Some people have asked us recently: who is next?\u00a0\u00a0 After market consolidation of suppliers, in the form of Alcatel-Lucent in 2006 and Nokia Siemens Networks in 2007, followed by the bankruptcy of Nortel Networks (2009), is this the end of the game?<\/p>\n
Last year we heard some rumours that one particular European supplier might give up.\u00a0 This year we hear rumours about another one.\u00a0\u00a0 We are not here to comment rumours \u2013 having said that, rumours are a sign that some people, employees and customers are worried<\/strong>.<\/p>\n They had better be.\u00a0 Huawei has been massively successful in the last 10 years.\u00a0 Turnover was USD2.7bn in 2002 and USD21.7bn in 2009, a CAGR of 35%<\/strong> over the period.\u00a0 They have been eating the cake of all other telecom suppliers.<\/p>\n So what is the secret?\u00a0 Three things: vendor financing at terms you can only dream of, massive investment in R&D, and very dedicated staff who are also shareholders, so it seems.<\/p>\n On the first point<\/strong>: on a number of assignments, we have seen Huawei vendor-financing terms that other suppliers will never be in a position to provide.\u00a0 It seems clear that Chinese banks and the Chinese government will do whatever is necessary to make customer operators happy.\u00a0 Somehow it is strange that other suppliers do not knock on the door of the European Commission more often for anti-competitive behaviour.<\/p>\n On the second point<\/strong>: an operator was telling us about the roadmaps of Huawei compared to other suppliers.\u00a0 Huawei does not spend ages trying to figure out whether to develop feature A or B, or B1, or C.\u00a0 They develop all of them in one go, throwing R&D resources at the problem, leaving it up to operators whether to use the features or not.\u00a0 Do the other supplier over-analyse what the market wants?\u00a0 Having said that, when Huawei is compliant with all requirements in your RFP, be careful to read the footnotes.<\/p>\n On the third point<\/strong>: we have heard of the average Huawei staff in China working 2,700 hours per annum.\u00a0 Wahoo, Europeans, wake up! But you might wonder how much time does that leave them for a life with family in friends?\u00a0 Not much I presume.<\/p>\n Is Huawei profitable?<\/strong> Not easy to tell.\u00a0 The Annual Report 2009 shows a PBT margin of 7%-14% over the last 5 years. \u00a0Nevertheless, we are not familiar with the Chinese accounting standards. \u00a0Also, the Annual Report 2009 is not audited in the traditional sense.\u00a0 On page 19, KPMG makes two revealing points:\u00a0 \u201cHuawei Technologies Co., Ltd. is not a public company and is not required to publish its audited consolidated financial statements under the Company Law of the People\u2019s Republic of China\u201c and further down: \u201cWe have not performed an audit on the consolidated financial statements summary, accordingly, we do not express an audit opinion\u201c.\u00a0 Whatever this means.<\/p>\n Who does Huawei belong to?<\/strong> The Annual Report tells us: the Union of Shenzhen Huawei Investment & Holding Co., Ltd. (the \u201cUnion\u201d).\u00a0 Not a trade union, but a union of shareholders. \u00a0So it seems that Huawei is owned by its employees.\u00a0 Well, a temporary form of ownership, controlled by the management: apparently, employees can’t buy shares but are allocated shares annually based on their performance (and other factors). Note that only Chinese employees can own share in the company, not foreign employees.\u00a0 The company pays dividends but employee shareholders have to return their shares if they leave the company, with shares apparently bought back by the company at their current value (determined by whom?).\u00a0 Conclusion: the company does not really have to be profitable as shareholders are employees, and profit, as a form of bonus, is optional.<\/p>\n So who is going to stop them?<\/strong> Nobody can really compete with Huawei on the first point \u2013 well, apart from ZTE \u2013 but on the second and third points, suppliers have taken massive steps to boost their work force in China and India at the expense of their other Western locations.\u00a0 As China and India further develop and employees in those countries start looking for a better life on earth now rather than in heaven tomorrow, the terms of the game will change, but not any time soon.<\/p>\n In the meantime, European suppliers have three wild cards<\/strong>:<\/p>\n And to finish with one extract from the \u201cHuawei Caricature\u201c book, dated April 2005 and printed in 1000 copies only, which we had the pleasure to read:<\/p>\n \u201cHuawei people should have the courage to self-discipline, readiness to be promoted or demoted, and humility to free ourselves from bondage of temporary personal gains or loss.\u00a0 Huawei people will be trained in-service and be moulded in adversity\u201c.<\/strong><\/p>\n Europeans, think about it.<\/p>\n","protected":false},"excerpt":{"rendered":" Some people have asked us recently: who is next?\u00a0\u00a0 After market consolidation of suppliers, in the form of Alcatel-Lucent in 2006 and Nokia Siemens Networks in 2007, followed by the bankruptcy of Nortel Networks (2009), is this the end of… <\/p>\n\n