Are Huawei & ZTE Fading Superstars? New Investments Seen Mostly as a Publicity Ploy!

Close up of ZTE Set-TopFor 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.

http://www.slashgear.com/huawei-faces-ban-in-canada-over-security-risks-10251255/


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:

http://www.huawei.com/en/about-huawei/newsroom/press-release/hw-198560-helsinkifinland.htm

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

http://viodi.com/2012/08/23/zte-reports-huge-drop-in-profits-telecom-death-spiral-continues/

On December 11th, the company announced it will spend $30M in the U.S. for product development, as per this press release:

http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsLang=en&newsId=20121211005499&div=320539

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.”

http://www.youngchinabiz.com/en/news/958-huawei-zte-in-latest-pr-offensive-with-us-spending-spree

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.”

http://www.scmp.com/comment/blogs/article/1103547/zte-huawei-scale-back-investments

11 comments for “Are Huawei & ZTE Fading Superstars? New Investments Seen Mostly as a Publicity Ploy!

  1. Huawei Defender
    January 10, 2013 at 3:47 pm

    Huawei Lays Out 2013 Objectives, Focuses on Mobile Broadband
    In 2013 the company hopes to become a leader in mobile broadband and network solutions according to its acting CEO Guo Ping.
    Ping revealed that the company’s sales revenue for 2012 is expected to exceed U.S.$35 billion, resulting in a 10 percent increases year-on-year. He noted that the company will be devoting itself to specific business objectives, including its strategic objectives to lead the way in mobile broadband solutions. Huawei has faced scrutiny in the U.S.-a government probe and a public snub from Sprint-Network Vision.. http://maps.yankeegroup.com/ygapp/content/b2d0f8259ddf4c2ea3234a7142f93785/68/DAILYINSIGHT/0

  2. December 21, 2012 at 4:56 pm

    Hi Chandra, thanks for the question and the comment. I don’t see Huawei at any of the tradeshows that focus on independent telcos and the CLECs owned by the independent telcos. Further, I haven’t seen there equipment in any of the central offices that I visited this year. I just don’t see there presence in rural America. Having said that, I don’t have much visibility on the larger CLECs, but I suspect they are an also-ran to those operators.

  3. Chandra
    December 21, 2012 at 11:29 am

    Thanks for another great article, with excellent comments. Is Huawei selling ANY telecom equipment in U.S., e.g. to independent telcos, rural carriers, CLECs?

  4. December 13, 2012 at 8:30 am

    Anonymous comment from IEEE member discussion list:
    “It would seem that the likelihood of coming up with world-class competitive cell phones out of a team whose earlier output couldn’t cut it in the US market is pretty small, especially when the operation is handicapped by the cultural challenges of a Chinese/Finnish management chain and the less than nimble trans-hemispheric decision process.”

  5. MP Divakar
    December 12, 2012 at 10:34 pm

    Both companies may be Fading Superstars but they will not diminish like RIM has been with its products. There always be native market for the two companies but the real question is how will Huawei and ZTE address Samsung in the handset business, because Samsung is indeed the #1 handset player in China!

    Deep distrust of both companies have made it harder for them to break through perceptions and barriers in other Asian countries, India being one of them to raise security and espionage concerns. Even if both companies achieve operational excellence matched by superb engineering talent, the distrust issue is a deep one that will not go away.

    MP Divakar

    • December 13, 2012 at 1:06 pm

      New Reuters article: EU report urges action against Chinese telecom firms. “The European Union should take action against Chinese telecom equipment makers because their increasing dominance of mobile networks makes them a threat to security as well as to homegrown companies, an internal EU report has recommended.”
      “The growing presence of the Chinese in the telecoms market is increasingly viewed by all EU participants in this sector, including industry experts, as a major security risk,” said the report, prepared in May by the European Commission, the EU executive.

      http://uk.reuters.com/article/2012/12/12/uk-eu-china-telecoms-idUKBRE8BB18420121212

  6. December 12, 2012 at 5:36 pm

    Thanks Alan for tying together these different points into an article that provides further evidence of what you have been saying about the continued doldrums for the suppliers to the telecom/broadband industry.

    I did see a ZTE IPTV deployment earlier this year (picture of part of the set-top box above) and was impressed with the reaction of the customer as far as the support for the changes. ZTE apparently went out of their way to make sure the product worked to the operator’s satisfaction and from what I saw in a very limited view, it looked like they had done a good job.

    IPTV might still be an area where they could make an impact,particularly as the cable operators start to do IP over DOCSIS. One would think that IPTV wouldn’t raise the same national security concerns that network hardware for the Internet causes.

  7. December 12, 2012 at 4:18 pm

    In 2003, Huawei was sued for patent infringement when it copied Cisco’s IOS router code and used same for its own products. Cisco dropped the case in 2004 after Huawei promised to discontinue those products.
    Since then, the company has said it hasn’t copied anything. But is that really true? Apparently, Huawei copied the format of another company’s invitation to a Telecom Railway Conference in Malaga, Spain last month:
    http://www.kapsch.net/kcc/EVENTS/Railway-Telecommunications/Find-the-differences

    • December 12, 2012 at 5:38 pm

      I looked at the invitation and I think the company that is complaining is stretching things a bit. Having been involved in these things before, quite often, the conference organizer will provide template invitations for sponsors and exhibitors to use. It sort of looks like that is what happened.

      • December 12, 2012 at 8:50 pm

        Don’t think that’s what happened, Ken. Not only is the format & layout identical, but so is the closing sentence: “We are looking forward to meeting you in Malaga.” More importantly, the Huawei imprint at the bottom gives the contact info for Kapsch. It’s clearly shown by the hand pointing to the IMPRINT at the bottom of the invitation. The IMPRINTs of the 2 invites are shown to be identical!

      • December 13, 2012 at 8:31 am

        I stand corrected. This quote, copied from a comment on a LinkedIn Group, indicates that the invitation was copied.

        “This was indeed a very stupid incident and a clear violation of Huawei’s rules and practices. I understand that Huawei has apologized to Kapsch and the event organizers and, of course, changed the offending document. I think many companies, not just Chinese companies, have employees who get overloaded and take shortcuts that are not well thought-out.

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