Tbr huawei 4q10_nbq

Tbr huawei 4q10_nbq






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Tbr huawei 4q10_nbq Tbr huawei 4q10_nbq Presentation Transcript

  • NETWORK BUSINESS QUARTERLYSMHuaweiFourth Calendar Quarter 2010Fourth Fiscal Quarter 2010 Ended Dec. 31, 2010 TBR OUTLOOK - POSITIVE TBR SCORE (0-10 SCALE)  4.79Publish Date: March 21, 2011Author: Chris Antlitz (chris.antlitz@tbri.com), NBQ AnalystContent Editor: Michael Sullivan-Trainor, NBQ Executive 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 Company Data Models 3 Executive Summary 24 Income Statement 7 Strategy Overview 25 Balance Sheet 11 Corporate SWOT Analysis 26 Revenue Model 14 Financial Model Strategy 27 Geographic Model 17 Go-to-Market & Product Strategies 28 Operating Expense Model 18 Alliance & Acquisition Strategies 29 Forecast Model 19 Geographic Analysis 30 Financial Graphs 21 Resource Management Strategy 33 Go-to-Market & Resource Mgmt. Graphs 22 Future Outlook 34 Acquisitions Table 35 Strategic Alliance and Partnerships Table 37 Product Announcement Table 40 Customer Deals Table 50 Facilities Table 52 Management Table 53 About TBR2 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRHuawei successfully weathered the decline in Chinese spend for 3Grollout in 2010, making up for it with solid execution in EMEATBR Position:Huawei is striving to drive software and services TBR HUAWEI REVENUE BY REGION $454revenue to maintain its lofty growth rate. $28,000 North • TBR estimates gross margin rose 40 basis points $24,000 $408 $9,912 America Revenue in Millions from 2009 to 40%, as sales mix moved toward $20,000 $231 EMEA higher-margin software, services and next- $6,500 $16,000 $6,040 $1,820 generation infrastructure. $146 $923 CALA $12,000 $4,399 $3,843 $6,014 $1,539 • The device business rebounded sharply from APAC (ex- $8,000 $900 2009 on strong unit shipments and a more $5,743 China) $3,799 $10,147 $9,800 favorable mix skewed toward smartphones. $4,000 $4,518 China $3,595 • Huawei benefited from the revival in optical $0 2007 2008 2009 2010 Est. transport spend, but TBR believes the vendor SOURCE: TBR ESTIMATES AND HUAWEI trailed Alcatel-Lucent and Ciena in the space in 2010. • We believe Huawei is exercising its generous Huawei’s Corporate Strategies credit lines with Chinese banks to offer attractive financing to cash-strapped operators in • Execute on three-pronged security plan in U.S. to developing countries. As such, TBR estimates assuage government fears Huawei will grow sales faster than peers in CALA • Triple terminal sales within three to five years by and Africa, where access to capital is scarce, manufacturing and bringing to market low-cost especially for large-scale deployments. smartphones and tablets sporting the Android OS • Huawei is using resource localization to establish • Establish leadership position in 4G, particularly TD-LTE hubs in key markets and make customers more • Invest in software and services assets to better comfortable using a foreign vendor for their compete against Ericsson, Alcatel-Lucent, and Nokia network needs. Siemens3 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRThough Huawei has won the largest number of 4G contracts thus far,rivals Alcatel-Lucent and Ericsson’s LTE contracts are worth more Quarterly Segment Performance 2010 Growth Segment Key Changes & Drivers Revenue Trends to Monitor Y/Y Estimate Huawei’s launch of a SingleRAN that Huawei is ahead of rivals in number supports both TD-LTE and WiMAX could be of 4G deals signed, but the value of a hot seller for WiMAX operators looking for those deals pales in comparison to $8.5 a relatively inexpensive way to migrate to Wireless the lucrative LTE contracts won by billion 34.3% LTE. Some examples include Clearwire and Alcatel-Lucent and Ericsson for Yota. This could also expand the TD-LTE AT&T, Verizon and other Tier 1 ecosystem, which is currently running the operators. FDD-LTE iteration of the 4G technology. Huawei continued to grow FTTx deployments with numerous deals. • Huawei has strong FTTx offerings and In 2H10 alone, Huawei won two provides reliable, quality access Fixed deals for FTTH deployments, one $2 billion 27.7% equipment at better prices than with Telekom Brunei Berhad in competitors. Brunei and the other with Qtel in • Huawei also leads in GPON and EPON. Qatar. Huawei will benefit from BT’s decision to The largest optical deals Huawei increase fiber investment by £1 billion ($1.5 signed in 2H10 were with China $5.8 Optical Mobile and PCCW for 40G billion 12.9% billion) through 2015, as the vendor has been a key supplier of optical access and solutions. transmission equipment to BT since 2008.4 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRData was the fastest-growing segment in 2010, as operators boostedcapacity on their networksQuarterly Segment Performance 2010 GrowthSegment Key Changes & Drivers Revenue Trends to Monitor Y/Y Estimate • Demand for routers was strong in 2010, exemplified by MegaFon’s purchase of an Operators are stressing efficiency on a IP/MPLS solution from Huawei in cost per bit basis, as revenue derived October. $2.4 from data is growing at a far slower rate Data billion 57.1% than data usage. This trend bodes well • Operators are allocating a larger portion of their capex budgets to IP to bulk up for sales of Huawei’s SingleRAN, network capacity to contend with rising backhaul and IP solutions. data usage. • Huawei realized strong growth across rollout, maintenance, professional and Huawei is bulking up its services arm to managed services. Being selected for better compete against heavyweightsServices end-to-end network deployments and/or Ericsson, Alcatel-Lucent and Nokia upgrades is helping Huawei drive $4.9 & billion 34.5% Siemens for lucrative outsourcingSoftware incremental growth in services. contracts; however, it will be some time • Traction in software remains elusive, before Huawei can undertake a mega- though Huawei is investing aggressively services deal. in its portfolio. IDEOS will be offered by carriers and IDEOS smartphone series launched in $4.5 retailers in more than 70 countries inTerminals September and sold 1 million units in first billion 21.6% 2011, helping Huawei quickly gain two months. market share.5 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRHuawei’s balance sheet is “stretched” compared to peers, reflecting liberalcredit policies, inefficient inventory management and a rising debt load CALENDAR QUARTER RESULTSTBR SCORING SUMMARY: TBR Company Average in Standard 4Q09 1Q10 2Q10 3Q10 4Q10 FINANCIAL METRICS TBR Score Figure Class Deviation/2Fi na nci a l Model Stra tegy: 5.67 5.55 5.64 5.74 5.80 Revenue Growth Yea r-to-Yea r 8.44 28.3% 9.0% 5.6%Go-to-Ma rket & Servi ces Stra tegi es : 3.27 3.21 3.35 3.51 3.35 Revenue/Empl oyee 3.53 $ 229,694 $ 383,236 $ 104,419Res ource Ma na gement Stra tegy: 5.29 4.92 4.93 5.27 5.24 Gros s Ma rgi n 5.52 40.0% 37.3% 5.2%TOTAL AVERAGE TBR SCORE: 4.74 4.56 4.64 4.84 4.79 SG&A a s % of Sa l es 4.74 17.9% 17.3% 2.2% R&D a s % of Sa l es 6.65 10.0% 13.1% 1.9%Huawei has the weakest days sales outstanding Opera ting Ma rgi n 6.27 11.9% 6.4% 4.3%metric among its peers due to its liberal credit Da ys Ca s h Outs tandi ng 3.98 70.60 115.04 43.59 Total As s et Turns 6.99 1.16 0.91 0.13policies. Huawei routinely accepts IOUs from Current Ra tio 3.78 1.48 1.76 0.23customers to boost sales and encourage Debt/As s ets 2.16 0.69 0.52 0.06investment. We believe this practice could Return on As s ets 8.11 14.2% 5.6% 2.8%weaken Huawei’s balance sheet if cash- Return on Equi ty 9.42 45.6% 13.3% 7.3%strapped operators struggle to pay back TOTAL AVERAGE TBR SCORE 5.80outstanding debt. Company Average in Standard Key GO-TO-MARKET & SERVICES METRICS TBR Score Figure Class Deviation/2 Network/Comm. Equi pment Ma rket Sha re 5.37 13.7% 12.2% 3.9% ■ Represents an area where Huawei is Mobi l e Phone Ma rket Sha re 3.66 2.2% 10.2% 6.0% currently challenged versus peers. Da ys Sa l es Outs tandi ng 1.01 154.96 80.19 18.74 ■ Represents an area where Huawei is TOTAL AVERAGE TBR SCORE 3.35 outperforming its peers. ■ Represents an area where Huawei is Company Average in Standard neither significantly outperforming nor RESOURCE MANAGEMENT METRICS TBR Score Figure Class Deviation/2 underperforming its peers. Inventory Turns /Yea r 3.99 6.21 8.13 1.90 Fi xed As s et Turns /Yea r 6.48 19.11 14.59 3.04 VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK TOTAL AVERAGE TBR SCORE 5.24 BUSINESS QUARTERLY VENDOR BENCHMARK 6 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRHuawei’s three-pronged security strategy is a good first step to reducebarriers to expansion in the United States marketFunction Key Strategies TBR Assessment • Build on initial success • Huawei has yet to land an equipment contract with a Tier 1 in North America to ► operator in the United States, though the vendor is findingOverall become a key supplier success among Tier 2 and 3 companies. to network operators • With security clearance in hand, Huawei can realize the full • Grow business in India potential of its extensive resources in India, which include a ► by localizing presence skilled local workforce and domestic manufacturing and R&D assets. • Huawei’s plan includes establishing a national security committee • Employ three-pronged headed by Huawei CTO Matt Bross, using third-party test labs to security strategy to ► check Huawei’s source code, and using U.S. citizens to deliver and allay U.S. concerns install Huawei equipment. • Grow sales 20% in 2010 • Huawei exceeded its sales target for 2010 by $1.8 billion, and TBR by focusing on ► estimates broad sales growth in all of Huawei’s operatingFinancial international expansion segments. • TBR estimates Huawei boosted its R&D spend to 10% of revenue in 2010 after spending just under 9% of sales in the previous two • Invest 10% of revenue ► years. The jump reflects confidence in the global economic in R&D recovery and a strong push into services and software. Huawei is also investing heavily in TD-LTE.7 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRHuawei is investing heavily in North America and India to support growth Function Key Strategies TBR Assessment • Huawei won the largest share of the LTE and WiMAX contracts awarded in 2010 and is positioning itself to become a leader in • Establish leadership Go-to- TD-LTE, the 4G technology of choice for Chinese operators. The position in 4G (WiMAX ► Market vendor aims to double its commercial LTE contracts from 18 in and LTE) 2010 to 36 in 2011 and expects LTE-related revenue will 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. • Leverage Android to iPad and Xoom are not affordable by the general population of gain traction in ► most countries and offerings by Samsung and LG seek to capture smartphone and tablet the midmarket. This leaves the low tier up for grabs, a space markets Huawei thrives in due to its low-cost operating structure and resistance to pursuing expensive advertising programs. • Huawei opened an R&D center in Ottawa in August – the vendor’s • Establish R&D centers in second R&D facility in North America. This base of operations in R&D and strategic cities to ► Canada will help Huawei develop closer ties with its local Delivery leverage local talent customers, including BCE, SaskTel and TELUS as well as help the Strategy pools company enter the good graces of the Canadian government. • $2 billion investment in • Using a localization strategy, Huawei is creating a stronghold in India will improve ► India while improving its reputation with the Indian government. prospects in the country8 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRLocalization is central to Huawei’s India strategy – a move that will helpimprove its reputation with government officials while saving money TBR Assessment of Huawei’s Resource Management Strategy With security clearances in hand and 3G deals secured, Huawei unveiled an India investment plan worth $2 billion over the next five years. The strategy is to quickly build a standalone base of operations in India. Huawei will leverage the talent pool and localize service delivery and equipment manufacturing to establish a stronghold in the country, which will alleviate Huawei’s government fears and help Huawei keep costs down. $2 billion • A manufacturing hub will be built near Chennai for $500 million. It will produce network investment shows infrastructure equipment for India and export to neighboring countries. the vendor views • The existing R&D center in Bangalore will expand to house 3,000 engineers, up from the the Indian market current 2,000. as a strategic, long-term • Partnerships with Indian IT firms will be funded to better approach and offer opportunity differentiated solutions to the market. • R&D budgets will rise to take advantage of the highly educated talent pool. • Training centers will be established to coach new hires and channel partners. These investments will boost Huawei’s India headcount from 6,000 at the end of 2010 to over 10,000 by the end of 2011, with more than 60% to be local hires.9 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRHuawei will come to dominate the low-end smartphone and tabletmarkets in 2011 TBR Assessment of Huawei’s Go-to-Market Strategy • Huawei is clearly focused on locking up the low-tier smartphone and tablet markets. The strategy is to mass-produce a limited number of models that are widely affordable and appealing to many demographics. Huawei is able to sell its devices at a discount Bringing Android- compared to rival offerings because of its low-cost operating structure and resistance to powered expensive advertising campaigns. Instead, Huawei prefers to let carriers and retailers smartphones and handle the marketing portion and sweeps those cost savings to the bottom line, which tablets at a fraction helps protect margins. of the cost of rivals’ • Huawei is also making inroads to big box retail stores like Best Buy and Wal-Mart. The offerings to U.S. popularity of Android smartphones and tablets is pushing retailers to offer the widest shores will resonate and most competitive selection of mobile devices. with mass market consumers, helping • TBR believes ZTE will be Huawei’s only significant competitor in the low-end space. make Huawei a Apple clearly owns the high end and RIM, Samsung, Nokia, Motorola and others are all household name jockeying to grab share in the mid- to high-end segments. • With competitors focused on balancing ASP and volume, Huawei is able to move in and quickly ramp-up unit shipments; however, TBR forecasts Huawei Device to have an excellent year in 2011.10 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Corporate SWOT Analysis TBRNokia Siemens is Huawei’s biggest threat from the West, as it iswilling to compete against the Chinese on price to win market share Strengths Opportunities • Leader in 4G technologies by number of contracts • Supply TD-LTE market • SingleRAN platform is a key differentiator for • Use strategic partnerships to build expertise and winning contracts in developed regions enter new markets • Able to provide vendor-linked financing through • Utilize Service Delivery Platform to establish Web ties to state-run banks in China 2.0 leadership • Low operating costs support low-cost pricing • Establish a foothold in the North American market strategy • Extensive installed base of Tier 2 & 3 telecom operators in emerging markets Weaknesses Threats • Need to add capabilities fast to match incumbent • Nokia Siemens prioritizing market share gains over NEPs profitability puts downward pressure on contract • Increasing size brings a challenge to maintaining pricing historical efficiency • Reshuffling of Chinese telecom industry could • Relatively small managed services base dampen Huawei’s growth prospects in home market • Ties to Chinese government could limit international investment opportunities • Tighter monetary policy by China could limit Huawei’s domestic growth • Lack of United States presence11 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Corporate SWOT Analysis TBRThe partnership with Sequans and the unveiling of a dual-mode TD-LTE/WiMAX SingleRAN base station show Huawei is serious about TD-LTEOpportunity: Supply TD-LTE market • Huawei is positioning itself to become a leader in TD-LTE, the iteration selected by Chinese operators for their 4G migration. In 4Q10, Huawei partnered with Sequans Communications to develop and commercialize TD-LTE hardware for the global marketplace and unveiled a new version of SingleRAN that supports both WiMAX and TD-LTE. • Unlike FDD-LTE, which uses paired spectrum, TD-LTE uses unpaired spectrum channels.Huawei stands Though TD-LTE is slightly less efficient at transmitting data than FDD-LTE, the version givesto be a key operators greater flexibility to use varying frequencies when operating their 4G network.beneficiary of Unpaired spectrum is also much less expensive than paired spectrum, which incentivizes itsTD-LTE-related use by operators.contracts,especially as • A push to develop TD-LTE in China has helped the technology catch up with FDD-LTE, makingWestern it a contender for commercial deployment. While European and North American operatorsvendors focus are likely to go with FDD-LTE, TBR believes TD-LTE will be the standard of choice in China,on the FDD Russia and India, where local vendors like Huawei and rival ZTE will push their version of theversion of the technology and where operators can find meaningful cost savings in the use of unpairedtechnology spectrum. • Though the Chinese government has been quiet regarding 4G license allocation, the big three Chinese telcos have all begun formulating their 4G ambitions. TD-LTE trials are slated to begin in 2011 and both Huawei and ZTE stand to be key beneficiaries of this next investment cycle to 4G in APAC, especially since Western vendors are almost completely focused on FDD- LTE to service their core customers.12 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Corporate SWOT Analysis TBRHuawei is at a crossroads, as its historical focus on network deploymentmust shift to software and services to further grow Tier 1 accountsWeakness: Need to add capabilities fast to match incumbent NEPs • Huawei is becoming a mature company. Though sales were strong in 2010, TBR believes Huawei’s growth rate will moderate in the coming years as it becomes more difficult to grow revenue off a larger base. • Huawei has built its empire on the mantra of fast deployment of low-cost, high-quality products. While this strategy has been extremely successful thus far, the company now finds itself at a crossroads and must adapt to be successful in the future. • With India representing the last large market for new network deployment, long-term revenue growth will come primarily from services and software – two areas Huawei lagsHuawei may pursue compared to incumbent NEPs like Alcatel-Lucent, Ericsson and Nokia Siemens.alliances and/or • Though Huawei is making strides in its services and software capabilities and offerings,acquisitions toaddress its relative much work remains to be done in cultivating customer relationships and building outweakness in software platforms and multimedia solutions that service providers will feel comfortableservices and adopting in their back-office systems.software • In services, Huawei is making progress in product-attached maintenance but lags in multivendor, primarily due to a relative lack of expertise in dealing with rivals’ systems. Professional services is another weak area for Huawei, one that includes a range of commoditized to highly specialized services. Huawei is trying to address the commoditized area with its new iCare solution. • In software, Huawei unveiled its Digital Shopping Mall in response to the popularity of mobile applications; however, Huawei lags behind Alcatel-Lucent in applications, particularly in enablement, and lags Ericsson in video – all important spaces that will be long-term growth drivers.13 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRGross margin improved in 2010 on favorable sales mix, but 2011 willpressure margins as 3G rollout activity ramps up in IndiaRevenue• Huawei blew past its guidance of $26.2 billion for TBR HUAWEI PROFITABILITY AND GROWTH 2010, attaining $28 billion in revenue, up 28.3% from $30,000 60% 2009. $25,000 50% In Millions USD• Given that Huawei historically issues guidance that is $20,000 40% in line with actual figures, this outperformance $15,000 30% speaks to the underlying strength of the service $10,000 provider industry. $5,000 20% $0 10%Expense 2006 2007 2008 2009 2010 Est.• TBR believes Huawei spent $2.8 billion on R&D in Total Revenue Gross Profit Operating Profit Year-to-Year Revenue Growth 2010, matching the company’s historical target spend SOURCE: TBR ESTIMATES AND HUAWEI of 10% of total revenue.• SG&A grew an estimated 43.4% year-to-year as Huawei beefed up advertising and sales departments TBR GROSS MARGIN & OPERATING MARGIN to meet strong demand in developing regions. 50% 40.0% 36.2% 38.2% 39.7% 39.6%Margin 40%• Gross margin rose 40 basis points from 2009 to 40% 30% as sales mix skewed more toward higher-margin software, services and next-generation hardware. 20% 12.9% 14.1% 11.9% 7.3% 9.7%• Operating margin fell 230 basis points year-to-year to 10% 11.9%, as Huawei boosted spending on R&D and 0% SG&A to fund innovation in areas such as TD-LTE and 2006 2007 2008 2009 2010 Est. applications as well as better align its sales GROSS MARGIN OPERATING MARGIN SOURCE: TBR ESTIMATES AND HUAWEI department with market demand.14 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBR TBR believes Huawei saw strong growth in all of its operating segments in 2010 Revenue Performance Revenue Drivers 2010 Est. Revenue: $28 billion, +28.3% Y/Y TBR HUAWEI REVENUE BY SEGMENT $28,000 Handset $4,500 $24,000 Service & • Revenue grew across Huawei’s portfolio, reflecting Revenue in Millions $20,000 $3,700 $4,900 Software strong operators demand for infrastructure, $2,400 Data services and software. $16,000 $3,790 $3,644 $12,000 $2,792 $1,527 $5,750 Optical • Growth returned to the terminal division in 2010, $2,106 $1,965 $1,265 $5,094 $1,950 Fixed aided by a push into higher-value devices such as $8,000 $1,200 $3,176 $2,190 $1,446 $1,527 smartphones. $4,000 $1,400 $8,500 Wireless $5,602 $6,328 $3,980 $0 2007 2008 2009 2010 Est. SOURCE: TBR ESTIMATES AND HUAWEI 2011 Revenue and Growth Outlook 2011 is shaping up to be a good year for HuaweiTBR HUAWEI 2010 SEGMENT REVENUE GROWTH • TBR and its rivals. Growth is broad-based, and demand $28,000 is being fueled by exponential rises in data traffic Revenue (in $ Millions) $800 $27,000 $26,000 $1,256 globally. $873 $25,000 $423 $656 $28,000 • India will be a key driver of infrastructure revenue $24,000 $23,000 $2,172 in 2011, but will pressure overall margins. $22,000 $21,821 • Device sales growth will accelerate in 2011 as the $21,000 distribution of low-cost Android smartphones and tablets expand to reach the mass market in developed markets. SOURCE: TBR ESTIMATES AND HUAWEI 15 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBR Huawei is investing heavily in sales and support staff and intellectual property to diversify and grow into other areas, such as software Expense Performance Expense Segments & Strategies 2010 Est. Total OPEX: $24.6 billion, +31.7% Y/YTBR TBR HUAWEI OPERATING EXPENSES $25,000 $2,800 Cost of $20,000 $5,000 Revenue Cost of revenue grew 27.4% from 2009, $1,953 $1,511 slower than revenue, as mix shifted toward In $ Millions $15,000 $1,284 $3,236 $3,538 $16.8 higher-margin products and services. $10,000 $850 $2,350 $16,800 billion $10,890 $13,188 $1,502 $5,000 $7,937 $5,424 $0 2006 2007 2008 2009 2010 Est. Huawei is hiring aggressively in key growth Research & Development SG&A Cost of Revenue SG&A markets, particularly India, Europe and the SOURCE: TBR ESTIMATES AND HUAWEI $5 billion Middle East, to align its sales and support TBR departments with the influx of business. TBR HUAWEI OPEX AS A PERCENTAGE OF REVENUE 70% 60% 50% 40% Huawei is investing heavily in TD-LTE (the 30% R&D version of LTE that will likely be rolled out 20% 10% $2.8 by the big three Chinese operators) as well 0% billion as applications, an area in which Huawei 2006 2007 2008 2009 2010 Est. has historically had minimal involvement. Cost of Revenue SG&A Research & Development SOURCE: TBR ESTIMATES AND HUAWEI 16 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Go-to-Market & Product Strategies TBRHuawei is innovating in all major segments, hoping to become a one-stopshop for all the needs of service providers and their end-usersTelecom Network Infrastructure Application & Software In its push to become an integral player in the applications space,Huawei launched the “Any Connection” Mobile Huawei launched its Digital Shopping Mall (DSM) in October. TheBroadband Solution (MBB), which helps operators Mall is a platform that aggregates and delivers apps to anyusing HSPA seamlessly migrate to LTE. Many operators Internet device. On launch, the store contained 80,000 appsworldwide are upgrading their HSPA networks to ranging from music to e-books to video. App revenue is splitHSPA+ to deliver higher speeds while waiting for the 70:30, with 70% going to the developers and 30% to the operatorLTE ecosystem to mature. The MBB solution gives supporting the mobile device. Alcatel-Lucent has similar offeringsoperators an opportunity to prepare for an eventual in this space and Huawei’s entrance poses a sizable threat,move to LTE while adding capacity to their network. especially as it is compatible with all major smartphone operating systems, including Symbian, RIM and Android.Professional Services Devices • Android is central to Huawei’s smartphone and tablet strategy.• iCare is a professional services solution that assists Using Google’s open source OS rather than a homegrown OS service providers in the planning, evaluation and helps Huawei save money on software and deliver more value optimization of IP, optical, microwave and FTTx on the hardware portion of the device. networks. This packaged offering shows Huawei is determined to become more involved in services. • Huawei launched its IDEOS series in September 2010. Priced between $100-$200 unsubsidized and free from some carriers• Huawei has become a major player in managed subsidized, these smartphones are affordable and appeal to a services in India, challenging Alcatel-Lucent for the large demographic in not only the U.S. and Europe, but also in No. 3 spot in provider by revenue; however, Huawei emerging markets, where smartphones are in high demand but will not pose a major threat to Ericsson and NSN, as most models are too expensive for the general population. Indian operators tend to award their equipment suppliers with managed services contracts rather • Huawei reported 1 million IDEOS series smartphones sold in the than seek outside providers. first two months of launch and that IDEOS devices are available in over 70 countries.17 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Alliance & Acquisition Strategies TBRCanada will act as a launchpad for Huawei’s North American ambitionsTBR Assessment of Huawei’s Alliance & Acquisition Strategy • Huawei is making major investments in North America as it tries to break into the United States market. With the U.S. government blocking Huawei’s every move stateside, the vendor is investing heavily in Canada to prove it has no ill intentions. So far, the Canadian government has been supportive of Huawei’s North American activities. • In November, Huawei announced it would devote $67 million over five years to the expansion of its main North American R&D center in Ottawa. In stark contrast to the U.S. government, the province of Ontario is providing Huawei with a $6.5 million grant to put toward the expansion. • To further increase its Canadian presence, Huawei partnered with two of Canada’s largestHuawei makes telecommunications companies, Telus and Bell Canada. In separate deals, Huawei and the telecoms agreed to establish joint innovation centers in Canada. Huawei has had a strong relationship with bothseveral moves operators since they gave the company its first major North American infrastructure deals in 2008.in Canada andwill retrench • Huawei has clearly set itself up for a long-term push into North America. In January, Huawei opened itsfor another new Canadian headquarters outside of Toronto, moving its sales and marketing groups into the building and stressing a new focus on cloud computing. Cloud computing is poised to become thepush into the major initiative behind Huawei’s North American strategy.United States • What the combination of these moves will do to quell the U.S. government’s concerns is unclear. In the short term, there are no indications of decreased hostility on the part of the government, with officials forcing Huawei to divest the May 2010 3Leaf acquisition in March. • Huawei will likely not be allowed to make significant acquisitions or win large infrastructure supply agreements in the United States this year, but establishing a foundation in Canada should prove worthwhile. With its ties to the Chinese military and limited history on the continent, government officials have rebuffed Huawei’s advances. As Huawei builds its reputation in Canada and among small service providers in the United States, the U.S. government may soften its negative view of the company.18 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Geographic Analysis TBRHuawei’s focus on international expansion cost it some ground in China,as Alcatel-Lucent, Ericsson and Nokia Siemens all locked up large dealsQuarterly Segment Performance 2010 Growth Geo Key Deals & Drivers Revenue Trends to Monitor Y/Y Estimate • In November, Huawei was selected to upgrade China Mobile’s 10G backbone network to 40G. • TBR estimates absolute capex spend by incumbent Chinese • Surprisingly, Huawei was sidelined in its home telcos will continue to decline market in 2010 while Alcatel-Lucent, Ericsson and through 2012 as spending shifts Nokia Siemens all landed lucrative frame from network buildouts to less agreements and services contracts with leading $9.8 capital-intensive services and China –3.4% operators China Mobile, China Unicom and China billion software upgrades. Telecom. • Chinese telcos will trial TD-LTE in • Poor performance in China suggests Huawei was 2011, but commercial overly focused on growing its share of the deployments are not expected international pie rather than maintaining its market for at least another year. share in China. • Deals inked in September with Bharti Airtel, MTS India sales bottomed out in 2010. APAC and Tata began to ramp up in 4Q10, but will not TBR expects India to be a key become a major contributor to revenue until 2011. $6 (ex- 56.5% contributor to Huawei’s top-line billion China) • APAC growth was fueled by deals with operators in growth in 2011 as 3G networks are Cambodia, Malaysia and Bangladesh. deployed across the country. TBR HUAWEI GEOGRAPHIC REVENUE FISCAL YEAR 2004 2005 2006 2007 2008 2009 2010 Est. China 73.0% 60.0% 34.7% 28.0% 25.0% 46.5% 35.0% International 27.0% 40.0% 65.3% 72.0% 75.0% 53.5% 65.0% SOURCE: TBR ESTIMATES AND HUAWEI 19 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Geographic Analysis TBRSome European operators are becoming comfortable using Huawei as anexclusive provider of all their network needs, rather than just portionsQuarterly Segment Performance 2010 Growth Geo Key Deals & Drivers Revenue Trends to Monitor Y/Y Estimate • Canada is the driver of North American • Huawei’s opportunities with U.S. Tier 1 revenue, while deal flow in the United operators will likely be limited to handsets States remains weak due to government due to regulatory barriers, but the roadblocks. vendor’s prospects for Tier 2 and cable North $454 operator contracts are bright. • Huawei still managed to win several 11.3%America million deals in the U.S. in 2010 with Tier 2 & 3 • TBR also expects Huawei’s presence in the service providers; its terminals are smartphone and tablet markets to pick up increasingly offered by the top six after the company’s release of a series of wireless operators. low-cost Android devices. • Huawei landed three end-to-end 4G • MEA will be challenged as uprisings across contracts in 4Q10 with operators across the region cause some operators to rein in Europe, including T-Mobile in Austria, capex spending. Datame Oy in Finland and Aero2 in • This revelation will hamper plans by Poland. $9.9 Huawei, Ericsson and Alcatel-Lucent to EMEA 52.5% • These 4G deals show operators are billion increase involvement in the Middle East, becoming more comfortable with which holds much promise for both Huawei and entrusting the vendor with network upgrades and greenfield all aspects of deployment, rather than deployments on the service provider and just bits and pieces. enterprise space. Operators in Latin America are Huawei is well-positioned in CALA and $1.8 aggressively bulking up capacity on their CALA has a strategic advantage thanks to its 97.1% billion fixed and mobile networks to prepare for credit lines from Chinese banks. increased broadband usage.20 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Resource Management Strategy TBRHuawei is expanding its international presence to support existingoperations and capitalize on future opportunities Huawei’sInvestments/R&D Focus Worldwide Operations• Huawei’s failure to keep 3Leaf assets upon U.S. government review reflects the company’s ongoing • Huawei opened its Canadian HQ in Markham, struggle to expand its presence in the United States. Ontario in January and plans to spend $67 million on Huawei had purchased 3Leaf in May 2010 for R&D in the country over the next five years. Of $2 million, including the firm’s virtualization and Huawei’s estimated 1,500 employees in North server patents. America, 500 are based in Canada.• Failure to win part of a Sprint supply contract led • Huawei will gain leverage in the United States by Huawei to scale back its partnership with Amerilink. becoming a strong player in the neighboring Both companies continue to work together on joint Canadian telecom equipment market. The vendor’s sales opportunities in the United States, but the strategy is to use channel partners and reference secure delivery program has been dissolved. contracts to penetrate new customer accounts.Personnel Changes TBR ANNUAL REVENUE PER EMPLOYEE• Huawei ended 2010 with 110,000 employees, up $250 $230 15,000, or 15.8%, year-to-year. Revenue In Thousands $225 $207• Chinese headcount fell 13% in 2010 to 59,000 due to $200 the relocation of employees to Europe and other $171 countries across APAC, particularly India. $175 $159• Huawei hired former CTO of Nortel John Roese to $150 $139 lead its North American R&D team. Roese has $125 worked for several well-known U.S. tech firms and is $100 expected to help Huawei improve its image among 2005 2006 2007 2008 2009 regulators in North America. SOURCE: TBR AND HUAWEI21 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Future Outlook TBRIndia will be a key driver of revenue growth in 2011 for most vendors as3G is deployed, but margins will be pressured due to weak pricingTBR Outlook • Operators will have to adjust their business models to match the shift from a voice-centric environment to a data-centric environment. Tiered data plans will become commonplace to better monetize bandwidth, while investment in RAN modernization, backhaul, IP, HSPA+ and LTE will gain momentum as operators seek to scale capacity at a lower cost per bit and improve speeds. • Though component shortages are easing, access to parts continues to be a headache for not only Industry network vendors, but also handset and other device manufacturers. This challenge has created sizable backlogs for equipment suppliers and will need to be filled in 2011. Component supplies could tighten further following the disaster in Japan as the country is a major manufacturer and exporter of many critical electronic parts that go into a wide array of network infrastructure equipment and end-user electronic devices. • India will be a key revenue driver in 2011, as all operators with 3G licenses had awarded rollout contracts by the end of 2010, but the weak pricing environment will pressure gross margins. Ericsson’s purchase of Nortel’s wireless assets and Nokia Siemens’ buyout of Motorola’s wireless business have solidified both vendors’ stakes in North America. TBR believes the altered Competitors competitive landscape in North America will make it more difficult for marginalized players like Huawei to win business. • Huawei will build a good reputation in Canada by working closely with operators, employing locally, and investing in its new R&D center in Ottawa. The hope is that good relations with the Company Canadian people will help assuage government fears about Huawei selling its products in the Strategy United States. • Huawei is bulking up its services and applications businesses to better compete with its Western rivals and drive margin growth.22 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Future Outlook TBRHuawei will likely grow faster than its industry in 2011 as its strategy togrow market share and enter higher-margin areas continues to bear fruitTBR Outlook • Revenue will grow faster than the network infrastructure industry, as Huawei continues to win contracts and take market share in developed markets like Western Europe and Canada. • Gross margin will be pressured as 3G rollout activity in India ramps up, but better mix in Financial developed markets should offset most of this decline. • SG&A will trend higher as a percentage of revenue as Huawei builds out its sales and support staff in developed markets. • Huawei will push its SingleRAN platform as a cost- and energy-efficient solution that can help operators more easily converge their 2G, 3G and, increasingly, 4G network assets. • Huawei will fine-tune its TD-LTE solution and bring it to market in 2011 just in time for Chinese Go-to-Market operators to begin trials. • Huawei will focus on winning small portions of contracts with new customers to establish relationships and position the company for a greater share of future contracts. • Huawei will focus on building out manufacturing, R&D and support facilities in India to address Indian concerns and take advantage of the country’s relatively low labor costs. Resource • Huawei will also beef up R&D facilities and sales & marketing staff in North America as the Management company prepares for rapid expansion in Canada and the United States. • Localization will remain integral to Huawei’s strategy of tapping new talent pools and rapidly expanding its international operations.23 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Income Statement TBR HUAWEI TECHNOLOGIES CORPORATION Consolidated Income Statement (i n $ Thous a nds ) TBR CALENDAR YEAR 2004 2005 2006 2007 2008 2009 2010 Est. FISCAL YEAR 2004 2005 2006 2007 2008 2009 2010 Est. Revenue $ 3,826,687 $ 5,981,542 $ 8,503,897 $ 12,840,113 $ 18,070,917 $ 21,820,963 $ 28,000,000 Cost of Sales 1,918,549 3,559,366 5,424,011 7,936,732 10,890,002 13,188,406 16,800,000 Gross Profit 1,908,138 2,422,176 3,079,886 4,903,381 7,180,916 8,632,557 11,200,000 R&D 487,000 588,000 850,390 1,284,011 1,510,853 1,952,862 2,800,000 SG&A 741,305 1,013,656 1,502,472 2,349,741 3,235,871 3,538,135 5,000,000 Total Operating Expenses 1,228,305 1,601,656 2,352,862 3,577,867 4,746,724 5,490,997 7,800,000 Other Operating Income/Loss 17,001 30,091 106,029 77,655 96,692 59,728 78,025 Operating Income 696,834 850,611 620,995 1,247,859 2,337,499 3,081,833 3,321,975 Net financing costs 1,605 38,369 38,918 198,881 955,810 (183,721) 323,657 Share of losses of associates 16,799 12,552 15,025 7,273 27,853 23,862 25,000 Income before income taxes 678,430 799,690 567,052 1,041,705 1,353,836 3,241,692 2,973,318 Income taxes expense 45,103 115,788 54,664 84,807 221,238 566,535 535,197 Minority Interest 9,274 3,079 200 - (1,010) 3,074 3,000 Net Income $ 624,053 $ 680,823 $ 512,188 $ 956,898 $ 1,133,608 $ 2,672,083 $ 2,435,121 PERCENTAGE OF REVENUE Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Revenues 50.1% 59.5% 63.8% 61.8% 60.3% 60.4% 60.0% Gross Profit 49.9% 40.5% 36.2% 38.2% 39.7% 39.6% 40.0% R&D 12.7% 9.8% 10.0% 10.0% 8.4% 8.9% 10.0% SG&A 19.4% 16.9% 17.7% 18.3% 17.9% 16.2% 17.9% Operating Income 18.2% 14.2% 7.3% 9.7% 12.9% 14.1% 11.9% Net Income 16.3% 11.4% 6.0% 7.5% 6.3% 12.2% 8.7% YEAR-TO-YEAR CHANGE Revenue N/A 56.3% 42.2% 51.0% 40.7% 19.0% 28.3% Cost of Revenues N/A 85.5% 52.4% 46.3% 37.2% 19.4% 27.4% Gross Profit N/A 26.9% 27.2% 59.2% 46.4% 18.5% 29.7% R&D N/A 20.7% 44.6% 51.0% 17.7% 27.4% 43.4% SG&A N/A 36.7% 48.2% 56.4% 37.7% 7.8% 41.3% Operating Income N/A 22.1% -27.0% 100.9% 87.3% 30.0% 7.8% Net Income N/A 9.1% -24.8% 86.8% 18.5% 132.4% -8.9% SOURCE: TBR ESTIMATES AND HUAWEI NOTE: Huawei reports annual results only24 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Balance Sheet TBR HUAWEI NETWORKS Consolidated Balance Sheet TBR (i n $ Thous a nds ) CALENDAR YEAR 2005 2006 2007 2008 2009 FISCAL YEAR 2005 2006 2007 2008 2009 ASSETS Cash and cash equivalents $ 883,029 $ 1,056,042 $ 1,892,266 $ 3,033,106 $ 4,279,315 Trade and other receivables 2,322,711 3,650,086 5,488,077 7,627,720 9,263,944 Investments - 64 - - - Inventories 1,214,842 1,420,455 2,267,276 3,325,636 3,652,028 Deferred tax assets 109,514 181,529 - 540,033 753,477 Total Current Assets 4,530,096 6,308,176 9,647,619 14,526,497 17,948,763 Plant and Equipment, Net 894,142 939,784 931,721 1,051,348 1,217,538 Intangible Assets 13,862 10,937 15,038 18,328 80,954 Other Assets 315,552 237,286 502,556 1,467,846 1,196,750 Total Assets $ 5,753,652 $ 7,496,183 $ 11,096,934 $ 17,064,019 $ 20,444,005 LIABILITIES AND EQUITY Interest-bearing loans and borrowings $ 288,170 $ 332,883 $ 158,628 $ 1,873,665 $ 1,154,589 Income tax payable 150,197 163,312 94,513 195,549 541,063 Trade and other payables 2,582,120 4,183,046 6,029,505 8,735,208 10,249,305 Provision for warranties 39,887 80,122 151,201 183,860 172,010 Total Current Liabilities 3,060,374 4,759,363 6,433,847 10,988,281 12,116,967 Interest-bearing loans and borrowings 253,173 39,790 215,280 148,069 1,242,863 Other payables 23,412 25,894 336,417 522,427 743,083 Total Liabilities 3,336,959 4,825,047 6,985,544 11,658,777 14,102,913 Minority Interest in Subsidiary Companies 4,912 4,286 127,539 4,762 9,223 Total Capital and Reserves 2,411,781 2,666,850 3,983,851 5,400,479 6,331,869 Total Liabilities and Equity $ 5,753,652 $ 7,496,183 $ 11,096,934 $ 17,064,019 $ 20,444,005 FINANCIAL RATIOS Days Sales Outstanding 154.96 156.67 156.01 154.07 154.96 Turns on Inventory 2.93 4.12 6.96 6.46 6.25 Days Inventory Outstanding 124.58 88.67 52.41 56.48 58.36 Fixed Asset Turnover 6.69 9.27 13.72 18.23 19.23 Days Cash Outstanding 53.15 44.71 53.05 60.42 70.60 Total Asset Turnover 4.16 1.28 1.38 1.28 1.16 Debt/Asset Ratio 0.58 0.64 0.63 0.68 0.69 Current Ratio 1.48 1.33 1.50 1.32 1.48 Return on Assets 11.8% 7.7% 10.3% 8.1% 14.2% Return on Equity 28.2% 20.2% 28.8% 24.2% 45.6% Average Annual Revenue per Employee $ 170,901 $ 139,408 $ 158,520 $ 206,520 $ 229,694 Employee Count 35,000 61,000 81,000 87,502 95,000 CNY/USD Exchange Rate 6.9292 6.831 SOURCE: TBR AND HUAWEI NOTE: Huawei only reports Balance Sheet annually25 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Revenue Model TBR TBR HUAWEI REVENUE MODEL CALENDAR YEAR 2005 2006 2007 2008 2009 2010 Est. FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est. IN $ THOUSANDS Reported Revenue $ 5,981,542 $ 8,503,897 $ 12,840,113 $ 18,070,917 $ 21,820,963 $ 28,000,000 Wireless $ 2,036,287 $ 2,636,208 $ 3,980,435 $ 5,601,984 $ 6,328,079 $ 8,500,000 Fixed $ 1,092,800 $ 1,165,034 $ 1,399,572 $ 1,445,673 $ 1,527,467 $ 1,950,000 Optical $ 984,242 $ 1,360,624 $ 2,189,790 $ 3,175,937 $ 5,093,848 $ 5,750,000 Data $ 605,126 $ 807,870 $ 1,200,000 $ 1,264,964 $ 1,527,467 $ 2,400,000 Service & Software $ 687,511 $ 901,413 $ 1,964,537 $ 2,791,957 $ 3,644,101 $ 4,900,000 Handset $ 510,348 $ 1,003,460 $ 2,105,779 $ 3,790,401 $ 3,700,000 $ 4,500,000 PERCENTAGE OF REVENUE Reported Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Wireless 34.0% 31.0% 31.0% 31.0% 29.0% 30.4% Fixed 18.3% 13.7% 10.9% 8.0% 7.0% 7.0% Optical 16.5% 16.0% 17.1% 17.6% 23.3% 20.5% Data 10.1% 9.5% 9.3% 7.0% 7.0% 8.6% Service & Software 11.5% 10.6% 15.3% 15.5% 16.7% 17.5% Handset 8.5% 11.8% 16.4% 21.0% 17.0% 16.1% YEAR-TO-YEAR CHANGE Reported Revenue 56.3% 42.2% 51.0% 40.7% 20.8% 28.3% Wireless N/A 29.5% 51.0% 40.7% 13.0% 34.3% Fixed N/A 6.6% 20.1% 3.3% 5.7% 27.7% Optical N/A 38.2% 60.9% 45.0% 60.4% 12.9% Data N/A 33.5% 48.5% 5.4% 20.8% 57.1% Service & Software N/A 31.1% 117.9% 42.1% 30.5% 34.5% Handset N/A 96.6% 109.9% 80.0% -2.4% 21.6% SOURCE: TBR ESTIMATES AND HUAWEI NOTE: Huawei reports annual results only26 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Geographic Model TBRTBR HUAWEI REVENUE BY GEOGRAPHIC REGIONCALENDAR YEAR 2006 2007 2008 2009 2010 Est. CALENDAR YEAR 2006 2007 2008 2009 2010 Est.FISCAL YEAR 2006 2007 2008 2009 2010 Est. FISCAL YEAR 2006 2007 2008 2009 2010 Est.IN $ THOUSANDS PERCENTAGE OF REVENUEChina China 34.7% 28.0% 25.0% 46.5% 35.0%Sales $ 2,950,852 $ 3,595,232 $ 4,517,729 $ 10,146,748 $ 9,800,000 International 65.3% 72.0% 75.0% 53.5% 65.0%Orders $ 3,850,000 $ 4,853,563 $ 6,356,168 $ 10,042,746 $ 11,500,000 Asia Pacific (excl. China) 32.2% 29.6% 31.8% 17.6% 21.5%International India 2.2% 4.7% 7.2% 7.1% 6.1%Sales $ 5,553,045 $ 9,244,881 $ 13,553,188 $ 11,674,215 $ 18,200,000 CALA 5.3% 7.0% 8.5% 4.2% 6.5% Asia Pacific (excl. China) $ 2,740,511 $ 3,799,383 $ 5,743,188 $ 3,842,815 $ 6,014,000 EMEA 26.7% 34.3% 33.4% 29.8% 35.4% India $ 186,000 $ 600,000 $ 1,300,000 $ 1,560,000 $ 1,708,000 Europe 9.1% 16.3% 16.5% 13.7% 17.5% CALA $ 450,000 $ 900,000 $ 1,539,000 $ 923,400 $ 1,820,000 MEA 17.6% 17.9% 16.9% 16.0% 17.9% EMEA $ 2,270,000 $ 4,399,296 $ 6,040,000 $ 6,500,000 $ 9,912,000 North America 1.1% 1.1% 1.3% 1.9% 1.6% Europe $ 770,000 $ 2,099,296 $ 2,981,000 $ 3,000,000 $ 4,900,000 YEAR-TO-YEAR GROWTH (REVENUE) MEA $ 1,500,000 $ 2,300,000 $ 3,059,000 $ 3,500,000 $ 5,012,000 China -17.8% 21.8% 25.7% 124.6% -3.4% North America $ 92,533 $ 146,203 $ 231,000 $ 408,000 $ 454,000 International 132.1% 66.5% 46.6% -13.9% 55.9%International Orders $ 7,150,000 $ 11,146,437 $ 16,943,832 $ 20,115,650 $ 24,500,000 Asia Pacific (excl. China) NA 38.6% 51.2% -33.1% 56.5% Asia Pacific (excl. China) $ 2,000,000 $ 2,500,000 $ 4,650,000 $ 6,649,500 $ 7,500,000 India 86.0% 222.6% 116.7% 20.0% 9.5% India $ 350,000 $ 700,000 $ 2,000,000 $ 2,400,000 $ 4,500,000 CALA NA 100.0% 71.0% -40.0% 97.1% CALA $ 566,500 $ 750,000 $ 1,250,000 $ 1,562,500 $ 2,000,000 EMEA NA 93.8% 37.3% 7.6% 52.5% EMEA $ 4,479,000 $ 7,354,316 $ 10,064,091 $ 10,404,646 $ 13,000,000 Europe NA 172.6% 42.0% 0.6% 63.3% North America $ 104,500 $ 542,121 $ 979,741 $ 1,499,004 $ 2,000,000 MEA NA 53.3% 33.0% 14.4% 43.2%Total Revenue $ 8,503,897 $ 12,840,113 $ 18,070,917 $ 21,820,963 $ 28,000,000 North America 2993.7% 58.0% 58.0% 76.6% 11.3%Total Orders $ 11,000,000 $ 16,000,000 $ 23,300,000 $ 30,158,396 $ 36,000,000 Total Revenue 42.2% 51.0% 40.7% 20.8% 28.3% PERCENTAGE OF ORDERS China 35.0% 30.3% 27.3% 33.3% 31.9% International 65.0% 69.7% 72.7% 66.7% 68.1% YEAR-TO-YEAR GROWTH (ORDERS) China 10.3% 26.1% 31.0% 58.0% 14.5% International 51.7% 55.9% 52.0% 18.7% 21.8% Total Orders 34.1% 45.5% 45.6% 29.4% 19.4% SOURCE: TBR ESTIMATES AND HUAWEI NOTE: Huawei only reports annual financial results 27 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – OPEX Model TBR TBR HUAWEI OPERATING EXPENSE MODEL CALENDAR YEAR 2005 2006 2007 2008 2009 2010 Est. FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est. IN $ THOUSANDS Total Revenue $ 5,981,542 $ 8,503,897 $ 12,560,356 $ 18,328,956 $ 21,500,000 $ 28,000,000 SG&A Expense $ 1,013,656 $ 1,502,472 $ 2,349,741 $ 3,235,871 $ 3,538,135 $ 5,000,000 Sales & Marketing Expense $ 608,194 $ 901,483 $ 1,409,844 $ 1,941,523 $ 2,122,881 $ 3,000,000 General and Administrative Expense $ 405,462 $ 600,989 $ 939,896 $ 1,294,349 $ 1,415,254 $ 2,000,000 R&D Expense $ 588,000 $ 850,390 $ 1,284,011 $ 1,510,853 $ 1,952,862 $ 2,800,000 SALES AND MARKETING EXPENSE BREAKOUT Sales Expense $ 364,916 $ 540,890 $ 845,907 $ 1,164,914 $ 1,273,729 $ 1,800,000 Partner and Channel Spending $ 91,229 $ 135,223 $ 211,477 $ 291,228 $ 318,432 $ 450,000 Marketing Spending $ 152,048 $ 225,371 $ 352,461 $ 485,381 $ 530,720 $ 750,000 Advertising $ 91,229 $ 135,223 $ 211,477 $ 291,228 $ 318,432 $ 450,000 Total Sales and Marketing Expense $ 608,194 $ 901,483 $ 1,409,844 $ 1,941,523 $ 2,122,881 $ 3,000,000 Total SG&A Expense 16.9% 17.7% 18.7% 17.7% 16.5% 17.9% Sales and Marketing Expense 10.2% 10.6% 11.2% 10.6% 9.9% 10.7% Sales Expense 6.1% 6.4% 6.7% 6.4% 5.9% 6.4% Partner and Channel Spending 1.5% 1.6% 1.7% 1.6% 1.5% 1.6% Marketing Spending 2.5% 2.7% 2.8% 2.6% 2.5% 2.7% Advertising 1.5% 1.6% 1.7% 1.6% 1.5% 1.6% General and Administrative 6.8% 7.1% 7.5% 7.1% 6.6% 7.1% CORPORATEWIDE HEADCOUNT R&D 16,800 29,280 34,830 37,626 40,850 50,600 Marketing, Sales and Customer Service 13,300 23,180 32,400 35,001 38,000 44,000 Supply Chain 2,800 4,880 8,100 8,750 9,500 11,000 Admin. 2,100 3,660 5,670 6,125 6,650 4,400 Total Employees 35,000 61,000 81,000 87,502 95,000 110,000 SOURCE: TBR ESTIMATES AND HUAWEI NOTE: Huawei only reports annual financial results28 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Forecast Model TBR TBR HUAWEI FINANCIALS AND TBR QUARTERLY PROJECTION CALENDAR YEAR 2005 2006 2007 2008 2009 2010 Est. FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est. IN $ THOUSANDS Net Sales $ 5,981,542 $ 8,503,897 $ 12,840,113 $ 18,070,917 $ 21,820,963 $ 28,000,000 Gross Profit $ 2,422,176 $ 3,079,886 $ 4,903,381 $ 7,180,916 $ 8,632,557 $ 11,200,000 SG&A $ 1,013,656 $ 1,502,472 $ 2,349,741 $ 3,235,871 $ 3,538,135 $ 5,000,000 R&D $ 588,000 $ 850,390 $ 1,284,011 $ 1,510,853 $ 1,952,862 $ 2,800,000 Operating Income $ 850,611 $ 620,995 $ 1,247,859 $ 2,337,499 $ 3,081,833 $ 3,321,975 Net Income $ 680,823 $ 512,188 $ 956,898 $ 1,133,608 $ 2,672,083 $ 2,435,121 PERCENTAGE OF REVENUE Gross Margin 40.5% 36.2% 38.2% 39.7% 39.6% 40.0% SG&A 16.9% 17.7% 18.3% 17.9% 16.2% 17.9% R&D 9.8% 10.0% 10.0% 8.4% 8.9% 10.0% Operating Margin 14.2% 7.3% 9.7% 12.9% 14.1% 11.9% Net Margin 11.4% 6.0% 7.5% 6.3% 12.2% 8.7% YEAR-TO-YEAR GROWTH Net Sales N/A 42.2% 51.0% 40.7% 20.8% 28.3% Gross Profit N/A 27.2% 59.2% 46.4% 20.2% 29.7% SG&A N/A 48.2% 56.4% 37.7% 9.3% 41.3% R&D N/A 44.6% 51.0% 17.7% 29.3% 43.4% Operating Income N/A -27.0% 100.9% 87.3% 31.8% 7.8% Net Income N/A -24.8% 86.8% 18.5% 135.7% -8.9% SOURCE: TBR ESTIMATES AND HUAWEI NOTE: Huawei only reports annual financial results29 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Financial Graphs TBRFinancial GraphsTBR REVENUE GROWTH YEAR-TO-YEAR TBR GROSS MARGIN & OPERATING MARGIN 60.0% 50% 51.0% 40.0% 50.0% 36.2% 38.2% 39.7% 39.6% 40% 42.2% 40.7% 40.0% 28.3% 30% 30.0% 19.0% 20.0% 20% 12.9% 14.1% 11.9% 10.0% 7.3% 9.7% 10% 0.0% 2006 2007 2008 2009 2010 Est. 0% 2006 2007 2008 2009 2010 Est. SOURCE: TBR AND HUAWEI GROSS MARGIN OPERATING MARGIN SOURCE: TBR ESTIMATES AND HUAWEITBR TBR HUAWEI PERCENTAGE OF REVENUE BY REGION TBR HUAWEI REVENUE COMPOSITION 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 2007 2008 2009 2010 Est. 2006 2007 2008 2009 2010 Est. China APAC (excluding China) Wireless Fixed CALA EMEA Optical Data North America Services & Software Handset SOURCE: TBR ESTIMATES AND HUAWEI SOURCE: TBR ESTIMATES AND HUAWEI30 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Financial Graphs TBRFinancial Graphs TBR SELLING, GENERAL, & ADMINISTRATIVE EXPENSE TBR RESEARCH & DEVELOPMENT EXPENSE $6,000 20.0% $3,000 10.0% $5,000 19.0% $2,500 9.5% In Millions In Millions $4,000 18.0% $2,000 $3,000 17.0% 9.0% $1,500 $2,000 16.0% $1,000 8.5% $1,000 15.0% $0 14.0% $500 8.0% 2006 2007 2008 2009 2010 Est. 2006 2007 2008 2009 2010 Est. SG&A SG&A as % of Total Revenue R&D R&D as % of Total Revenue SOURCE: TBR AND HUAWEI SOURCE: TBR AND HUAWEI RETURN ON ASSETS TBR RETURN ON EQUITY TBR 16% 14.2% 45.6% 11.8% 45% 12% 10.3% 7.7% 8.1% 35% 8% 28.2% 28.8% 24.2% 4% 25% 20.2% 0% 15% 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 SOURCE: TBR AND HUAWEI SOURCE: TBR AND HUAWEI31 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Financial Graphs TBRFinancial Graphs TBR DAYS CASH OUTSTANDING 75.00 70.60 60.42 60.00 53.15 53.05 Number of Days 44.71 45.00 30.00 15.00 0.00 2005 2006 2007 2008 2009 SOURCE: TBR AND HUAWEI TBR TBR DEBT/ASSET RATIO CURRENT RATIO TBR TBR 0.75 0.68 0.69 2.00 0.58 0.64 0.63 0.60 1.48 1.50 1.48 1.50 1.33 1.32 0.45 1.00 0.30 0.50 0.15 0.00 0.00 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 SOURCE: TBR AND HUAWEI SOURCE: TBR AND HUAWEI32 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Go-to-Market and Resource Management Graphs TBR Go-to-Market and Resource Management GraphsTBR TBR INVENTORY TURNS TBR TBR TOTAL ASSET TURNOVER 8.00 6.96 4.50 4.16 6.46 6.25 6.00 Number of Turns Number of Turns 3.00 4.12 4.00 2.93 1.28 1.38 1.28 1.16 1.50 2.00 0.00 0.00 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 SOURCE: TBR AND HUAWEI SOURCE: TBR AND HUAWEI TBR FIXED ASSET TURNS TBR DAYS SALES OUTSTANDING 24.00 180.00 154.96 156.67 156.01 154.07 154.96 18.23 19.23 150.00 18.00 Number of Days Number of Turns 120.00 13.72 12.00 90.00 9.27 6.69 60.00 6.00 30.00 0.00 0.00 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 SOURCE: TBR AND HUAWEI SOURCE: TBR AND HUAWEI 33 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Acquisitions TBR Huawei AcquisitionsCompany 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 mobileM4S broadband solutions such as USB modems, embedded modules, chipsets, software andOctober 2010 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.34 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Alliances TBR Huawei AlliancesCompany Scope of PartnershipIntertrust Huawei entered into a licensing agreement to use Intertrust’s Sushi Marlin Client SDK andTechnologies Bluewhale Marlin Broadband Server. Both companies will also explore business opportunitiesMarch 2011 globally. Huawei-Symantec and Force10 Networks in long-term partnership to combine security, storageForce10 Networks and networking expertise to better address vertical markets in North America, particularlyFebruary 2011 healthcare, finance and telecom.SPIRIT DSP Huawei extended licensing agreement to use SPIRIT’s voice and video engines in its IMS, UC andFebruary 2011 fixed mobile convergence platforms.Carrier IQ Companies entered into global software licensing agreement with Huawei integrating CarrierFebruary 2011 IQ’s solutions into its mobile broadband data terminals. Companies are working together to develop next-generation optical transport and accessSmartworld solutions to build “smart cities.” Huawei will provide an end-to-end optical transport solutionJanuary 2011 and Smartworld will deploy and manage the solution for Dubai World Central (DWC) and Al- Maktoum International Airport, both in the United Arab Emirates.Qatar Telecom Jointly develop telecom solutions for key industries in Qatar and other Middle Eastern countries.January 2011 Entered Master Purchase Agreement to give Huawei access to TCS’ location-based services (LBS)TeleCommunication technology. TCS will let Huawei use its end-to-end Xypoint LBS solutions in its own products andSystems (TCS) services. Both companies will provide operators with professional and managed services forJanuary 2011 their LBS solutions.SequansCommunications Accelerating development and commercialization of TD-LTE technology for global market.October 201035 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Alliances TBR Huawei Alliances (continued)Company Scope of Partnership Huawei partnered with Amerilink Telecom, a startup run by former Sprint employees, to help theAmerilink Telecom vendor penetrate further into the North American market. Amerilink has also become a key U.S.August 2010 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 dataIPWireless traffic from 3G networks, allowing live video streaming and broadcasting and storage of content onJuly 2010 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 partnershipPerSay that will see PerSay’s VocalPassword and FreeSpeech voice biometrics offerings integrated withApril 2010 Huawei’s IP contact center product suite. Huawei and Opera entered a partnership whereby Huawei will preinstall the Opera Mobile 10Opera Software browser on various models of its mobile phones. Opera’s cross-platform user interface softwareFebruary 2010 allows operators and device manufacturers to install a mobile browser across a variety of devices.German Telecom Huawei, German Telecom and T-Mobile signed a Memorandum of Understanding to identify,T-Mobile develop and test M2M solutions. The partners will acquire pilot customers to test M2M productsJanuary 2010 and services, as well as build out distribution and business models around M2M. Huawei and Tianjin Jinke will develop and bring to market e-publishing solutions for telecomTianjin Jinke carriers. Tianjin Jinke will build terminals for its e-readers, while Huawei will provide back-officeElectronics System software to manage copyrights, billing, publishing and customs. The first e-reader will be launchedJanuary 2010 with China Mobile in early 2010.36 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Recent Product Announcements TBR Huawei Recent Product AnnouncementsProduct Series Configuration Configured with third-generation router architecture to support mobile and fixed WAN access asAR G3 Enterprise well as multi-service processing. Uses multi-core CPUs and non-blocking switching architecture.Access Router Has 3M PPS processing performance and 80 Gbps switching capacity. The AR G3 supportsMarch 2011 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)OptiX RTN 980 provides throughput of 1 Gbps per frequency carrier, while basic versions range from 400 Mbps toFebruary 2011 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.“Any Connection”Mobile Broadband Seamlessly evolves from UMTS and HSPA to LTE. Features on-demand routing modes betweenBackhaul (MBB) dynamic and static with 300 mm-depth edge routers installed in outdoor cabinets.February 2011 Professional service solution that is applicable to IP, optical transmission, microwave and FTTxiCare networks. iCare provides network planning, network evaluation and optimization for live networksFebruary 2011 as well as aids in service migration and network evolution.E398 World’s first triple-mode modem. Supports 2G (GSM), 3G (UMTS) and LTE. The modem is initiallyDecember 2010 available in select European markets.WiMAX – TD-LTE Contains dual mode remote radio unit (RRU) and dual mode base band unit (BBU) to support bothSingleRAN WiMAX and TD-LTE in the 2.3GHz, 2.5GHz and 3.5GHz frequency bands. Also supports MIMO andNovember 2010 Beamforming technologies.Intelligent OpticalDistribution Network Lets operators locate and operate optical fibers in an FTTH environment. Supplements Huawei’s(iODN) portfolio of FTTH solutions ranging from equipment to delivery and services.October 201037 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Recent Product Announcements TBR Huawei Recent Product Announcements (continued)Product Series Configuration Provides operators with a unified service platform that aggregates Internet applications and delivers cloud-based services to end-users. Platform supports all major smartphone operatingDigital Shopping Mall systems, including Android, RIM and Symbian. At launch, the Mall featured 80,000 apps ranging(DSM) from music to e-books to video. The store can be accessed via nearly any Internet-enabledOctober 2010 electronic device including tablets and televisions. App revenue is split 70:30, with 70% going to developers and 30% to telecom operators.Oceanspace S2600Oceanspace N8300 Storage solution tailored to SMB. Offers unified storage platform and multi-service gateway forSecospace USG2000 security and routing.BSR/HSROctober 2010 Uses four twisted frequency pairs to achieve downstream speeds of 700 Mbps at a distance of 400SuperMIMO meters. Addresses crosstalk between multiple twisted pairs and increases DSL bandwidth by 75%September 2010 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, fiberEasy ODN access terminals, optical filters, optical splitters, closures and access terminal boxesJune 2010 • Solution lets operators deploy optical distribution networks with easy operation, maintenance and administration • Metropolitan OTN system accommodates data, video and storage while reducing operator costsOSN8800 T16 through energy efficiency, low maintenance and space-saving featuresJune 2010 • Achieves 40G/100G transport and offers full-service cross-connection capabilities that support ODUk wavelength and packet-cross connections38 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Recent Product Announcements TBR Huawei Recent Product Announcements (continued)Product Series ConfigurationiManager U2000- • Pre-integration solution for network fault management developed with HPTeMIp SNMP-based • iManager U2000 provides end-to-end visualized management, accurate error locating andsolution enhanced O&M efficiencyMarch 2010 • This solution decreases the Operation Support System integration period for operators • Triple-mode LTE modem compatible with LTE, UMTS and GSME398 Modem • Based on Qualcomm’s MDM9200TM chipsetFebruary 2010 • Allows users to switch between standardsiManager U2520 • IP network assessment and optimization system that integrates IP control and IP forwarding planesFebruary 2010 • Includes visualized IP service quality and visualized IP route functionsSingleRAN@Broad • Mobile broadband solution that handles increased mobile data trafficSolutionFebruary 2010 • Decreases per-bit cost in sites, transport and operation & maintenance • 300 mm-depth IP platform with 20G/40Gbps capacityCX600-X1/X2 Metro • Enables IP intelligence on metro network edge and drive convergence and improves capability andServices Platform flexibilityFebruary 2010 • Enhances the IPTime broadband metro solution • 1588v2-compliant DSL prototype addresses issues with GPS clock synchronizationIPTime Mobile • Time synchronization accuracy to nanosecond levelBackhaul SolutionJanuary 2010 • DSL with microcell and LTE base stations leverage existing copper wire from legacy networks • Backhaul option for operators building out 3G and or 4G networks39 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer DealsCompany Scope of DealMTC Building end-to-end 3G network for MTC, including the provision of RAN and packet switching. AlsoLebanon providing range of professional services.March 2011Vodafone Hutchison Huawei 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 fromAustralia a single base station at up to 42 Mbps downlink speed. VHA plans to replace an additional 2,200 baseFebruary 2011 stations over the next 18 monthsEtisalatUnited Arab Deploying commercial LTE network across United Arab Emirates for Etisalat.EmiratesFebruary 2011Cell C Deployed NGBSS solution for Cell C, letting the operator generate real-time usage data of its postpaid,South Africa prepaid and hybrid services and provide its subscribers with converged billing.February 2011NII Holdings Huawei providing end-to-end UMTS network, including RAN, backhaul and core, as well as TISBrazil, Mexico services for NII Holdings Push-to-Talk service in Brazil and Mexico.February 2011Northeast WirelessNetworks Deploying Huawei’s SingleRAN solutions to bring wireless coverage to rural areas in Maine andUnited States Oregon.February 20112degrees Investing NZ $100 million (or U.S. $77 million) over the next two years to build out 2G and 3GNew Zealand network in New Zealand that is LTE-ready. Huawei providing all equipment.February 201140 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal Telkom Telkom secured a $127 million seven-year loan from a syndicate of international banks to build out its South Africa 8ta mobile network in South Africa. Huawei is providing most of the network infrastructure. February 2011 WIND Deployed core network from Huawei to bring Wide Band AMR (also known as HD voice) services to its Canada customers across Canada. January 2011 Public Telecom (PTC) PTC, owner of Bravo, is replacing its legacy billing system with Huawei’s BSS solution to improve Saudi Arabia operational infrastructure efficiency. January 2011 Libya Silphium Mediterranean Huawei Marine constructing and laying 440 km submarine cable connecting Libya and Greece on Sea behalf of the Libyan International Telecom Company (LITC). January 2011 Vodafone Awarded Huawei five-year managed services contract to assume operations and maintenance of Ghana Vodafone’s mobile, microwave, SDH and fixed switching networking in Ghana. January 2011 TeliaSonera Using Huawei’s SingleRAN@Broad solution to upgrade and expand operator’s GSM/HSPA+/LTE Norway network across southern Norway. The solution will make TeliaSonera’s HSPA+ network handle 42 January 2011 Mbps with the option of a future upgrade to 84 Mbps. Kyivstar Ukraine Kyivstar building out FTTB network across Ukraine using Huawei’s Ethernet switches. January 201141 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal T-Mobile Rolling out LTE network and upgrading T-Mobile’s GSM network in Austria under a five-year Austria contract. T-Mobile plans to cover one quarter of Austria’s population with LTE by the end of 2013. December 2010 Government Guyana government paying Huawei $35 million to deploy a wireless network at select hospitals, Guyana police stations, military outposts and other government facilities across the country. December 2010 Millicom International Huawei deploying international long-distance (ILD) network covering Guatemala, Honduras and El Cellular (MIC) Salvador for Millicom. Central America December 2010 TTST Huawei was exclusive supplier of an end-to-end WiMAX network covering the Caribbean islands of Trinidad & Tobago Trinidad & Tobago for TSTT. December 2010 China Unicom Guangzhou Unicom, a subsidiary of China Unicom, is using Huawei’s Hybrid MSTP Transport China solution to provide EDGE, HSPA+ and WLAN service during the 2010 Asian Games in Guangzhou. December 2010 SI Wireless Building out CDMA EV-DO network covering 1.2 million POPs in Illinois, Kentucky and Tennessee United States for SI Wireless. The network includes 300 cell sites and will be finished by mid-2012. November 2010 Bite Huawei upgraded all of Bite’s base stations to be LTE-ready as well as deployed 80 additional sites. Latvia Huawei also optimized Bite’s RAN to be 20% to 30% more energy-efficient. November 201042 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal CamGSM CamGSM purchasing $500 million worth of network equipment and services from Huawei over five Cambodia years. CamGSM obtained financing via the Bank of China. November 2010 China Mobile China Mobile chose Huawei to supply and build out an 80x40G Wavelength Division Multiplexing China national backbone network. Huawei’s 40G OTN solution will upgrade the wavelength capacity of November 2010 China Mobile’s network from 10G to 40G. Datame Oy Huawei building end-to-end WiMAX network for Datame Oy that will cover 70% of Finland’s Finland population by the end of 2013. November 2010 Aero2 Awarded frame contract to deploy world’s first TD-LTE network for Aero2 in Poland. Huawei is Poland providing an end-to-end LTE TDD/EPC solution. November 2010 Movistar Movistar replacing its CDMA equipment with Huawei’s Advanced Telecom Computing Peru Architecture-based (ATCA) CDMA mobile softswitch all-IP solution. November 2010 Huawei supplying and rolling out end-to-end SingleRAN network across Bangladesh for Grameenphone Grameenphone under a three-year contract. Products supplied include SingleCORE, SingleEPC, Bangladesh ngHLR and IP Signalling Transfer Point (STP) solutions. The new infrastructure will bulk up capacity November 2010 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 MTN by the end of May 2011. MTN is planning further network expansion in late 2011 to cover an Nigeria additional 500 villages and Huawei stands a good chance of winning that contract should it do a October 2010 good job on phase one.43 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal Telekom Brunei Berhad Huawei delivering end-to-end FTTH broadband network covering 40,000 subscribers in Brunei Brunei with 150 Mbps Internet service. The project has been divided into four phases. October 2010 MegaFon Using Huawei NE5000E routers to construct backbone nodes for a 40 GB IP/MPLS network in Russia Moscow and St. Petersburg. The routers will help MegaFon optimize its existing core network by October 2010 bulking up bandwidth. Vodafone Paying Huawei €1 billion (or $1.4 billion) to supply and deploy its HSPA+ SingleRAN solution to Italy 12% of Italy’s population (about 1800 towns). October 2010 Lattelecom Latvia Huawei supplying fiber optic access nodes and devices for end-users to Lattelecom. October 2010 du United Arab Upgraded du’s HSPA+ 21 Mbps network to DC-HSPA+ 42 Mbps. Emirates September 2010 Huawei will plan, design, deploy and maintain a 3G HSPA network in three telecom circles in India Bharti Airtel for Bharti Airtel. Ericsson and Nokia Siemens also won similar contracts, with Ericsson garnering India seven circles and Nokia Siemens landing three circles. Bharti Airtel has 3G licenses for 13 telecom September 2010 circles across India. MTS MTS India outsourced the management of all 22 of its telecom circles in India to Huawei, ZTE and India Ericsson. September 201044 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued)Company Scope of DealSafaricom Deployed Convergent Billing Solution (CBS) in Kenya for Safaricom. Huawei’s CBS provides onlineKenya rating, real-time control, and express billing for telecom operators.September 2010 Huawei launched an 1800MHz LTE/EPC network using its SingleRAN@Broad solution for Mobyland inMobyland Poland, allowing for peak downlink speeds of 146 Mbps per user. Huawei first used a softwarePoland upgrade to make Mobyland’s 2G network support LTE. This is the first commercial LTE/EPC networkSeptember 2010 based on 1800MHz spectrum with 20MHz bandwidth on a single radio unit.Tata Teleservices Huawei to provide SingleRAN for 3G network in five of Tata’s nine telecom circles in India. NokiaIndia Siemens won the remaining four circles.September 2010Qtel Huawei will roll out FTTH for Qtel in Qatar. Huawei will replace copper connections with high-speedQatar fiber, enabling downlink speeds up to 100Mbps. The project will last for three years.August 2010 Huawei is providing BT with optical access and transmission products, including Huawei’s SingleFANBT solution, to help with the deployment of BT’s new national fiber network. BT boosted its investmentUnited Kingdom in broadband by £1 billion ($1.5 billion) to bring faster Internet services to two-thirds of U.K.August 2010 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 turn-key FTTx High-Speed Internet network using GPONMaxis Berhad technology for Maxis Berhad. The duration of the managed services agreement is three years. MaxisMalaysia Berhad plans to cover 12 million customers across Malaysia, and will particularly target enterpriseAugust 2010 customers.Vodafone Vodafone is offering customers in the United Kingdom a monthly Mi-Fi package using the HuaweiUnited Kingdom R201 router.August 201045 Huawei 4Q10 | 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 World and now plans to deploy the software globally. The SDP fits Telefonica’s application development August 2010 strategy by establishing a foundation for these services to be created. Tata Teleservices Tata Teleservices installed Huawei’s MSC Pool solution, boosting service and reliability for the India operator’s 1.5 million subscribers in the Mumbai metro area. August 2010 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 PCCW Terabit and bandwidth per wavelength jumps 400% with the use of technologies like 80-wavelength Hong Kong 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. Singapore This router system, the industry’s most energy-efficient, achieves 2.56T port capacity and is scalable to August 2010 200T. Huawei was selected by China TieTong Telecommunications, a subsidiary of China Mobile, to China TieTong exclusively provide equipment for the expansion of the operator’s CTTNET nationwide broadband IP China network. Huawei is supplying its Quidway NetEngine5000E core router, which achieve 2.56T port August 2010 capacity and are scalable to 200T. StarHub StarHub adopted a smartphone signaling solution from Huawei that enhances network performance Singapore by reducing smartphone signaling traffic. The solution reduces 56% of the redundant signaling loads in July 2010 StarHub’s smartphone mobile data service. Vodafone selected Huawei and Ericsson to upgrade its base stations to LTE and roll out LTE-compatible Vodafone base stations across rural regions of Germany. In all, Vodafone plans to have 1,500 base stations Germany installed by 2011. Vodafone Germany is embracing wireless broadband as a less expensive alternative July 2010 to rolling out fixed line access for Internet services.46 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal ONO selected Huawei to upgrade and run its voice network under a seven-year renewable contract. ONO Huawei will deploy softswitches, media gateways and other IMS solutions. Huawei will also provide Spain managed services for the network, taking on 40 ONO employees to help with activity monitoring, July 2010 workflow management and configuration management. Huawei will deploy HSPA+ and LTE base stations for Italian operator Wind. Wind selected Huawei’s Wind SingleRAN platform because it can converge GSM, HSPA and LTE RAN onto one platform. The operator Italy will also purchase core network equipment supporting SDH and VoIP and IMS infrastructure from June 2010 Huawei to support its all-IP strategy. Suddenlink Deploying Digital Terminal Adapter’s (DTA) from Huawei to offer more Video on Demand, HDTV, and Communications Docsis 3.0 services. Suddenlink is an MSO with about 1.3 million customers and the DTA boxes will be United States offered to its customers across 20 markets in the southeastern United States. June 2010 Vodafone Vodafone Spain is offering femtocells manufactured by Huawei to its Office customers, which include Spain 25,000 companies with over 500,000 lines across Spain. The femtocells enable Vodafone’s customers June 2010 to realize better voice and data access. Huawei will deploy its IPTime broadband metro solution for Brazilian cable and broadband provider NET NET. The deployment will enable high-definition video service for NET subscribers using video packet Brazil retransmission and fast channel change, which are part of Huawei’s SingleMetro and Multiplay May 2010 solutions. HiBeam Internet Huawei supplied radio equipment to HiBeam to support broadband services to subscribers in the & Voice Midwest and Southeast. Speeds can now reach 3-6 mbps on average, with bursts up to 10 mbps. The United States new equipment supports migration to LTE. May 2010 Huawei and vividwireless launched Australia’s first commercial WiMAX network in Perth. The network vividwireless delivers wireless access speeds comparable to ADSL2+ connections using Beamforming and 4T4R Australia technology. The rollout in Perth took six months to build and Huawei will build out additional WiMAX May 2010 networks for vividwireless in 2H10.47 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal Saudi Telecom Huawei will deploy a pre-commercial LTE network for STC covering several cities in Saudi Arabia, Company (STC) including Riyadh and Dammam. Additionally, STC will use Huawei IP microwave products, specifically Saudi Arabia the RTN900 series, in its LTE backhaul. April 2010 SaskTel SaskTel is using Huawei’s SingleRAN solution to build out an HSPA+ network in Canada. Huawei’s Canada solution allows smooth migration to LTE. March 2010 MobiTel MobiTel is paying Huawei $200 million to expand network coverage in Cambodia, and the deal Cambodia consists of equipment and services. March 2010 Telefonica O2 Huawei will assume control of field service and maintenance of Telefonica O2’s mobile Germany communications infrastructure in Germany once it completes the network expansion. At that time, March 2010 220 employees will be transferred to Huawei. As part of a contract signed with Telenor, Huawei will deploy a Mobile Backhaul Commercial Network Telenor Denmark in Denmark. In addition, Huawei will provide its Packet Transport Network mobile compliant backhaul Denmark solution. The network will comply with the new industry standard IEEE 1588v2 to enable an efficient February 2010 LTE conversion. China Unicom Huawei is expanding China Unicom’s China 169 backbone network by deploying its NE5000E cluster China router system, which will provide four new backbone nodes in Chengdu, Xi’an, Chongqing and February 2010 Wuhan. MobileOne (M1) Huawei will provide an ATCA platform-based IMS solution for M1, so the operator can offer VoIP, Singapore IPTV, Centrex and HD video conferencing to its subscribers in Singapore. January 201048 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Customer Deals TBR Huawei Recent Customer Deals (continued) Company Scope of Deal LPTIC Huawei Marine Network was contracted by the Libya Post Telecommunication and Information Libya Company to lay 177 km of T-E submarine optical fiber cable, with 3.2 Tbit/s of capacity, connecting January 2010 Tobruk and Emasaed in Libya. China Telecom Huawei deployed two CDMA2000 1x EV-DO Rev. B networks in Beijing and Guangzhou for China China Telecom. The 3G networks, which operate in the 2.1 GHz and 800 MHz dual-band frequencies, will allow January 2010 China Telecom to offer its subscribers VoIP, VoD and streaming media. GlobeNet will use Huawei’s OSN 6800 NG-DWDM OTN optical platform hardware to connect its cable GlobeNet landing station in New Jersey to points of presence in New York, Brazil, Venezuela, Bermuda and Florida. Americas The platform supports 10 Gbps, 40 Gbps and 100 Gbps wavelengths. Huawei will also upgrade the January 2010 software on GlobeNet’s existing iManager T2000 Network Management System. UGL Limited Huawei will supply UGL Limited with a GSM-R solution that will cover 1,455 km of track and 70 km of Australia rail tunnels across the Sydney metro network. UGL, a rail engineering firm, was awarded $225 million in January 2010 December to design, install and manage a digital train radio system on RailCorp’s electric rail network. Zain Nigeria Huawei installed a blade mobile softswitch for Zain that will cover 8 million customers in Nigeria. January 2010 MTN Huawei deployed a UMTS900 platform on MTN’s network in Ghana. The platform, which is based on Ghana Huawei’s 3900-Series Node B, operates in the 900 MHz frequency and will operate in conjunction with January 2010 MTN’s GSM network. Omantel Oman Omantel will pay Huawei $26 million to expand coverage of its fixed line network in Oman. January 201049 Huawei 4Q10 | 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 Laboratory50 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Facilities Table TBR Huawei’s Facilities (continued) Location Function Beijing, China R&D Facility, WiMAX Interoperability Testing Laboratory Shenzhen, China R&D Facility Shanghai, China R&D Facility Nanjing, China R&D Facility Hangzhou, China R&D Facility Chengdu, 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 Facility51 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Management Table TBR Huawei Key Management Name Position Ren Zhengfei Chief Executive Officer Justin Chen Chief Operating Officer Matt Bross Chief Technology Officer 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&D52 Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc.
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