A Guide To Investment In China

— Huawei Technologies
June 2005




Table of Contents
1 General Company Information 2 Corporate Structure 2.1 Organizational Structure 2.2 Financial Structure 2.3 Major Partnerships, JVs & Alliances 3 Market Analysis 3.1 Major Products 3.2 Target Market and Consumers 3.2.1 Major Competitors Domestic Competitors International Competitors 3.2.2 Sales and Market Share Internaltional Sales by Region Internaltional Sales by Product China Market Share by Product 4 Human Resource and R&D 4.1 Human Resource 4.2 R&D 5 Executive Summary

A Guide To Investment In China

List of Figures
Figure 2-1: Huawei Organizational Chart Figure 2-2: Huawei Sales & Marketing Department Organizational Chart Figure 2-3: Huawei’s Global Sales Regions Figure 2-4: Huawei Alliances Figure 3-1: Huawei Technologies Product Lines Figure 3-2: Chinese Equipment Vendors’ Global Revenues, 2004 (USD M)



2003 . 2003 .COMPANY PROFILE Figure 3-3: International Equipment Vendors’ Global Revenues. 2003 .1H 2005 Figure 3-13: Huawei China GSM Equipment Market Share and Revenue. 1H 2005 (%) Figure 3-6: Huawei International Sales by Region.1H 2005 Figure 3-9: Huawei China Transmission Market Share and Revenue. 2003 1H 2005 Figure 4-1: Huawei Employees.cn A Guide To Investment In China . 2003 . 2004 (USD B) Figure 3-4: Huawei Sales Contracts. 2004 (%) Figure 3-8: Huawei China Access Market Share and Revenue. 2003 .1H 2005 Figure 3-12: Huawei China Data Communications Market Share and Revenue.marketavenue. 1999-2008 (USD B) Figure 3-5: Huawei’s Domestic Sales by Product.1H 2005 Figure 3-11: Huawei China DSLAM Market Share and Revenue. 2001-2008 (USD M) Figure 4-3: Huawei R&D Investment by Product Line. 2004 (%) Figure 3-7: Huawei International Sales by Product. 2004 (%) 2 www.1H 2005 Figure 3-10: Huawei China Switching Market Share and Revenue. 1996-2005 Figure 4-2: Huawei R&D Investment.

Huawei’s Product Solutions Department is in charge of manufacturing. and data communications.1 Organizational Structure  The president of Huawei Technologies is Huawei’s founder Ren Zhengfei. General Company Information A Guide To Investment In China  Huawei Technologies is a provider of customized network solutions for telecom carriers around the world. Bantian. England. and Moscow Huawei Headquarters Huawei Technologies Co. Shanghai. www. R&D.cn 3 . Nanjing. optical networks. Together with Huawei’s chairwoman Sun Yafang. Egypt.. Kuala Lumpur. and technical support and maintenance. Ltd. Brazil. Australia – 55 separate country offices – Eight main R&D Centers: Shenzhen. Corporate Structure 2. switching. Dallas. Texas. Johannesburg. Malaysia. Beijing. Bangalore. they have complete decisionmaking powers of Huawei. Russia. London. next generation networks (NGN). DSL. Longgang District Shenzhen 518129 People’s Republic of China Tel: +86-755-28780808 Corporate website: www. – Global Headquarters: Shenzhen. and Sydney. Stockholm.huawei. Cairo. South Africa.com 2. China – Regional Headquarters: Brasilia. Plano. Moscow. Huawei is China’s largest telecom vendor and one of China’s single largest employers. Huawei specializes in communications equipments such as 3G.marketavenue.COMPANY PROFILE 1.

Figure 2-2: Huawei Sales & Services Department Organizational Chart Marketing Management Committee Domestic Market Market Cadre Department Engineering Department Market Research Department Overseas Market Product Support Channel Management Client Group Management Provincial Offices Marketing Coordination Regional Ofiices Product Support Marketing Mobile Communications Optical Transport Access Networks Switching Products Telecom Product Agents Enterprise Networks China Telecom China Unicom China Netcom China Mobile China Telecom China Unicom China Netcom China Mobile Huawei’s Global Offices  Huawei’s global market is divided into eight different zones that report directly to the Marketing Management Committee: 4 www. China Netcom. The majority of sales are conducted directly through the Sales & Services Department and the Marketing Department is therefore small in size and in importance. Human Resources Adminstration & Operations Marketing Dept. Sales support staff. Most of the sales are done on the provincial level by provincial offices and sales teams.cn A Guide To Investment In China . and China Unicom). China Telecom. however.COMPANY PROFILE Figure 2-1: Huawei Organizational Chart Ren Zhengfei President Sun Yafang Chairwoman Finance Dept.marketavenue. are organized by product type.500 employees throughout China. Staff is divided according to major clients (China Mobile. Product Solutions Sales & Services  Huawei’s Sales and Services Department employs around 7.

and two departments in charge of client relations and business development. however the ownership www. Egypt) – Commonwealth of Independent States (Headquartered in Moscow.2 Financial Structure  Huawei is very secretive about its financials and most information is kept hidden from the public eye. headquartered in Plano. Texas) – Asia Pacific (Headquartered in Kuala Lumpur. South Africa) – Middle East and North Africa (Headquartered in Cairo. Macao.cn 5 . England) – Southern Africa (Headquartered in Johannesburg.COMPANY PROFILE Figure 2-3: Huawei’s Global Sales Regions A Guide To Investment In China – China (Headquartered in Shenzhen) – Latin America (Headquartered in Brasilia. Hong Kong. presidents and Ren Zhengfei. and Korea)  A Huawei vice president heads each of Huawei’s eight regional headquarters. Japan. Russia and includes the Central Asian Republics) – East Pacific (Headquartered in Sydney. Taiwan. Huawei’s stocks are unlisted and are owned by both Huawei employees. 2. Malaysia) – Europe (Headquartered in London. Brazil) – North America (Futurewei subsidiary. The regional offices are organized by different product lines and have a technical support department. Australia and includes Australia.marketavenue.

JVs. MarketAvenue believes that TD Tech will play a key role in the TD-SCDMA market. TD Tech announced that its TD-SCDMA system would be commercially ready by the third quarter of 2005. TD Tech  TD Tech was set up in February 2004 in Beijing. The 3Com-Huawei joint venture earned revenues of USD 216 million in 2004. Other Alliances Figure 2-4: Huawei Alliances Partner COSMOBIC Technology Infineon Function 3G Handset Development together with NEC and Panasonic Developing WCDMA handset platforms 6 www.COMPANY PROFILE breakdown is unclear and remains unknown to the public. Huawei owns 51% of the joint venture’s shares and 3Com the remaining 49%. As of July 2005. This joint venture operates in China and Japan under a united brand.  Although the future of TD-SCDMA is somewhat unclear. This joint venture enjoys Huawei’s strength in data communication products and 3Com’s Japanese market resources and know-how. as a joint venture between Huawei (49%) and Siemens (51%).5 million. but had a net deficit of USD 14. 3Com-Huawei  3Com and Huawei set up a joint venture in Hangzhou in November 2003. and Alliances 1. With the combination of high quality R&D backed by Huawei and resources from Siemens. while 3Com and Huawei are branded separately in the rest of the world. and can buy additional stock shares every year.cn A Guide To Investment In China . 2. 3. These shares must be sold back to Huawei upon retirement or when leaving the company and cannot be sold to outsiders.3 Major Partnerships.marketavenue. Huawei employees are given an option to purchase stocks when joining the company. TD Tech is one of the best-positioned companies in this sector prior to China’s 3G launch. 2. TD Tech mainly conducts TD-SCDMA research and employs approximately 600 staff.

marketavenue.1 Major Products Figure 3-1: Huawei Technologies Product Lines Wireles Network WCDMA GPRS GSM EDGE CDMA2000 TD-SCDMA NGN Access Networks MSAN IP DSLAM ADSL Modems VDSL Modems WiFI BRAS Switching Networks Softswitches STP BITS Optical Networks NG-SDH NG-SONET DWDM MSTP Datacom Networks Router IP Switch VOIP WLAN VPN Value Added Service & OSS SMS MMS CRBT LBS Billing CRM SLTS Call Centers Handsets Video Communication MCU Video Phones Video Conferencing Softswitches UMG TMG SG AMG IAD CDMA Handsets WCDMA Handsets Wireless Data Cards Wireless Network Products HLR. RM9000-Resource www. SHLR-Smart HLR. BSC NGN Products SoftX3000-Softswitch.cn 7 . UMG8900-Universal Media Gateway. CGSN.COMPANY PROFILE LightPoint Marconi SUNDAY Philips Semiconductor Texas Instruments Motorola Intel Microsoft SUN Providing Huawei with FSON (Free Space Optical Network) products Using each other’s market positions to leverage sales Providing 3G services in Hong Kong Developing 3G ASIC (ApplicationSpecific Integrated Circuit) R&D R&D R&D R&D R&D A Guide To Investment In China 3 Market Analysis 3. CG. RNC. Node B. CG. SG7000-Signaling Gateway. MSC/GMSC. GGSN. GGSN. SGSN. MRS6100-Media Resource Server.

the international market is becoming more important. Huawei’s main clients are the telecom operators and financial institutions.marketavenue. In 1H 2005. infoXMDN. SmartAX Mini DSLAM. SmartAX MT800 series. Government institutions. UA5000-Intergrated Access Media Gateway. Quidway MA5200 series Switching Network Products C&C08EV. China Mobile. Huawei’s oversea sales have exceeded the sales from domestic market for the first time. Access Server and Security Products Video Communication Products View Point series 3. oil companies such as PetroChina. TELLINWIN. TELLIN-FIN. China Unicom. Quidway AR series. Quidway Series BRAS. and the Ping An Insurance Company are other main clients. Bank of Communications. SmartAX MA5100 series ATM/IP compatible DSLAM. financial institutions such as China Commercial Bank. SmartAX MA5300/5600 series IP DSLAM. infoX-MMS. Industrial & Commercial Bank of China. infoX-Streaming. SmartAX MT900 series. and China Netcom are all major Huawei clients. SmartAX Outdoor B01D Series. TELLIN ENIP OSS Products TopEng Billing System Data Communication Products Quidway NetEngine series.COMPANY PROFILE Manager.  In China. infoX-LBS. SmartAX WA1003 series. C&C08 STP. as well as various other companies that maintain their own networks. TELLIN-CRBT. infoX-Gaming. China Telecom. Eudemon 2000 SeriesSession Border Controller Access Network Products HONET UA5000 series. infoX-Download. 8 www.2 Target Markets & Customers  Although China is still an important market for Huawei. infoX-IMPS. infoX-AAA. SYNLocK BITS Optical Transmission Products OptiX Series Products: OSN series and METRO series Value Added Service Products InfoX-SMS. infoX-WISG.cn A Guide To Investment In China .

Motorola.1. OMANTEL. and Alcatel Shanghai Bell. 2004 (USD M) 6000 5000 4000 3000 2000 1000 187 0 Huawei UTStarcom ZTE FiberHome Harbour 145 2700 2651 5566 3. ZTE. Figure 3-2: Chinese Equipment Vendors’ Global Revenues. www.cn 9 .COMPANY PROFILE  In the international market. and Cisco.1.2. Nortel. Alcatel. Etisalat. including Lucent. switching. the Middle East. Datang. and CoTeCal. Huawei’s domestic competitors are UTStarcom. Nokia. Ericsson.2. ZTE and Alcatel Shanghai Bell are the most important competitors in transmission. FiberHome. Huawei mostly targets developing countries in Latin America.2. ANTEL. Siemens.marketavenue. and the former Soviet Union (CIS). A Guide To Investment In China 3.1 Major Competitors 3.2 International Competitors  Leading international vendors. Huawei is catching up quickly as many competitors have seen little or no growth in recent years. are currently competing with Huawei in both foreign markets as well as in China. and DSLAM. Africa. Tele2.1 Domestic Competitors  In China. Huawei clients include British Telecom. Although Huawei’s global revenues are lower than those of its key multinational rivals. However. Royal KPM.

Siemens.0 14. Huawei holds a leading position. and Nortel.cn A Guide To Investment In China .2. Africa and other developing markets will continue to grow substantially. MarketAvenue believes that Huawei’s sales in Latin America.0 5.9 9.3  In the domestic market Huawei’s brand is as famous as the above international vendors. in China in several product lines such as optical transmission and switching.marketavenue.2 Sales and Market Share  Huawei’s total sales have been increasing since 2002 and while domestic sales are relatively stable.6 31.6 35. sales from international markets are expected continue to grow steadily. 1999-2008 (USD B) 16 14 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005E 2006F 2007F 2008F Overseas Contracts Domestic Contracts 10 www. 3.COMPANY PROFILE Figure 3-3: International Equipment Vendors’ Global Revenues.8 9. higher than that of Nokia. Figure 3-4: Huawei Sales Contracts. Although MarketAvenue does not expect Huawei to make headway in the North American market due to Huawei’s difficulty entering developed markets. 2004 (USD B) 40 35 30 25 20 15 10 5 0 Nokia Motorola Ericsson Alcatel Nortel Lucent Huawei 17.

the bulk of Huawei’s sales are of wireless equipment.33 2.39 Contracts 0.60 8.11 2.07 0.50  Huawei’s domestic revenues in the first half of 2005 are mostly from traditional products like transmission and switching.1 International Sales by Region  In the international market.COMPANY PROFILE 1999 2000 2001 2002 2003 2004 2005E 2006F 2007F 2008F Intl.2.05 2.50 7.30 13.57 5.55 2.66 1. 0.29 5.28 3. www. Huawei signed foreign contracts worth approximately USD 2.77 3. and making up 61% of Huawei’s total contracts in 2005.cn 11 .50 8.50 10.marketavenue.00 3.20 3.20 3. 1H 2005 (%) 3.13 2.80 3.44 2.05 Contracts Dom.30 A Guide To Investment In China 10.80 12.57 0.74 3.47 billion. exceeding the total amount of foreign contracts in 2004.  In the first half of 2005.82 2. accounting for more than two thirds of its total revenue.  Huawei’s international sales are mostly in developing countries.34 Contracts Total 1. 1. Almost half of Huawei’s sales are from Africa and the Middle East and more than a third are from Asia. Figure 3-5: Huawei’s Domestic Sales by Product. Developed markets make up just 11% of revenues from foreign markets.2.

marketavenue.2 International Sales by Product Figure 3-7: Huawei International Sales by Product.cn A Guide To Investment In China . 2004 (%) Unlike in the domestic market.2. mobile products (including GSM.2. Transmission products face tougher competition abroad than they do in the Chinese market and account for less than ten percent of foreign revenues. 2004 (%) 3. switching products contribute less than a third. CDMA. WCDMA. 12 www.COMPANY PROFILE Figure 3-6: Huawei International Sales by Region. and TD-SCDMA) contribute almost half of all Huawei’s foreign revenues.

3 China Market Share by Product Figure 3-8: Huawei China Access Market Share and Revenue.1H 2005 A Guide To Investment In China Figure 3-9: Huawei China Transmission Market Share and Revenue.cn 13 .1H 2005 www.COMPANY PROFILE 3.2. 2003 .marketavenue. 2003 .2.

marketavenue.1H 2005 14 www. 2003 .cn A Guide To Investment In China .COMPANY PROFILE Figure 3-10: Huawei China Switching Market Share and Revenue. 2003 1H 2005 Figure 3-11: Huawei China DSLAM Market Share and Revenue.

03 .1H05 A Guide To Investment In China Figure 3-13: Huawei China GSM Equipment Market Share and Revenue.COMPANY PROFILE Figure 3-12: Huawei China Data Communications Market Share and Revenue. 2003 .1H 2005 www.marketavenue.cn 15 .

000 new employees joined Huawei each year. Huawei hired many graduates from China’s top universities such as Tsinghua and.1 Human Resources Figure 4-1: Huawei Employees.  Huawei’s research focuses on WCDMA. and Israel. SDH (10G/40G). Russia. 16 www. India. having invested between nine percent and thirteen percent of its annual sales revenue into R&D in recent years.2 Research and Development  Huawei has established and is continuously opening R&D centers both in China as well as in international markets including the USA.000 10. At that period. Huawei offered these new graduates high salaries of approximately USD 750 to USD 1000 per month. Huawei is currently the largest investor in R&D in China.marketavenue.COMPANY PROFILE 4. 1996-2005 35.000 5. Human Resources and R&D 4. CDMA2000.000 15. intelligent optical networks. DSL.000 25.cn A Guide To Investment In China . Beijing University of Post and Communication. a very high salary in China in those years—particularly for recent college graduates without work experience.000 20.000 30. almost 5. 4. backbone routers. NGN. as well as WLAN and WiMax. Most new employees joined the R&D and sales departments.000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F  Between 1999 and 2001. Huawei has not made any significant investment in EDGE technology.

7% 600 400 200 0 2003 2004 R&D Investment R&D Ratio of Sales 2005E 0.0% 371 5.marketavenue.0% A Guide To Investment In China Figure 4-3: Huawei R&D Investment by Product Line. 2004 (%) www.0% 8.8% 10.cn 17 .6% 481 9.COMPANY PROFILE Figure 4-2: Huawei R&D Investment. 2001-2008 (USD M) 1000 830 800 9.0% 15.

3G deployment experience. Huawei is currently focused on winning 3G contracts abroad.Still not a Multinational Company  With the military background of its founder. The experience gained in these networks is expected to improve its chances in winning major 3G contracts at home. However. the company does not have a board of directors to select a new president. Some industry experts believe that when Ren is gone.cn A Guide To Investment In China .3G Networks Abroad in Anticipation for 3G Licenses at Home  As China’s telecom market awaits 3G license issuance. it is hard to believe it would have succeeded internationally without it. Huawei is still run from the top. none is believed to have the ability or backing to ensure a smooth succession. 2. With branches opening up abroad and an increasing number of foreign employees. 18 www. Executive Summary 1. 3. Thus the future of Huawei upon Ren’ s departure or death is unclear. marketing staff. the current companies may become more independent of one another and possibly even split up completely. while many of the vice presidents are certainly capable in their current jobs. this method of management is already beginning to cause friction. and largely by one man. Huawei’s Low-cost Advantage  Huawei’s main forte still remains its low cost advantage.. R&D personnel.COMPANY PROFILE 5. Huawei is developing 3G products for all three major standards. Huawei is well positioned for success in China’ s 3G market. Ren is well into his sixties now.  Huawei also faces serious questions about Ren Zhengfei’s successor. Although Huawei could not have succeeded with a cost advantage alone. Ren Zhengfei still runs Huawei in a very strict and inflexible hierarchical structure. A growing multinational company facing distinctly different foreign markets and different customer needs to give more decision power to their regional branches and local managers.marketavenue. More over. Managerial Practices. MarketAvenue believes that with its mature product lines.  Although foreign 3G markets are of great importance to Huawei MarketAvenue expects Huawei’s main 3G market to be in China. and well-developed relations with domestic operators.. With engineers. Huawei still resembles a military organization in some ways. and sales people all costing a fraction of their counterparts in developed countries. as is the fact that it has had success in foreign markets. Huawei has been able to enter markets in developing countries where price is of great importance.

4. most international vendors did not regard Huawei as a threat. Huawei has found success through its cost advantage over European and American vendors. In addition to ample financial support from the government through low-interest loans the Chinese government has also supplied financial aid to several developing countries in order to help Huawei gain more contracts. however. Furthermore. We must not forget.marketavenue.cn 19 . 3G products for the WCDMA and CDMA2000 standards are already commercial and TD-SCDMA products developed by its TD Tech joint venture with Siemens performed well in recent MII tests. International Competition Until recently. Being selected for British Telecom’s 21CN project is starting to make Huawei’s competitors nervous.  Going abroad and entering the international market could not have been done without the help of the Chinese government. 5. and extensive marketing and sales networks. in some markets Huawei will be competing on these vendors’ home turf. This was especially the case in the African market. Huawei’s cost advantage can only take it so far. Huawei will have to compete with established brand names. Huawei won substantial market shares in developing regions such as Africa.COMPANY PROFILE including TD-SCDMA. companies with experienced management. Latin America. these international vendors are beginning to recognize Huawei as a serious competitor. Asia Pacific. A Guide To Investment In China www. With Huawei trying to enter the European markets. Huawei’s target market of small developing countries helped it avoid too much direct competition with multinational vendors. Venturing Abroad  Although much smaller than its competitors. and the CIS. Huawei is now trying to enter the more lucrative and developed markets in Europe and North America. Facing these international vendors in major markets will not be easy for Huawei. that in developing countries where cost is a larger issue than in Europe and North America.

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