June 20, 2016 | Author: Kushagra Bhatnagar | Category: N/A
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
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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
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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
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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
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©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
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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
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©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.
•
•
•
•
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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
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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
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©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
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©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
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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
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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
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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.
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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.
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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.
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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
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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
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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
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Huawei 2Q11 | Network Business Quarterly
©2011 Technology Business Research, Inc.
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