ex‐China)
2009
CALA
2010
2011 Est.
EMEA
North America
SOURCE: TBR ESTIMATES AND HUAWEI
$9.9 billion
CALA
$2.1 billion
20
Huawei 2Q11 | Network Business Quarterly
Growth in China will turn positive in 2011,
rebounding from a weak 2010 that saw the 3G
investment cycle end. Looking toward 2012,
Huawei has positioned itself to be a major player in
the 4G LTE investment cycle.
TBR believes CALA revenue will increase 18.4% in
2011, as Huawei expands its mobile device
offerings to include more smartphones.
©2011 Technology Business Research, Inc.
Resource Management Strategy
TBR
Huawei focused on expanding operations in the West, appointing new
executives and opening several facilities
HUAWEI HEADCOUNT BY REGION
TBR
120,000
1,500
100,000
1,000
7,300
4,200
9,000
80,000
1,200
18,500
9,800
4,500
8,000
11,500
23,000
60,000
66,002
68,000
2008
2009
59,000
40,000
North America
EMEA
CALA
2010
APAC (ex‐China)
China
SOURCE: TBR ESTIMATES AND HUAWEI
HUAWEI ANNUAL REVENUE PER EMPLOYEE
TBR
Revenue In Thousands
$300
$230
$250
$200
$249
$258
$207
$159
$150
$100
$50
$‐
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
21
Huawei 2Q11 | Network Business Quarterly
2011 Est.
Personnel Changes
• TBR estimates Huawei had 120,000 employees worldwide
as of June, an increase of 10,000 from the end of 2010.
• In May, Huawei hired former Samsung and Nokia mobile
device executive Mark Mitchinson to head its U.K. mobile
device marketing and sales operations. Mitchinson will be
responsible for expanding sales in the U.K. and Ireland.
• John Suffolk was named global cybersecurity officer,
effective Oct. 1. Suffolk was previously the CIO of the U.K.
government. He will report to Huawei’s CEO and oversee
the company’s expansion deeper into the consumer and
enterprise security markets.
Investments/R&D Focus
• Huawei opened an R&D center in Silicon Valley that will
focus on next‐generation communications solutions.
Huawei’s seven R&D facilities and eleven branch offices in
the United States employ 1,100 people.
• Despite Huawei being forced to divest 3Leaf, the company
remains open to smaller U.S. acquisitions. Huawei opened
communications with the U.S. government and encouraged
an investigation into its operations, though the
government has not yet taken the offer.
• Huawei opened a Network Operations Center in Madrid to
provide managed and professional services to Spain and
Western Europe.
©2011 Technology Business Research, Inc.
Appendix – Income Statement
TBR
HUAWEI TECHNOLOGIES CORPORATION
Consolidated Income Statement
(i n $ Thous a nds )
TBR
CALENDAR YEAR
FISCAL YEAR
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Revenue
Cost of Sales
Gross Profit
$ 8,503,897
5,424,011
3,079,886
$ 12,840,113
7,936,732
4,903,381
$ 18,070,917
10,890,002
7,180,916
$ 21,820,963
13,188,406
8,632,557
$ 27,381,153
15,920,093
11,461,060
$ 31,000,000
18,290,000
12,710,000
R&D
SG&A
Total Operating Expenses
Other Operating Income/Loss
Operating Income
850,390
1,502,472
2,352,862
106,029
620,995
1,284,011
2,349,741
3,577,867
77,655
1,247,859
1,510,853
3,235,871
4,746,724
96,692
2,337,499
1,952,862
3,538,135
5,490,997
59,728
3,081,833
2,448,062
4,583,241
7,031,303
101,584
4,328,173
2,790,000
5,270,727
8,060,727
100,000
4,549,273
Net financing costs
Share of losses of associates
Income before income taxes
Income taxes expense
Minority Interest
Net Income
38,918
15,025
567,052
54,664
200
$ 512,188
198,881
7,273
1,041,705
84,807
‐
$ 956,898
955,810
27,853
1,353,836
221,238
(1,010)
$ 1,133,608
(183,721)
23,862
3,241,692
566,535
3,074
$ 2,672,083
271,038
1,331
4,055,804
542,962
444
$ 3,512,399
275,000
15,069
4,259,204
553,697
‐
$ 3,705,508
PERCENTAGE OF REVENUE
Revenue
Cost of Revenues
Gross Profit
R&D
SG&A
Operating Income
Net Income
100.0%
63.8%
36.2%
10.0%
17.7%
7.3%
6.0%
100.0%
61.8%
38.2%
10.0%
18.3%
9.7%
7.5%
100.0%
60.3%
39.7%
8.4%
17.9%
12.9%
6.3%
100.0%
60.4%
39.6%
8.9%
16.2%
14.1%
12.2%
100.0%
58.1%
41.9%
8.9%
16.7%
15.8%
12.8%
100.0%
59.0%
41.0%
9.0%
17.0%
14.7%
12.0%
42.2%
52.4%
27.2%
44.6%
48.2%
‐27.0%
‐24.8%
51.0%
46.3%
59.2%
51.0%
56.4%
100.9%
86.8%
40.7%
37.2%
46.4%
17.7%
37.7%
87.3%
18.5%
19.0%
19.4%
18.5%
27.4%
7.8%
30.0%
132.4%
24.2%
19.5%
31.4%
24.1%
28.2%
39.0%
30.1%
13.2%
14.9%
10.9%
14.0%
15.0%
5.1%
5.5%
YEAR‐TO‐YEAR CHANGE
Revenue
Cost of Revenues
Gross Profit
R&D
SG&A
Operating Income
Net Income
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei reports annual results only
22
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Balance Sheet
TBR
HUAWEI NETWORKS
Consolidated Balance Sheet
(i n $ Thous a nds )
CALENDAR YEAR
FISCAL YEAR
ASSETS
Cash and cash equivalents
Trade and other receivables
Investments
Inventories
Total Current Assets
Plant and Equipment, Net
Intangible Assets
Other Assets
Total Assets
TBR
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
$ 1,056,042
3,650,086
64
1,420,455
6,126,647
939,784
10,937
418,815
$ 7,496,183
$ 1,892,266
5,488,077
‐
2,267,276
9,647,619
931,721
15,038
502,556
$ 11,096,934
$ 3,033,106
7,627,720
‐
3,325,636
13,986,463
1,051,348
18,328
2,007,880
$ 17,064,019
$ 4,279,315
9,263,944
1,045,967
3,652,028
18,241,253
1,217,538
80,954
904,260
$ 20,444,005
$ 5,628,059
10,174,481
1,231,720
4,076,062
21,110,322
1,378,551
95,669
1,198,303
$ 23,782,845
$ 332,883
163,312
4,183,046
80,122
4,759,363
39,790
25,894
4,825,047
4,286
2,666,850
$ 7,496,183
$ 158,628
94,513
6,029,505
151,201
6,433,847
215,280
336,417
6,985,544
127,539
3,983,851
$ 11,096,934
$ 1,873,665
195,549
8,735,208
183,860
10,988,281
148,069
522,427
11,658,777
4,762
5,400,479
$ 17,064,019
$ 1,154,589
541,063
10,249,305
172,010
12,116,967
1,242,863
743,083
14,102,913
9,223
6,331,869
$ 20,444,005
$ 397,019
618,670
11,881,146
230,079
13,126,913
1,324,136
1,162,075
15,613,125
4,288
8,165,432
$ 23,782,845
LIABILITIES AND EQUITY
Interest‐bearing loans and borrowings
Income tax payable
Trade and other payables
Provision for warranties
Total Current Liabilities
Interest‐bearing loans and borrowings
Other payables
Total Liabilities
Minority Interest in Subsidiary Companies
Total Capital and Reserves
Total Liabilities and Equity
FINANCIAL RATIOS
Days Sales Outstanding
Turns on Inventory
Days Inventory Outstanding
Fixed Asset Turnover
Days Cash Outstanding
Total Asset Turnover
Debt/Asset Ratio
Current Ratio
Return on Assets
Return on Equity
Average Annual Revenue per Employee
Employee Count
CNY/USD Exchange Rate
SOURCE: TBR AND HUAWEI
NOTE: Huawei only reports Balance Sheet annually
23
Huawei 2Q11 | Network Business Quarterly
156.67
156.01
154.07
154.96
135.63
4.12
6.96
6.46
6.25
7.09
88.67
52.41
56.48
58.36
51.51
9.27
13.72
18.23
19.23
21.09
44.71
53.05
60.42
70.60
74.00
1.28
1.38
1.28
1.16
1.24
0.64
0.63
0.68
0.69
0.66
1.29
1.50
1.27
1.51
1.61
7.7%
10.3%
8.1%
14.2%
15.9%
20.2%
28.8%
24.2%
45.6%
48.5%
$ 139,408 $ 158,520 $ 206,520 $ 229,694 $ 248,920
61,000 81,000 87,502 95,000 110,000
6.9292
6.831
6.763
©2011 Technology Business Research, Inc.
Appendix – Revenue Model
TBR
HUAWEI REVENUE MODEL
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Reported Revenue
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Wireless
$ 2,636,208
$ 3,980,435
$ 5,601,984
$ 6,328,079
$ 8,500,000
$ 9,500,000
Fixed
$ 1,165,034
$ 1,399,572
$ 1,445,673
$ 1,527,467
$ 1,750,000
$ 1,800,000
Optical
$ 1,360,624
$ 2,189,790
$ 3,175,937
$ 5,193,389
$ 5,285,882
$ 5,265,000
Data
$ 807,870
$ 1,200,000
$ 1,264,964
$ 1,527,467
$ 2,400,000
$ 2,800,000
Service & Software
$ 901,413
$ 1,964,537
$ 2,791,957
$ 3,644,101
$ 4,900,000
$ 5,635,000
Handset
$ 1,003,460
$ 2,105,779
$ 3,790,401
$ 3,600,459
$ 4,545,271
$ 6,000,000
Reported Revenue
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Wireless
31.0%
31.0%
31.0%
29.0%
31.0%
30.6%
Fixed
13.7%
10.9%
8.0%
7.0%
6.4%
5.8%
Optical
16.0%
17.1%
17.6%
23.8%
19.3%
17.0%
PERCENTAGE OF REVENUE
Data
9.5%
9.3%
7.0%
7.0%
8.8%
9.0%
Service & Software
10.6%
15.3%
15.5%
16.7%
17.9%
18.2%
Handset
11.8%
16.4%
21.0%
16.5%
16.6%
19.4%
YEAR‐TO‐YEAR CHANGE
24
Reported Revenue
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
Wireless
29.5%
51.0%
40.7%
13.0%
34.3%
11.8%
Fixed
6.6%
20.1%
3.3%
5.7%
14.6%
2.9%
Optical
38.2%
60.9%
45.0%
63.5%
1.8%
‐0.4%
Data
33.5%
48.5%
5.4%
20.8%
57.1%
16.7%
Service & Software
31.1%
117.9%
42.1%
30.5%
34.5%
15.0%
Handset
96.6%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei reports annual results only
109.9%
80.0%
‐5.0%
26.2%
32.0%
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Geographic Model
TBR
HUAWEI REVENUE BY GEOGRAPHIC REGION
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Sales
$ 2,950,852
$ 3,595,232
$ 4,517,729
$ 10,146,748
$ 9,583,404
$ 9,920,000
Orders
$ 3,850,000
$ 4,853,563
$ 6,356,168
$ 10,042,746
$ 10,544,883
$ 10,000,000
Sales
$ 5,553,045
$ 9,244,881
$ 13,553,188
$ 11,674,215
$ 17,797,749
$ 21,080,000
Asia Pacific (excl. China)
$ 2,740,511
$ 3,799,383
$ 5,743,188
$ 3,842,815
$ 5,886,948
$ 6,597,000
$ 186,000
$ 600,000
$ 1,300,000
$ 1,560,000
$ 1,670,250
$ 3,100,000
CALA
$ 450,000
$ 900,000
$ 1,539,000
$ 923,400
$ 1,779,775
$ 2,108,000
EMEA
$ 2,270,000
$ 4,399,296
$ 6,040,000
$ 6,500,000
$ 9,692,928
$ 11,625,000
Europe
$ 770,000
$ 2,099,296
$ 2,981,000
$ 3,000,000
$ 4,791,702
$ 6,510,000
MEA
$ 1,500,000
$ 2,300,000
$ 3,059,000
$ 3,500,000
$ 4,901,226
$ 5,115,000
North America
$ 92,533
$ 146,203
$ 231,000
$ 408,000
$ 438,098
$ 750,000
International Orders
$ 7,150,000
$ 11,146,437
$ 16,943,832
$ 20,115,650
$ 25,455,117
$ 30,000,000
Asia Pacific (excl. China)
$ 2,000,000
$ 2,500,000
$ 4,650,000
$ 6,649,500
$ 6,981,975
$ 7,500,000
$ 350,000
$ 700,000
$ 2,000,000
$ 2,400,000
$ 3,360,000
$ 4,200,000
$ 2,200,000
China
International
India
India
CALA
$ 566,500
$ 750,000
$ 1,250,000
$ 1,562,500
$ 1,796,875
EMEA
$ 4,479,000
$ 7,354,316
$ 10,064,091
$ 10,404,646
$ 10,676,267
$ 17,800,000
North America
$ 104,500
$ 542,121
$ 979,741
$ 1,499,004
$ 2,000,000
$ 2,500,000
Total Revenue
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Total Orders
$ 11,000,000
$ 16,000,000
$ 23,300,000
$ 30,158,396
$ 36,000,000
$ 40,000,000
PERCENTAGE OF REVENUE
China
34.7%
28.0%
25.0%
46.5%
35.0%
32.0%
International
65.3%
72.0%
75.0%
53.5%
65.0%
68.0%
Asia Pacific (excl. China)
32.2%
29.6%
31.8%
17.6%
21.5%
21.3%
2.2%
4.7%
7.2%
7.1%
6.1%
10.0%
CALA
5.3%
7.0%
8.5%
4.2%
6.5%
6.8%
EMEA
26.7%
34.3%
33.4%
29.8%
35.4%
37.5%
Europe
9.1%
16.3%
16.5%
13.7%
17.5%
21.0%
MEA
17.6%
17.9%
16.9%
16.0%
17.9%
16.5%
North America
1.1%
1.1%
1.3%
1.9%
1.6%
2.4%
India
YEAR‐TO‐YEAR GROWTH (REVENUE)
China
‐17.8%
21.8%
25.7%
124.6%
‐5.6%
3.5%
International
132.1%
66.5%
46.6%
‐13.9%
52.5%
18.4%
Asia Pacific (excl. China)
N/A
38.6%
51.2%
‐33.1%
53.2%
12.1%
86.0%
222.6%
116.7%
20.0%
7.1%
85.6%
CALA
N/A
100.0%
71.0%
‐40.0%
92.7%
18.4%
EMEA
N/A
93.8%
37.3%
7.6%
49.1%
19.9%
N/A
172.6%
42.0%
0.6%
59.7%
35.9%
MEA
N/A
53.3%
33.0%
14.4%
40.0%
4.4%
North America
2993.7%
58.0%
58.0%
76.6%
7.4%
71.2%
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
India
Europe
Total Revenue
PERCENTAGE OF ORDERS
China
35.0%
30.3%
27.3%
33.3%
29.3%
25.0%
International
65.0%
69.7%
72.7%
66.7%
70.7%
75.0%
YEAR‐TO‐YEAR GROWTH (ORDERS)
China
10.3%
26.1%
31.0%
58.0%
5.0%
‐5.2%
International
51.7%
55.9%
52.0%
18.7%
26.5%
17.9%
Total Orders
34.1%
45.5%
45.6%
29.4%
19.4%
11.1%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
25
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – OPEX Model
TBR
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
TBR
HUAWEI OPERATING EXPENSE MODEL
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
Total Revenue
$ 8,503,897
$ 12,560,356
$ 18,328,956
$ 21,500,000
$ 27,381,153
$ 31,000,000
SG&A Expense
$ 1,502,472
$ 2,349,741
$ 3,235,871
$ 3,538,135
$ 4,583,241
$ 5,270,727
Sales & Marketing Expense
$ 901,483
$ 1,409,844
$ 1,941,523
$ 2,122,881
$ 2,749,945
$ 3,162,436
General and Administrative Expense
$ 600,989
$ 939,896
$ 1,294,349
$ 1,415,254
$ 1,833,296
$ 2,108,291
R&D Expense
$ 850,390
$ 1,284,011
$ 1,510,853
$ 1,952,862
$ 2,448,062
$ 2,790,000
SALES AND MARKETING EXPENSE BREAKOUT
Sales Expense
$ 540,890
$ 845,907
$ 1,164,914
$ 1,273,729
$ 1,649,967
$ 1,897,462
Partner and Channel Spending
$ 135,223
$ 211,477
$ 291,228
$ 318,432
$ 412,492
$ 474,365
Marketing Spending
Advertising
Total Sales and Marketing Expense
$ 225,371
$ 352,461
$ 485,381
$ 530,720
$ 687,486
$ 790,609
$ 135,223
$ 211,477
$ 291,228
$ 318,432
$ 412,492
$ 474,365
$ 901,483
$ 1,409,844
$ 1,941,523
$ 2,122,881
$ 2,749,945
$ 3,162,436
Total SG&A Expense
17.7%
18.7%
17.7%
16.5%
16.7%
17.0%
Sales and Marketing Expense
10.6%
11.2%
10.6%
9.9%
10.0%
10.2%
Sales Expense
6.4%
6.7%
6.4%
5.9%
6.0%
6.1%
Partner and Channel Spending
1.6%
1.7%
1.6%
1.5%
1.5%
1.5%
Marketing Spending
2.7%
2.8%
2.6%
2.5%
2.5%
2.6%
1.6%
1.7%
1.6%
1.5%
1.5%
1.5%
7.1%
7.5%
7.1%
6.6%
6.7%
6.8%
R&D
29,280
34,830
37,626
40,850
47,300
51,600
Marketing, Sales and Customer Service
23,180
32,400
35,001
38,000
44,000
48,000
Supply Chain
4,880
Admin.
3,660
Total Employees
61,000
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
8,100
5,670
81,000
8,750
6,125
87,502
9,500
6,650
95,000
11,000
7,700
110,000
12,000
8,400
120,000
Advertising
General and Administrative
CORPORATEWIDE HEADCOUNT
26
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Forecast Model
TBR
TBR
HUAWEI FINANCIALS AND TBR QUARTERLY PROJECTION
CALENDAR YEAR
FISCAL YEAR
IN $ THOUSANDS
Net Sales
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 Est.
2011 Est.
$ 8,503,897
$ 12,840,113
$ 18,070,917
$ 21,820,963
$ 27,381,153
$ 31,000,000
Gross Profit
$ 3,079,886
$ 4,903,381
$ 7,180,916
$ 8,632,557
$ 11,461,060
$ 12,710,000
SG&A
$ 1,502,472
$ 2,349,741
$ 3,235,871
$ 3,538,135
$ 4,583,241
$ 5,270,727
R&D
$ 850,390
$ 1,284,011
$ 1,510,853
$ 1,952,862
$ 2,448,062
$ 2,790,000
Operating Income
$ 620,995
$ 1,247,859
$ 2,337,499
$ 3,081,833
$ 4,328,173
$ 4,549,273
Net Income
$ 512,188
$ 956,898
$ 1,133,608
$ 2,672,083
$ 3,512,399
$ 3,705,508
38.2%
39.7%
39.6%
41.9%
41.0%
PERCENTAGE OF REVENUE
Gross Margin
36.2%
SG&A
17.7%
18.3%
17.9%
16.2%
16.7%
17.0%
R&D
10.0%
10.0%
8.4%
8.9%
8.9%
9.0%
Operating Margin
7.3%
9.7%
12.9%
14.1%
15.8%
14.7%
Net Margin
6.0%
7.5%
6.3%
12.2%
12.8%
12.0%
Net Sales
42.2%
51.0%
40.7%
20.8%
25.5%
13.2%
Gross Profit
27.2%
59.2%
46.4%
20.2%
32.8%
10.9%
YEAR‐TO‐YEAR GROWTH
SG&A
48.2%
56.4%
37.7%
9.3%
29.5%
15.0%
R&D
44.6%
51.0%
17.7%
29.3%
25.4%
14.0%
Operating Income
‐27.0%
100.9%
87.3%
31.8%
40.4%
5.1%
Net Income
‐24.8%
86.8%
18.5%
135.7%
31.4%
5.5%
SOURCE: TBR ESTIMATES AND HUAWEI
NOTE: Huawei only reports annual financial results
27
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Financial Graphs
TBR
Financial Graphs
HUAWEI SELLING, GENERAL, & ADMINISTRATIVE
EXPENSE
$6,400
In Millions
$3,200
20.0%
$5,271
$4,583
$3,236
$4,800
17.0%
$2,350
16.0%
$1,600
$2,790
19.0%
18.0%
$3,538
$3,200
HUAWEI RESEARCH & DEVELOPMENT EXPENSE
TBR
$2,448
In Millions
TBR
$2,400
10.0%
$1,953
$1,511
$1,600
10.5%
9.5%
$1,284
9.0%
15.0%
$800
8.5%
14.0%
$0
2007
2008
SG&A
2009
2010
2011 Est.
$0
8.0%
2007
SG&A as % of Total Revenue
2008
R&D
SOURCE: TBR AND HUAWEI
2009
2010
2011 Est.
R&D as % of Total Revenue
SOURCE: TBR AND HUAWEI
HUAWEI RETURN ON ASSETS
TBR
HUAWEI RETURN ON EQUITY
TBR
20%
60%
15.9%
16%
12%
8%
50%
14.2%
28.8%
30%
8.1%
20%
4%
24.2%
20.2%
10%
0%
0%
2006
2007
2008
2009
SOURCE: TBR AND HUAWEI
28
48.5%
40%
10.3%
7.7%
45.6%
Huawei 2Q11 | Network Business Quarterly
2010
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
©2011 Technology Business Research, Inc.
Appendix – Financial Graphs
TBR
Financial Graphs
HUAWEI DAYS CASH OUTSTANDING
TBR
90.00
Number of Days
60.42
60.00
45.00
74.00
70.60
75.00
53.05
44.71
30.00
15.00
0.00
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
HUAWEI DEBT/ASSET RATIO
TBR
HUAWEI CURRENT RATIO
TBR
2.00
0.80
0.64
0.68
0.69
0.63
0.66
1.50
0.60
1.50
0.40
1.00
0.20
0.50
0.00
2006
2007
2008
2009
2010
1.29
1.51
1.61
1.27
0.00
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
SOURCE: TBR AND HUAWEI
29
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Go‐to‐Market and Resource Management Graphs
TBR
Go‐to‐Market and Resource Management Graphs
HUAWEI INVENTORY TURNS
TBR
1.75
8.00
6.96
6.46
7.09
1.50
6.25
6.00
Number of Turns
Number of Turns
HUAWEI TOTAL ASSET TURNOVER
TBR
4.12
4.00
1.38
1.28
1.28
1.16
1.25
1.24
1.00
0.75
0.50
2.00
0.25
0.00
2006
2007
2008
2009
2010
0.00
2006
FIXED ASSET TURNS
TBR
180.00
Number of Turns
19.23
9.27
2010
0.00
Huawei 2Q11 | Network Business Quarterly
2010
135.63
60.00
0.00
2009
154.96
90.00
30.00
2008
154.07
120.00
5.00
2007
156.01
150.00
13.72
SOURCE: TBR AND HUAWEI
30
156.67
21.09
Number of Days
18.23
20.00
2006
2009
HUAWEI DAYS SALES OUTSTANDING
TBR
25.00
15.00
2008
SOURCE: TBR AND HUAWEI
SOURCE: TBR AND HUAWEI
10.00
2007
2006
2007
2008
2009
2010
SOURCE: TBR AND HUAWEI
©2011 Technology Business Research, Inc.
Appendix – Acquisitions
TBR
Huawei Acquisitions
Company
M4S
October 2010
31
Description
Huawei purchased Option’s RF (radio frequency) semiconductor unit M4S for €8 million (or
$11 million). Both companies had been working together to develop mobile broadband
solutions, such as USB modems, embedded modules, chipsets, software and services, for
the European market, and Huawei’s decision to make the purchase highlights its aspirations
to become an integral supplier to developed markets. Huawei and Option may establish an
R&D center in Belgium.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Alliances
TBR
Huawei Alliances
Company
Scope of Partnership
Beetel Teletech
Huawei was a partner in the development of Beetel Teletech’s 7‐inch, Android‐powered Beetel
Magiq tablet computer. The tablet supports 3G and Wi‐Fi connections. Beetel is a fixed‐line
telephone maker in India.
United Kingdom‐based telecom company Phones 4U will sell two of Huawei’s Android handsets in
its retail locations in 4Q11. Phones 4U will carry the Huawei Blaze and Vision. Both companies will
invest in the marketing and launch plan for the two devices.
Huawei and Simms International formed the Huawei Enterprise Advantage Partner (HEAP)
program, a strategic move to increase partnerships with Australian businesses. Through HEAP,
Huawei will attract VAR’s, systems integrators, and technology suppliers.
Huawei is integrating Finisar Australia’s Wavelength Selective Switches with its next‐generation
fiber broadband network systems. Huawei also will trial Finisar’s Flexgrid technology.
August 2011
Phones 4U
August 2011
Simms International
August 2011
Finisar Australia
July 2011
TELUS
Carleton University
June 2011
Nucleus Connect
June 2011
Intertrust
Technologies
March 2011
Force10 Networks
February 2011
SPIRIT DSP
February 2011
32
Huawei, TELUS, and Carleton University partnered to build an enterprise cloud services research
lab within Carleton University’s engineering lab. The Huawei‐TELUS Innovation Center will address
cloud computing security and performance themes.
Nucleus Connect and Huawei will collaboratively study 10G GPON (Gigabit Passive Optical
Network) technology. The two companies will leverage their research on the Fiber to the Premises
network technology to increase bandwidth and uplink and downlink speeds within Nucleus
Connect’s Next Generation Passive Optical Network.
Huawei entered into a licensing agreement to use Intertrust’s Sushi Marlin Client SDK and
Bluewhale Marlin Broadband Server. Both companies also will explore business opportunities
globally.
Huawei‐Symantec and Force10 Networks in long‐term partnership to combine security, storage and
networking expertise to better address vertical markets in North America, particularly healthcare,
finance and telecom.
Huawei extended licensing agreement to use SPIRIT’s voice and video engines in its IMS, UC and
fixed mobile convergence platforms.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Alliances
TBR
Huawei Alliances (continued)
Company
Scope of Partnership
Carrier IQ
Companies entered into global software licensing agreement with Huawei, integrating Carrier
IQ’s solutions into its mobile broadband data terminals.
Companies are working together to develop next‐generation optical transport and access
solutions to build “smart cities.” Huawei will provide an end‐to‐end optical transport solution,
and Smartworld will deploy and manage the solution for Dubai World Central (DWC) and Al‐
Maktoum International Airport, both in the United Arab Emirates.
February 2011
Smartworld
January 2011
Qatar Telecom
January 2011
TeleCommunication
Systems (TCS)
January 2011
Sequans
Communications
Jointly develop telecom solutions for key industries in Qatar and other Middle Eastern countries
Entered Master Purchase Agreement to give Huawei access to TCS’ location‐based services (LBS)
technology; TCS will let Huawei use its end‐to‐end Xypoint LBS solutions in its own products and
services. Both companies will provide operators with professional and managed services for
their LBS solutions.
Accelerating development and commercialization of TD‐LTE technology for global market.
October 2010
Amerilink Telecom
August 2010
IPWireless
July 2010
PerSay
April 2010
33
Huawei partnered with Amerilink Telecom, a startup run by former Sprint employees, to help
the vendor penetrate the North American market. Amerilink has become a key U.S. distributor
of Huawei equipment. Huawei hopes its partnership will better position the firm to win deals
with Tier 1 operators, particularly Sprint.
Huawei and IPWireless will jointly conduct interoperability testing and service provider trials for
each company’s Integrated Mobile Broadcast (IMB) technology. IMB technology offloads data
traffic from 3G networks, allowing live video streaming and broadcasting and storage of content
on mobile devices. Huawei and IPWireless are conducting these tests to ensure mobile devices
are compatible with IMB networks.
Huawei and PerSay, a biometric speaker verification product supplier, have entered a
partnership that will see PerSay’s VocalPassword and FreeSpeech voice biometrics offerings
integrated with Huawei’s IP contact center product suite.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements
Product Series
Configuration
Vision
The Huawei Vision smartphone features a 3D user interface and runs Android Gingerbread 2.3 OS.
The Vision boasts Bluetooth V2.1 technology, high‐speed internet, and messaging capabilities.
Available in September, the Vision also includes a 5‐megapixel camera and 720p video recording.
August 2011
HiLink E353
August 2011
E392
August 2011
E586 MiFi
August 2011
Series S Switches
July 2011
iManager U2100
June 2011
MediaPad
June 2011
xDSL Cards
May 2011
34
The HiLink E353 data card allows users to connect to the internet within 15 seconds after it is
plugged into a USB port. This is the first Huawei HiLink product to support HSPA+.
Huawei introduced the E392 USB modem, the first device capable of connecting to FDD and TDD
LTE, along with GSM and CDMA networks, making it a truly global device. The E392 will be available
in 3Q11.
The E586 MiFi is a mobile Wi‐Fi hotspot offering secure internet access. It has a 4.5‐hour battery life
and comes with a charging base, along with a micro SD card slot for internal memory storage.
Designed for enterprise users, Series S Switches feature increased scalability, improved security,
faster processing capabilities, and Huawei’s network operating system with its versatile routing
platform
The iManager U2100 is Huawei’s new unified network management system for large‐scale bearer
networks. It can be used with Huawei’s U2000 to create an operation and management solution for
large‐scale all‐IP networks.
Huawei’s MediaPad is a 7‐inch tablet featuring built‐in Wi‐Fi, GPS, and front‐ and rear‐facing
cameras. The MediaPad offers a 217‐pixels‐per‐inch touch panel, a dual‐core 1.2 GHz Qualcomm
processor, and Android 3.2 OS. The tablet weighs less than one pound and is only one‐half‐inch
thick.
Huawei’s new xDSL copper access cards, the 48‐port COMBO Card and the 64‐port VDSL2 Card, help
simplify public switched telephone network migration for operators. The COMBO Card combines
ADSL2+, voice, and splitter functions to efficiently use space in telecommunications rooms. The
VDSL2 Card provides 50M of bandwidth. Both cards feature MELT line testing to identify line faults.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements (continued)
Product Series
Configuration
200G Line Card
The 200G high‐speed line card for high‐end routers allows operators to increase bandwidth and
run more efficient networks. Decreased power consumption enabled by Huawei’s 200G line card
reduces operating costs for the network provider.
April 2011
AR G3 Enterprise
Access Router
March 2011
OptiX RTN 980
February 2011
“Any Connection”
Mobile Broadband
Backhaul (MBB)
Configured with third‐generation router architecture to support mobile and fixed WAN access as
well as multiservice processing; uses multicore CPUs and non‐blocking switching architecture; has
3M PPS processing performance and 80 Gbps switching capacity. The AR G3 supports
CDMA2000/WCDMA/TD‐SCDMA wireless standards as well as fixed standards including ETH, e!,
XDSL, XPON (scalable to 10G PON).
Integrates hybrid and pure‐packet microwave transmissions; upgraded version (OptiX 900)
provides throughput of 1 Gbps per frequency carrier, while basic versions range from 400 Mbps to
1 Gbps; supports aggregation of microwave transmissions in 14 RF directions and is upgradable to
28 RF directions; also supports TDM and packet cross‐connections.
Seamlessly evolves from UMTS and HSPA to LTE; features on‐demand routing modes between
dynamic and static with 300‐mm‐depth edge routers installed in outdoor cabinets.
February 2011
iCare
February 2011
E398
December 2010
WiMAX – TD‐LTE
SingleRAN
November 2010
35
Professional service solution that is applicable to IP, optical transmission, microwave and FTTx
networks; iCare provides network planning, network evaluation and optimization for live networks
as well as aids in service migration and network evolution.
World’s first triple‐mode modem; supports 2G (GSM), 3G (UMTS) and LTE; the modem is initially
available in select European markets.
Contains dual‐mode remote radio unit (RRU) and dual‐mode base band unit (BBU) to support both
WiMAX and TD‐LTE in the 2.3GHz, 2.5GHz and 3.5GHz frequency bands; also supports MIMO and
Beamforming technologies.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Recent Product Announcements
TBR
Huawei Recent Product Announcements (continued)
Product Series
Configuration
Intelligent Optical
Distribution Network
(iODN)
Lets operators locate and operate optical fibers in an FTTH environment; supplements Huawei’s
portfolio of FTTH solutions ranging from equipment to delivery and services
October 2010
Digital Shopping Mall
(DSM)
October 2010
Oceanspace S2600
Oceanspace N8300
Secospace USG2000
BSR/HSR
Provides operators with a unified service platform that aggregates internet applications and delivers
cloud‐based services to end‐users; platform supports all major smartphone operating systems,
including Android, RIM and Symbian. At launch, the Mall featured 80,000 apps ranging from music
to e‐books to video. The store can be accessed via nearly any internet‐enabled electronic device
including tablets and televisions. App revenue is split 70:30, with 70% going to developers and 30%
to telecom operators.
Storage solution tailored to SMB; offers unified storage platform and multiservice gateway for
security and routing
October 2010
Easy ODN
Uses four twisted frequency pairs to achieve downstream speeds of 700 Mbps at a distance of 400
meters; addresses crosstalk between multiple twisted pairs and increases DSL bandwidth by 75%
from an average of 100 Mbps per twisted pair to 175 Mbps; deployable to FTTB/FTTC access and
private line applications, including base station access
• End‐to‐end solution that includes optical distribution frames, fiber distribution terminals, fiber
access terminals, optical filters, optical splitters, closures and access terminal boxes
June 2010
•
SuperMIMO
September 2010
•
OSN8800 T16
June 2010
36
•
Solution lets operators deploy optical distribution networks with easy operation, maintenance and
administration
Metropolitan OTN system accommodates data, video and storage while reducing operator costs
through energy efficiency, low maintenance and space‐saving features
Achieves 40G/100G transport and offers full‐service cross‐connection capabilities that support
ODUk wavelength and packet‐cross connections
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals
Company
Scope of Deal
Genius Brand
Huawei will roll out an LTE network for Genius Brand with download speeds up to 120 Mbps. Huawei
will deploy 2,000 base stations throughout Hong Kong, providing customers with faster internet
speeds, access to wireless applications, and the ability to stream mobile content.
Hong Kong
August 2011
China Telecom
China
August 2011
Etisalat Nigeria
Nigeria
August 2011
Manitoba NetSet
Canada
July 2011
IDEA
India
June 2011
KPN
Netherlands
June 2011
TDC
Denmark
June 2011
37
Huawei provided its intelligent storm solutions for China Telecom’s CDMA network at the Shenzhen
Summer Universiade event. Huawei’s CDMA solutions enable the network to manage up to 10 times
more traffic to cope with peak traffic times. Huawei also provided its Qchat push‐to‐talk service during
the event.
Through a $118 million contract, Huawei will expand Etisalat Nigeria’s 2G network and build out a 3G
network to improve coverage and data services. Huawei also will provide a complete array of
professional services.
In the course of a two‐phased project, Huawei will build a WiMAX network for Manitoba NetSet,
providing 5,000 households in rural Canada with broadband internet access. The network will be
prepared for a LTE upgrade using Huawei’s SingleRAN solution.
Huawei launched the first commercial mobile number portability (MNP) solution in India for IDEA.
Huawei’s MNP solution is based on the signaling transfer point technology. In the process of
implementing the solution, Huawei migrated 470 sets of equipment without interruption of services.
Huawei deployed coherent 100G services on KPN’s International WDM network. Huawei’s 100G
solution supports G.652 and G.655 fibers and can transmit service over a distance of
613 kilometers with needing regeneration at an electrical site.
Huawei will build a national and pan‐European Optical Transportation Network for TDC, enabling the
operator to provide customers with high bandwidth services, such as HD TV, video conferencing, and
gaming. In the six‐year contract, Huawei will deliver its industry‐leading Dense Wavelength Division
Multiplexing (DWDM) solutions.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
China Unicom
Huawei will provide managed services for over half of China Unicom Shanghai’s base station sites to
improve network reliability. Huawei will be responsible for network maintenance, including
preventative, planned, and corrective services.
China
May 2011
M1
Singapore
May 2011
China Telecom
China
May 2011
Everything
Everywhere
United Kingdom
M1, a leading mobile broadband and communications provider, awarded Huawei a five‐year, S$280
million contract to build Singapore’s first LTE network. Huawei’s end‐to‐end LTE solution includes
installation of base stations and the Evolved Packet Core equipment.
Huawei provided China Telecom with its intelligent optical distribution network (iODN) solution to
improve operations and efficiency of China Telecom’s fiber‐to‐the‐home deployment. iODN uses eID
technology to automate deployment and management within the optical distribution network.
In a four‐year contract, Huawei will provide Everything Everywhere, a U.K. operator, with increased
network capacity and coverage through a 2G GSM network upgrade. Huawei will upgrade all of
Everything Everywhere’s radio base stations and prepare for a transition to LTE.
May 2011
Superonline
Turkey
May 2011
Huawei installed the first colorless and directionless Wavelength Switched Optical Network (WSON)
application in the Istanbul metro network, greatly increasing security. Huawei provides Superonline
with Active Ethernet Access and Gigabit Passive Optical Access Network solutions.
MTC
Lebanon
Building end‐to‐end 3G network for MTC, including the provision of RAN and packet switching; also
providing a range of professional services
March 2011
38
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Vodafone Hutchison Huawei is replacing 5,800 base stations across Eastern Australia for VHA with its SingleRAN and radio
(VHA)
network controllers (RNC). The new network equipment lets VHA deliver 2G, 3G and 4G service from a
single base station at up to 42 Mbps downlink speed. VHA plans to replace an additional 2,200 base
Australia
stations over the next 18 months.
February 2011
Etisalat
United Arab
Emirates
Deploying commercial LTE network across United Arab Emirates for Etisalat.
February 2011
Cell C
South Africa
February 2011
Deployed NGBSS solution for Cell C, letting the operator generate real‐time usage data of its postpaid,
prepaid and hybrid services and provide its subscribers with converged billing.
NII Holdings
Brazil, Mexico
February 2011
Northeast Wireless
Networks
United States
Huawei providing end‐to‐end UMTS network, including RAN, backhaul and core, as well as TIS services
for NII Holdings Push‐to‐Talk service in Brazil and Mexico.
Deploying Huawei’s SingleRAN solutions to bring wireless coverage to rural areas in Maine and
Oregon.
February 2011
2degrees
New Zealand
February 2011
39
Investing NZ $100 million (or U.S. $77 million) over the next two years to build out 2G and 3G network
in New Zealand that is LTE‐ready; Huawei providing all equipment.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Telkom
South Africa
Telkom secured a $127 million seven‐year loan from a syndicate of international banks to build out its
8ta mobile network in South Africa. Huawei is providing most of the network infrastructure.
February 2011
WIND
Canada
January 2011
Public Telecom
(PTC)
Saudi Arabia
Deployed core network from Huawei to bring Wide Band AMR (also known as HD voice) services to its
customers across Canada.
PTC, owner of Bravo, is replacing its legacy billing system with Huawei’s BSS solution to improve
operational infrastructure efficiency.
January 2011
Libya Silphium
Mediterranean
Sea
Huawei Marine constructing and laying 440km submarine cable connecting Libya and Greece on behalf
of the Libyan International Telecom Company (LITC).
January 2011
Vodafone
Ghana
January 2011
TeliaSonera
Norway
January 2011
Kyivstar
Ukraine
Awarded Huawei five‐year managed services contract to assume operations and maintenance of
Vodafone’s mobile, microwave, SDH and fixed switching networking in Ghana.
Using Huawei’s SingleRAN@Broad solution to upgrade and expand operator’s GSM/HSPA+/LTE network
across southern Norway. The solution will make TeliaSonera’s HSPA+ network handle 42 Mbps with the
option of an upgrade to 84 Mbps.
Kyivstar is building out FTTB network across Ukraine using Huawei’s Ethernet switches.
January 2011
40
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
T‐Mobile
Austria
December 2010
Government
Guyana
December 2010
Millicom
International
Cellular (MIC)
Central America
Rolling out LTE network and upgrading T‐Mobile’s GSM network in Austria under a five‐year contract;
T‐Mobile plans to cover one quarter of Austria’s population with LTE by the end of 2013.
Guyana government is paying Huawei $35 million to deploy a wireless network at select hospitals,
police stations, military outposts and other government facilities across the country.
Huawei is deploying international long‐distance (ILD) network covering Guatemala, Honduras and El
Salvador for Millicom.
December 2010
TTST
Trinidad & Tobago
December 2010
Huawei was the exclusive supplier of an end‐to‐end WiMAX network covering the Caribbean islands of
Trinidad & Tobago for TSTT.
China Unicom
China
December 2010
SI Wireless
United States
Guangzhou Unicom, a subsidiary of China Unicom, is using Huawei’s Hybrid MSTP Transport solution to
provide EDGE, HSPA+ and WLAN service during the 2010 Asian Games in Guangzhou.
Building out CDMA EV‐DO network covering 1.2 million POPs in Illinois, Kentucky and Tennessee for SI
Wireless; the network includes 300 cell sites and will be finished by mid‐2012.
November 2010
Bite
Latvia
November 2010
41
Huawei upgraded all of Bite’s base stations to be LTE‐ready as well as deployed 80 additional sites.
Huawei also optimized Bite’s RAN to be 20% to 30% more energy efficient.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
CamGSM
Cambodia
November 2010
China Mobile
China
November 2010
Datame Oy
Finland
November 2010
Aero2
CamGSM is purchasing $500 million worth of network equipment and services from Huawei over five
years. CamGSM obtained financing via the Bank of China.
China Mobile chose Huawei to supply and build out an 80x40G Wavelength Division Multiplexing
national backbone network. Huawei’s 40G OTN solution will upgrade the wavelength capacity of China
Mobile’s network from 10G to 40G.
Huawei is building end‐to‐end WiMAX network for Datame Oy that will cover 70% of Finland’s
population by the end of 2013.
Awarded frame contract to deploy world’s first TD‐LTE network for Aero2 in Poland; Huawei is
providing an end‐to‐end LTE TDD/EPC solution.
Poland
November 2010
Movistar
Peru
November 2010
Grameenphone
Bangladesh
November 2010
MTN
Nigeria
October 2010
42
Movistar is replacing its CDMA equipment with Huawei’s Advanced Telecom Computing Architecture‐
based (ATCA) CDMA mobile softswitch all‐IP solution.
Huawei is supplying and rolling out end‐to‐end SingleRAN network across Bangladesh for
Grameenphone under a three‐year contract. Products supplied include SingleCORE, SingleEPC, ngHLR
and IP Signalling Transfer Point (STP) solutions. The new infrastructure will bulk up capacity of
Grameenphone’s existing network so it can handle an influx of voice and data traffic.
Huawei will deploy a wireless network covering 350 villages across Nigeria for MTN for
$40 million by the end of May 2011. MTN is planning further network expansion in late 2011 to cover
an additional 500 villages, and Huawei stands a good chance of winning that contract should it do a
good job on phase one.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Telekom Brunei
Berhad
Brunei
October 2010
MegaFon
Russia
October 2010
Vodafone
Italy
October 2010
Lattelecom
Latvia
Scope of Deal
Huawei is delivering end‐to‐end FTTH broadband network covering 40,000 subscribers in Brunei with
150 Mbps internet service. The project has been divided into four phases.
Using Huawei NE5000E routers to construct backbone nodes for a 40 GB IP/MPLS network in Moscow
and St. Petersburg; the routers will help MegaFon optimize its existing core network by bulking up
bandwidth.
Paying Huawei €1 billion (or $1.4 billion) to supply and deploy its HSPA+ SingleRAN solution to 12% of
Italy’s population (about 1,800 towns)
Huawei is supplying fiber optic access nodes and devices for end‐users to Lattelecom.
October 2010
du
United Arab
Emirates
September 2010
Bharti Airtel
India
September 2010
MTS
India
September 2010
43
Upgraded du’s HSPA+ 21 Mbps network to DC‐HSPA+ 42 Mbps
Huawei will plan, design, deploy and maintain a 3G HSPA network in three telecom circles in India for
Bharti Airtel. Ericsson and Nokia Siemens won similar contracts, with Ericsson garnering seven circles
and Nokia Siemens landing three circles. Bharti Airtel has 3G licenses for 13 telecom circles across
India.
MTS India outsourced the management of all 22 of its telecom circles in India to Huawei, ZTE and
Ericsson.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Safaricom
Kenya
September 2010
Mobyland
Poland
September 2010
Tata Teleservices
Deployed Convergent Billing Solution (CBS) in Kenya for Safaricom; Huawei’s CBS provides online rating,
real‐time control, and express billing for telecom operators.
Huawei launched an 1800MHz LTE/EPC network using its SingleRAN@Broad solution for Mobyland in
Poland, allowing for peak downlink speeds of 146 Mbps per user. Huawei first used a software upgrade
to make Mobyland’s 2G network support LTE. This is the first commercial LTE/EPC network based on
1800MHz spectrum with 20MHz bandwidth on a single radio unit.
Huawei will provide SingleRAN for 3G network in five of Tata’s nine telecom circles in India. Nokia
Siemens won the remaining four circles.
India
September 2010
Qtel
Qatar
August 2010
BT
United Kingdom
August 2010
Maxis Berhad
Malaysia
August 2010
Vodafone
United Kingdom
August 2010
44
Huawei will roll out FTTH for Qtel in Qatar. Huawei will replace copper connections with high‐speed
fiber, enabling downlink speeds up to 100Mbps. The project will last for three years.
Huawei is providing BT with optical access and transmission products, including Huawei’s SingleFAN
solution, to help with the deployment of BT’s new national fiber network. BT boosted its investment in
broadband by £1 billion ($1.5 billion) to bring faster internet services to two‐thirds of U.K. households
by 2015. Huawei has been an integral supplier of fiber access equipment to BT since the operator’s
broadband deployment began in 2008.
Huawei will build and manage an end‐to‐end turnkey FTTx high‐speed internet network using GPON
technology for Maxis Berhad. The duration of the managed services agreement is three years. Maxis
Berhad plans to cover 12 million customers across Malaysia, particularly targeting enterprise
customers.
Vodafone is offering customers in the United Kingdom a monthly Mi‐Fi package using the Huawei R201
router.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Telefonica
Telefonica has been using Huawei’s service delivery platform (SDP) in its Latin American operations and
now plans to deploy the software globally. The SDP fits Telefonica’s application development strategy by
establishing a foundation for these services to be created.
World
August 2010
Tata Teleservices
India
August 2010
PCCW
Hong Kong
Tata Teleservices installed Huawei’s MSC Pool solution, boosting service and reliability for the operator’s
1.5 million subscribers in the Mumbai metro area.
Huawei deployed its 40G Optical Transport Network solution for PCCW, allowing PCCW customers to
experience higher bandwidth and more flexible service features. Transport capacity increases to 3.2
Terabit and bandwidth per wavelength jumps 400% with the use of technologies like 80‐wavelength
40G, Reconfiguration Optical Add/drop Multiplexer, and optical and electrical cross‐connection.
August 2010
In a separate agreement also announced in August, Huawei deployed its 42Mb/s Dual Carrier HSPA+
solution, doubling the downlink peak data rate of PCCW’s existing HSPA+ network covering Hong Kong.
SingTel
SingTel deployed Huawei’s NE5000E 1+2 router cluster system in its converged IP backbone network.
This router system, the industry’s most energy efficient, achieves 2.56T port capacity and is scalable to
200T.
Singapore
August 2010
China TieTong
China
August 2010
StarHub
Singapore
July 2010
45
Huawei was selected by China TieTong Telecommunications, a subsidiary of China Mobile, to exclusively
provide equipment for the expansion of the operator’s CTTNET nationwide broadband IP network.
Huawei is supplying its Quidway NetEngine5000E core router, which achieve 2.56T port capacity and are
scalable to 200T.
StarHub adopted a smartphone signaling solution from Huawei that enhances network performance by
reducing smartphone signaling traffic. The solution reduces 56% of the redundant signaling loads in
StarHub’s smartphone mobile data service.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
Scope of Deal
Vodafone
Vodafone selected Huawei and Ericsson to upgrade its base stations to LTE and roll out LTE‐compatible
base stations across rural regions of Germany. In all, Vodafone plans to have 1,500 base stations
installed by 2011. Vodafone Germany is embracing wireless broadband as a less expensive alternative
to rolling out fixed line access for internet services.
Germany
July 2010
ONO
Spain
July 2010
Wind
Italy
June 2010
Suddenlink
Communications
United States
ONO selected Huawei to upgrade and run its voice network under a 7‐year renewable contract.
Huawei will deploy softswitches, media gateways and other IMS solutions. Huawei also will provide
managed services for the network, taking on 40 ONO employees to help with activity monitoring,
workflow management and configuration management.
Huawei will deploy HSPA+ and LTE base stations for Italian operator Wind. Wind selected Huawei’s
SingleRAN platform because it can converge GSM, HSPA and LTE RAN onto one platform. The operator
also will purchase core network equipment supporting SDH and VoIP and IMS infrastructure from
Huawei to support its all‐IP strategy.
Deploying Digital Terminal Adapter’s (DTA) from Huawei to offer more Video on Demand, HDTV, and
Docsis 3.0 services. Suddenlink is an MSO with about 1.3 million customers, and the DTA boxes will be
offered to its customers across 20 markets in the southeastern United States.
June 2010
Vodafone
Spain
June 2010
NET
Brazil
May 2010
46
Vodafone Spain is offering femtocells manufactured by Huawei to its Office customers, which include
25,000 companies with over 500,000 lines across Spain. The femtocells enable Vodafone’s customers
to realize better voice and data access.
Huawei will deploy its IPTime broadband metro solution for Brazilian cable and broadband provider
NET. The deployment will enable high‐definition video service for NET subscribers using video packet
retransmission and fast channel change, which are part of Huawei’s SingleMetro and Multiplay
solutions.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Customer Deals
TBR
Huawei Recent Customer Deals (continued)
Company
HiBeam Internet &
Voice
United States
Scope of Deal
Huawei supplied radio equipment to HiBeam to support broadband services to subscribers in the
Midwest and Southeast. Speeds can now reach 3 mbps to 6 mbps on average, with bursts up to 10
mbps. The new equipment supports migration to LTE.
May 2010
vividwireless
Australia
May 2010
Saudi Telecom
Company (STC)
Saudi Arabia
April 2010
47
Huawei and vividwireless launched Australia’s first commercial WiMAX network in Perth. The network
delivers wireless access speeds comparable to ADSL2+ connections using Beamforming and 4T4R
technology. The rollout in Perth took six months, and Huawei will build out additional WiMAX
networks for vividwireless in 2H10.
Huawei will deploy a pre‐commercial LTE network for STC covering several cities in Saudi Arabia,
including Riyadh and Dammam. Additionally, STC will use Huawei IP microwave products, specifically
the RTN900 series, in its LTE backhaul.
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Facilities Table
TBR
Huawei’s Facilities
Location
Function
Shenzhen, China
Chinese Headquarters, East Pacific Headquarters
Dusseldorf, Germany
European Headquarters, Innovation Center
Darmstadt, Germany
Innovation & Demo Center
Moscow, Russia
CIS Headquarters
Plano, Texas, United States
United States Headquarters
Markham, Ontario, Canada
Canadian Headquarters
Cairo, Egypt
Middle East and North Africa Headquarters
Sao Paulo, Brazil
Latin American Headquarters
Johannesburg, South Africa
South African Headquarters
Kuala Lumpur, Malaysia
Asia Pacific Headquarters
Richardson, Texas, United States
LTE Laboratory
Otemahci, Tokyo, Japan
LTE Laboratory
Beijing, China
R&D Facility, WiMAX Interoperability Testing Laboratory
Shenzhen, China
R&D Facility
Shanghai, China
R&D Facility
Nanjing, China
R&D Facility
48
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Facilities Table
TBR
Huawei’s Facilities (continued)
Location
Function
Hangzhou, China
R&D Facility
Chengdu, China
R&D Facility
Wuhan, China
R&D Facility
Munich, Germany
R&D Facility – All‐IP Network, Core Network, High‐speed Transmission
Paris, France
R&D Facility – Telecom Standard, GSM‐R
Milan, Italy
R&D Facility – Microwave
Stockholm, Sweden
R&D Facility
Bangalore, India
R&D Facility – Software
Dallas, Texas, United States
R&D Facility – ASIC Technologies and Wireless Algorithm
Silicon Valley, California, United States
R&D Facility
Ottawa, Canada
R&D Facility – Wireline, Wireless, Optical, and IP Networking
Moscow, Russia
R&D Facility – Wireless Algorithm, Application and Software
Lagos, Nigeria
R&D Facility
Istanbul, Turkey
R&D Facility
South Africa
R&D Facility
Jakarta, Indonesia
R&D and Training Facility
Madrid, Spain
Network Operations Center
49
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
Appendix – Management Table
TBR
Huawei Key Management
Name
Ren Zhengfei
Position
Chief Executive Officer
Justin Chen
Chief Operating Officer
Matt Bross
Chief Technology Officer
Cathy Meng
Chief Financial Officer
Victor Xu
Chief Strategy and Marketing Officer, Huawei Device
Ken Hu
Executive Vice President
Wan Biao
President of Wireless
You Yiyong
President of Access Network
Christian Chua
President of Transport Network
Kevin Tao
CEO of Huawei Device
Ying Weimin
President of LTE Product Line
Yu Chengdong
President, Huawei Europe
Max Yang
CEO, Huawei India
Charles Ding
President, Huawei North America
Sean Yang
President, Huawei Canada
Charlie Chen
Senior Vice President of Marketing and Product Management, Huawei USA
John Roese
Senior Vice President and General Manager of North America R&D
John Suffolk
Global Cyber Security Officer
50
Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
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