For several years now, China’s Huawei and ZTE had very strong growth rates and became major players in the telecom equipment market. Both companies also make low cost mobile phones that are popular all over the world (yes, they are sold in the U.S.). But their growth seems to be slowing and ZTE actually had a loss in the most recent quarter.
In October, the U.S. House Intelligence Committee recommended that American companies should avoid doing business with China’s two leading technology firms, because they pose a national security threat to the United States. The congressional panel said U.S. regulators should block mergers and acquisitions in this country by Huawei Technologies Ltd. and ZTE Corp. The report also recommends that U.S. government computer systems not include any components from the two firms because that could pose an espionage risk (since it’s believed both companies have ties to the Chinese government and military. Australia had earlier blocked Huawei from taking part in its country-wide broadband system on national-security grounds. Canada is also thinking about excluding Huawei from government funded telecom projects.
Even without selling its telecom gear in the U.S., Huawei is ranked either #1 or #2 in global telecom equipment sales. It is currently the world’s fifth largest smartphone vendor in terms of unit sales. They have a fairly large R&D center in Santa Clara, CA which transfers technology developed there to the firm’s headquarters in Shenzen, China.
The company announced this Monday that it will invest €70 million (US$90.6 million) over a five-year period to establish a research and development center in Helsinki, Finland. “The strategic investment reflects Huawei’s deep and long-term commitment to Europe and will strengthen the company’s R&D capabilities, augmenting to over 70,000 employees currently engaged in R&D worldwide,” the company said in a press release:
The Helsinki R &D facility will build software for smartphones and tablets, based on Android and Windows 8 platforms. Initially, Huawei plans to recruit 30 employees for the center, with the goal of hiring more than 100 people over five years, the company said in a statement on December 10th.
We think the new R&D center was set up to hire most of its employees from Nokia, which has announced wave after wave of layoffs in the last 2 years as it struggles to turn around its fading cellphone business. The Helsinki R&D center will join an already established Huawei modem and technology design center in Sweden and a user interface research center in the U.K.
ZTE has already reported a loss and announced major layoffs, which we equated with the failing health of the entire telecom infrastructure industry
On December 11th, the company announced it will spend $30M in the U.S. for product development, as per this press release:
The announcement is quite vague about what the funds will be used for.
“ZTE will use this $30 million to work with a number of local partners to tap into both core and innovative technologies in the telecommunications industry. The result will be improving and integrating existing technologies, strengthening lab capabilities and other fundamental infrastructures, and building up the company’s local capabilities to work closely with operators to create better and more affordable choices for consumers around the world.”
“ZTE is committed to the U.S. market and we look forward to continuing our investment and leveraging local talent to bring new innovations to consumers,” said Lixin Cheng, CEO of ZTE USA in the referenced press release.
Translation please? What products, technologies, market segments, etc???
Huawei and ZTE have seen their growth rates slow sharply this year due to weakening demand both at home and abroad as well as the recommended ban on the sale of their equipment in the U.S. and Australia. ZTE’s problems have been compounded by a number of other factors, including the abrupt ending of its relationship with US networking equipment leader Cisco Systems.
Meanwhile, neither announcement looks very exciting in terms of size, breadth or scope. They both look like feeble efforts (especially ZTE’s paltry $30M) to convince the world they are still investing in R&D, despite the terrible troubles plaguing the global telecom infrastructure business and the negative press they’ve gotten from foreign governments who fear they are controlled (or at least influenced) by the Chinese government
The firm’s made a similar PR announcement this past February, which was summarized as follows: “New mutlibillion-dollar purchasing announcements by Huawei and ZTE look largely like PR moves aimed at US politicians, but also reflect a growing cellphone rivalry between the pair.”
We completely agree with one blogger, who said, “Modest new investments from Huawei and ZTE are likely to become the norm for the next 2 years, as each looks to conserve cash in the current uncertain business climate.”