Huawei Analyst 4Q07(TBR)

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 .

Huawei Technologies Co., Ltd.
Fourth Calendar Quarter 2007

TBR OUTLOOK - POSITIVE

Fourth Fiscal Quarter 2007 ended December 31, 2007
Publish Date: April 10, 2008
Author: Kate Price (kate.price@tbri.com), NBQ Analyst and
Michael Sullivan-Trainor, NBQ Executive Analyst
Content Editor: John Byrne, NBQ Director

NETWORK BUSINESS QUARTERLYSM

TBR

TBR NETWORK BUSINESS QUARTERLY
Table of Contents
Executive Summary ..........................................................................................................................3
TBR Position Statement......................................................................................................................3
Strategic Overview............................................................................................................................4
Strategic Objectives ..........................................................................................................................6
Continue Step-by-step International Expansion ....................................................................................... 6
Become a Top Global Telecom Equipment Provider .............................................................................. 7
Corporate SWOT Analysis...............................................................................................................8

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Strength: International Expansion Provides Company with Access to Many Customers....................... 8
Weakness: Ties to the Chinese Government Could Limit International Investment Opportunities....... 8
Opportunity: Expand Rapidly into High-growth Geographies ................................................................ 9
Threat: Looming U.S. Recession Could Have a Global Effect and Negatively Impact Product Sales 10
Financial Model Strategy ...............................................................................................................11
Alliance & Acquisition Strategies ..................................................................................................14

HUAWEI TECHNOLOGIES CO., LTD.
Go-to-Market & Product Strategies..............................................................................................16
Customer & Vertical Market Strategies .......................................................................................18
Geographic Analysis .......................................................................................................................21
Resource Management Strategy ....................................................................................................22
Future Outlook................................................................................................................................23
12-Month and Long-term Outlook....................................................................................................23
Income Statement............................................................................................................................24

FOURTH CALENDAR QUARTER 2007

TBR’s Network Business Quarterly (NBQ) Service
NBQ provides coverage of the leading end-to-end communications solutions and professional
services providers in the network, telecom and mobility value chains: Alcatel-Lucent, Alcatel-Lucent
Services, Cisco, Cisco Services, Ericsson, Ericsson Global Services, Huawei, Motorola, Motorola
Networks Services, Nokia, Nokia Siemens Networks, Nokia Siemens Networks Services, Nortel,
Nortel Global Services, Samsung and ZTE. Additionally, NBQ provides coverage of Accenture, EDS,
HP and IBM from a telecom, network and mobility value chain perspective, as well as the leading
U.S. mobile operators: AT&T, Sprint Nextel, T-Mobile USA and Verizon Wireless. The service also
includes quarterly benchmark reports, analyst access and custom consulting.

TECHNOLOGY BUSINESS RESEARCH, INC. www.tbri.com P: (603) 929-1166 pg. 2
This report is based on information made available to the public by the vendor and other public sources. No representation is made that this
information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made
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TBR

Executive Summary
TBR Position Statement ( = negative, = neutral, = positive)

Huawei continued to advance its position as one of the largest telecom equipment suppliers
in 4Q07; during the quarter, the company grew sales at a rate faster than the market and dramatically
faster than any of the big three market leaders, Ericsson, Alcatel-Lucent and Nokia Siemens

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Networks. While the privately held company has not issued 4Q07 financial data, Huawei did report
$16 billion in orders for the full-year 2007, which TBR believes is equivalent to $11.7 billion in
revenue for a 45% increase in sales. These results compare to less than 10% revenue growth for the
big three.
To achieve these results, Huawei continues to establish itself as a complete solutions vendor as well
as a low-cost provider of telecommunications equipment. Over the years, the company’s
investments in R&D have paid off, as it is gaining recognition for its product quality. Huawei’s
ability to win large international deals has positioned it as a disruptive player in the market,
challenging incumbent suppliers within their own installed bases. The company’s international
expansion strategy began in the APAC region, where it targeted emerging markets with its

low-priced products. A strong track record in emerging markets is allowing Huawei to spread
across the globe into more developed countries. Target growth regions for the company include
mature markets, such as in Western Europe and the United States, and India, in which the telecom
market is experiencing rapid growth.
TBR believes Huawei is making a significant impact on the infrastructure market, leading with a
low-cost strategy and following up with strong product and customer support. In addition, as a new
entrant in developed markets, Huawei has made significant inroads with Western European service
providers by applying its research and development and customer support strengths to meet
customers’ technical requirements in a more timely fashion than the competition.
Huawei predicts its orders will grow to $22 billion for 2008, a 37% year-to-year increase that TBR
believes would provide sales of $16 billion. We believe the company is well-positioned to achieve
its goal through its participation in rapidly developing mobile infrastructure, optical and broadband
access markets. The company has positioned itself for success through supplying end-to-end
solutions as well as expanding its international footprint to increase sales. TBR anticipates this
ongoing international expansion will be costly for the company and could put downward pressure
on margins. We also believe Huawei’s commitment of 10% of total revenue to R&D will be tested
in upcoming quarters, as the company’s margins will already be under pressure from broad
international expansion.

Huawei’s 4Q07 results were marred by news concerning the company’s attempt to attain a 16.5%
minority stake in 3Com Corp. The unsuccessful effort to acquire 3Com with Bain Capital Partners
was stymied by Huawei’s close ties with the Chinese government, and an apparent unwillingness to
provide transparency regarding its government connections. An investigation into the deal was
performed by the Committee on Foreign Investment in the United States (CFIUS), which ultimately
rejected the deal, citing a potential threat to U.S. security since 3Com provides the U.S. government
with certain security solutions. TBR believes Huawei’s ties to the Chinese government could limit
the company’s ability to make future acquisitions with Western countries, and may limit
international growth opportunities.

This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate
or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a
recommendation to purchase securities. This report is copyright protected and supplied for the sole use of the recipient. Contact Technology Business Research,
Inc. for permission to reproduce.

TBR

Strategic Overview
Huawei Technologies achieved its bid to become a top-tier (among the largest five or six) telecom
supplier based on its 4Q07 revenue. The company has moved to this position based on a
combination of business model, regional and product category strengths.
Huawei’s business model is based on an approach to the equipment business of reducing product
costs by applying plentiful inexpensive labor at the most strategic point of the technology. This cost
targeting has been applied to reducing baseline prices for fixed and wireless access products, as well
as providing specific “customized” solutions to address individual service provider needs. Lowering
the cost of the base products as well as the cost and time to market for customization has been a
highly successful strategy – first in emerging market environments, and more recently in developed

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markets.
Service providers, especially in Western Europe, have brought Huawei into strategic deployments to
reap the benefits of the cost advantages through lower capex and pressure incumbent suppliers to
lower their prices. Huawei has also grown through the fast expansion of emerging markets from its
early presence in China, Asia, the Middle East and Africa.

TBR HUAWEI'S GROWTH AND PROFITABILITY

Revenue Growth Year-to-year
60%

15% 50%
Profitability

40%
10%
30%
20%
5%
10%

0% 0%
2005 2006 2007 Est.
Operating Margin Net Margin Revenue Growth Year-to-year
SOURCE: TB R A ND HUA WEI.

Product categories representing Huawei’s strengths include optical transport, where the company
leveraged market growth to achieve $800 million in 4Q07 sales, second only to Alcatel-Lucent’s
$1 billion for the quarter. Growth in new technologies (Huawei’s specialty) such as next-generation
SDH and SONET transport, as well as WDM, led the way. The rebound of Optical has made it one
of the few product categories whose next-generation sales growth has seen volume high enough to
overcome the issues suppliers have had with declining legacy equipment sales. Similarly, Huawei
challenged Alcatel-Lucent in DSLAMs (specifically IP DSLAMs), another next-generation

technology. In 3Q07 Huawei achieved 32% market share by shipping 70 million ports.
In 4Q07, Huawei also achieved a new milestone in wireless radio access networks; it garnered more
contract awards for mobile base stations than any other supplier, edging out Ericsson and Nokia
Siemens Networks with 34% of the contracts. In previous quarters, Alcatel-Lucent led base stations
contract wins; however, Ericsson and Nokia Siemens remain the overall market leaders based on
installed base and volume. From a volume perspective, Huawei attained the No. 3 position,
achieving twice the revenue in 4Q07 as it did in the previous quarter. The majority of the products
were WCDMA/HSDPA equipment, also next-generation technology.
Going forward, Huawei faces the challenge of executing the expansion contracts it has been
awarded by large mature market suppliers such as T-Mobile International AG, Telecom Italia
Mobile and Vodafone Group. The recent wins join British Telecom and contribute to Huawei’s

TBR

strategic position as a broadband access provider in Western Europe. Still, the length of time
Huawei has operated in the region is relatively short compared to Ericsson, Alcatel-Lucent and
Nokia Siemens Networks, so the supplier must work hard to continue to demonstrate its credibility
at execution as well as pricing.
Meanwhile, Huawei is increasingly seeking ways to expand its portfolio opportunities by building
new business areas to become a more successful end-to-end supplier. In services, for example, the
company recently announced a three-year managed services contract with Mobily in Saudi Arabia
including managed network operations, back office, field operations, network optimization and
spare parts management. Huawei will also be responsible for multivendor equipment, including all
spare parts management and third-level support. The company claims a 335% increase in managed
service revenue for 2007, driven by its proposition to save customer opex.

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TBR

Strategic Objectives
Huawei Technologies’ Corporatewide Goals
• Continue step-by-step international expansion (4Q07 report)
• Become a top global telecom equipment provider (4Q07 report)
• Transform the organization into world-class company (1Q06 report)
• Focus significant resources on 3G technology and winning mobile operator deals
(4Q06 report)
• Focus on customer evolution to all-IP network (2Q07 report)
•

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Drive growth through a customer-focused strategy: (4Q06 report)
• High quality
• Excellent service
• Low operating cost
• Focus on customer requirements and customized solutions
SOURCE: TBR.

CONTINUE STEP-BY-STEP INTERNATIONAL EXPANSION
Huawei is looking to fuel 2008 growth through international expansion into developed markets.
The company’s initial global expansion began a decade ago in the APAC region, where the vendor

could sell its low-priced products in emerging markets. This enabled the company to branch out
from China and begin to build its presence internationally. With a current stronghold in emerging
markets, the company is now focusing on growing overseas business in developed European and
U.S. markets. In 2007, Huawei derived 72% of total revenue from the international segment,
increasing 670 basis points from the previous year.
In 2007, Huawei signed significant deals with operators in its target geographies. In December 2007
the company signed a deal with T-Mobile International to construct Packet Switched Core Networks
in five European countries: Germany, the United Kingdom, Austria, the Netherlands and the Czech
Republic. The T-Mobile deal follows earlier 2007 deals, which confirms that Tier 1 operators,
particularly in Europe, are seriously considering Huawei for large-scale deals.
In July 2007, Telecom Italia selected Huawei to build a High-Speed Packet Access (HSPA) network
in southern Italy, and Huawei will supply its latest generation of Node B products to Telecom Italia.
Huawei’s first big deal in Europe was secured in February 2006 with Vodafone, which opened the
gate for more large deals within the geography. The company is hopeful that it can increase its
business with Vodafone in 2008 – in January, Vodafone and Huawei announced an agreement to
create an “Application Innovation Center” in Spain to develop innovative mobile solutions.
Though North America still composes a small proportion of Huawei’s total revenue, the region
presents opportunities for growth. Current U.S. customers include Alltel, Leap Wireless and Metro

PCS. Despite the progress, however, the company has yet to land a major deal for network
infrastructure. The Alltel and MetroPCS deals focused on data cards and handsets, respectively,
Huawei has yet to announce a major deal with any of the top four U.S. carriers.
With the United States on the verge of a recession, operators may be feeling pressured to reduce
capital spending. TBR believes this presents an opportunity for Huawei to enter the U.S. market at
a lower price and gain share and recognition in the region, potentially at the expense of established
players such as Ericsson and Alcatel-Lucent. Though Huawei suffered a setback with the
unsuccessful acquisition bid for a minority stake in U.S.-based 3Com, we believe the company still
has its sights set on the region.


TBR

BECOME A TOP GLOBAL TELECOM EQUIPMENT PROVIDER
With the results from 4Q07 providing a final boost to a high-growth year, Huawei could look at its
“top global telecom equipment provider” strategic objective and say its mission has been
accomplished. However, the company is still in the midst of an unsettled market in which
competitors continue to face consolidating customer opportunities, and positions among market
leaders are not yet stable. First there were the mega-mergers of Ericsson-Marconi, Alcatel-Lucent
and Nokia-Siemens Networks, then the split of Motorola into handsets and other businesses and
Nortel’s challenges in finding revenue growth. In addition, Cisco continues to increase its position
in service provider markets from its core enterprise area of strength, and Huawei itself faces
significant competition at home and internationally from other Chinese suppliers such as ZTE who
practice a similar cost-targeting business model.
In addition, as the next-generation buildout of broadband mobile and fixed networks transition from

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WCDMA/HSDPA and XDSL, respectively, suppliers are challenged to make and leverage savvy
research and development investments in 4G and next-generation optical and Ethernet networks. At
the same time, service delivery infrastructure migration from a collection of legacy technologies to
IP/web services is challenging suppliers’ resources. This is especially true at the application layer of
the network, where IT players are providing competing products and services.
TBR believes Huawei has found a challenging time to come of age as a top equipment supplier; less
challenging than past issues of declining capex spending in the early 2000s, but Huawei may find
itself seeking partners and acquisition or merger opportunities in regard to companies with
complementary skills. TBR believes areas where Huawei needs to grow or acquire resources include
the North American marketplace (especially as the 3Com investment failed), the application/service

layer, and in consulting and professional services that are not related to Huawei product
deployments.



TBR

Corporate SWOT Analysis
Strengths
• International expansion provides company with access to many customers (4Q07
report)
• Low operating costs that support low-cost pricing strategy
• Broad portfolio of products to support end-to-end solutions
• Installed base of Tier 2/3 telecom operators in emerging markets
• Ability to leverage power and influence of government of China

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Weaknesses
• Ties to Chinese government could limit international investment opportunities
(4Q07 report)
• Lacks a strong global presence, including in the United States and Europe
• Installed base of Tier 1 telecom operators limited (or lacks credibility with Tier 1
telecom operators)
• Tarnished reputation from past business practices
Opportunities

• Expand rapidly into high-growth geographies (4Q07 report)
• Expand rapidly through acquisitions
• Expand global presence and penetrate Tier 1 accounts through partnerships and
alliances
• Become a top leader in professional and managed services (2Q07 report)
Threats
• Looming U.S. recession could have a global effect and negatively impact product
sales (4Q07 report)
• Immature organization implodes due to stress of rapid expansion (or business
transformation of the organization to support rapid expansion fails)
• Partnerships and alliances are unsuccessful due to lack of experience in managing
relationships
• Tier 2/3 telecom operators shift buying on price to buying on value of end-to-end
solutions and services
SOURCE: TBR.

STRENGTH: INTERNATIONAL EXPANSION PROVIDES COMPANY WITH ACCESS TO MANY
CUSTOMERS

Whereas once Huawei only had a presence in the Asian market and with operators in emerging
geographies, the company now has broad visibility in developed markets as well. TBR believes
Huawei will be able to leverage this market position to capture greater share as well as establish
partnerships. Global market presence with local offices united by a common service delivery
network is critical in remaining a top-tier supplier.
With strong financial resources and an unyielding mission to remain a market leader, Huawei has
the assets to leverage its new market capabilities.
WEAKNESS: TIES TO THE CHINESE GOVERNMENT COULD LIMIT INTERNATIONAL
INVESTMENT OPPORTUNITIES
In September 2007, Huawei announced its intention to acquire a 16.5% minority interest in 3Com
Corporation. 3Com had agreed to be acquired by affiliates of global private investment firm Bain

TBR

Capital Partners, LLC for $2.2 billion, or $5.30 per share, in cash. As part of that transaction,
Huawei would purchase a minority stake in 3Com through its wholly-owned subsidiary Huawei
Tech Investment Co., Ltd. Also part of the agreement, Huawei would have the right in the future to
increase its stake by 5%, resulting in a potential 21.5% share in 3Com. The 3Com board of directors
unanimously approved the merger. The deal was expected to close in 1Q08, subject to shareholder
and regulatory approval, and would have provided Huawei with increased traction in North
America, particularly in the market for enterprise and SMB communications equipment.
Huawei and 3Com had worked together in the past through the joint venture Huawei-3Com (H3C).
The companies collaborated to produce IP-based routers and switches and provided 3Com with a
solid position in the Chinese market. Huawei originally held a majority stake of 51% in the venture,
but 3Com eventually increased its stake to 51%. In 2007, 3Com acquired Huawei’s remaining stake
in the joint venture for $840 million.

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The proposed Huawei investment in 3Com captured the attention of both Congress and regulatory
agencies. In October 2007, eight U.S. lawmakers challenged the acquisition and called on the
government to block the purchase. In an effort to ease concerns, 3Com released a statement saying
that Huawei would not gain operational or decision-making power for 3Com through the deal.
However, in February, after federal authorities expressed increasing concern over national security
issues pertaining to the deal, 3Com withdrew its acquisition application from the CFIUS. The
company committed to continuing negotiations in an effort to arrange the deal in a way that would
be satisfactory to the Committee. However, TBR believes Huawei’s ties to the Chinese government
could inhibit the company’s opportunities to invest internationally.

OPPORTUNITY: EXPAND RAPIDLY INTO HIGH-GROWTH GEOGRAPHIES
In addition to the company’s expansion in developed countries, Huawei has an opportunity to
rapidly expand into high-growth geographies, such as India. This rapid international expansion
enables Huawei to increase its proximity to customers, increase local headcount and gain a better
understanding of the local markets. An understanding of local markets should in turn enable Huawei
to offer customized products for specific regions, which could prove especially important in large
and fast-growing geographies.
Huawei has increased its focus on the Indian market, which grew 222.5% year-to-year from
$186 million in 2006 to $600 million in 2007. In 2008, the company expects revenue from the
region to double, pushing past $1 billion. Huawei has achieved rapid growth in India due to the
country’s quickly growing telecom market and its increased local presence. India’s wireless
subscribers totaled 251 million at the end of February, with monthly net additions totaling
approximately 8 million. At this rate, India will overtake the United States in terms of total wireless
subscriber base, which is currently at 256 million according to CTIA, in April to become the
country with the second-largest wireless network in the world, behind only China. Huawei is taking
advantage of the accelerated subscriber growth in the country and hopes to replicate the success it
has enjoyed in its domestic market.
In India, the company currently employs 1,500 people in R&D and 700 people in sales, and plans to
increase R&D headcount to 2,000 by the end of 2008. Huawei has two R&D centers in Bangalore,

the second of which was constructed in September 2006. Huawei has invested $100 million in the
R&D centers in Bangalore and plans to spend another $100 million on the integrated campus, which
will be fully operational in 2010. The company’s R&D centers in Bangalore maintain a focus on
software development, with specific projects including IP, New Generation Networks, optical
transmission software and value-added software. The local presence is enabling the company to
customize products specifically for the Indian market, including lower-cost CDMA equipment.
Recent large-scale customer wins in India include a $200 million GSM expansion contract with
Reliance and a $150 million managed services deal with Airtel.


TBR

THREAT: LOOMING U.S. RECESSION COULD HAVE A GLOBAL EFFECT AND NEGATIVELY
IMPACT PRODUCT SALES
The U.S. economic crisis has already diminished the value of publicly traded currency worldwide.
The carryover effect on the service providers concerned about the value of their own investments
will soon echo through the industry. TBR believes Huawei will be somewhat insulated from this
crisis during 2008, and the company can take the year to consolidate its gains before launching
expansion plans to capture U.S. business. Meanwhile, Huawei may be able to capture a further
foothold in the United States with a low-cost, high-value proposition among hard-pressed second-
and third-tier service providers.

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TBR

Financial Model Strategy
On the heels of a successful 2007, Huawei has already set performance goals for 2008. The
company’s 2008 order objective is $22 billion, representing a 37.5% year-to-year increase from
2007 orders worth $16 billion. TBR believes that $16 billion in orders represents $11.7 billion in
revenue for Huawei, and the $22 billion order objective would represent $16 billion in revenue. The
company’s primary growth strategy is international expansion; after experiencing success in
emerging markets, Huawei is looking to enter the U.S. and European markets.

TBR HUAWEI REVENUE AND PROFITABILITY

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$12 42.0%

40.0%
$9
In $ Billions

38.0%
$6
36.0%
$3
34.0%

$0 32.0%
2005 2006 2007 Est.

Revenue Gross Margin

TBR REVENUE GROWTH YEAR-TO-YEAR

75.0%
56.3%
60.0%
42.2% 37.6%
45.0%

30.0%

15.0%

0.0%
2005 2006 2007 Est.


TBR estimates Huawei grew revenue by 37.6% year-to-year in 2007, increasing 460 basis points
from 2006. International expansion contributed to the high year-to-year growth.


TBR

TBR
SG&A AS A PERCENTAGE OF REVENUE

25.0%
17.7% 18.3%
20.0%
16.9%
15.0%

10.0%

5.0%

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0.0%
2005 2006 2007 Est.

TBR estimates that Huawei’s SG&A as a percent of revenue totaled 18.3% in 2007, up 60 basis
points from 2006. We estimate SG&A expenses of $2.1 billion in 2007, up $639 million, or 42.5%
year-to-year. As Huawei continues its international expansion, the company’s SG&A expenses will
continue to increase.
As Huawei continues to expand internationally, the company has invested in building out its local
presence. The company has established 100 branch offices, which enable the company to increase

proximity to customers and hire local employees. With this broad expansion come increased costs,
which put downward pressure on the company’s margins. TBR believes this international expansion
is necessary if Huawei wants to win additional international deals, especially in developed countries.
Hiring local talent is important to large deals that require extensive oversight and involvement.

TBR
R&D AS A PERCENTAGE OF REVENUE

12.0%
9.8% 10.0% 10.0%
9.0%

6.0%

3.0%

0.0%
2005 2006 2007 Est.


Traditionally, Huawei has invested 10% of its revenue and 40% of its workforce in R&D activities.
TBR questions whether the company will be able to maintain this, due to the downward pressure on
margins from international expansion. As Huawei increased total headcount to 70,000 people, the
proportion of employees working on R&D increased as well. In and before 2006, the company
committed 40% of headcount to R&D, which has increased within the past year to compose half of
total headcount in 2007. The company’s R&D focus has enabled Huawei to transition from a
low-cost provider to an end-to-end solutions provider. TBR believes the company’s focus on R&D
will remain critical in the future, though the proportion of revenue invested in R&D may decline.


TBR

TBR HUAWEI'S MARGINS

40.5%
40.0% 36.2% 35.5%

30.0%

20.0% 14.2%

10.0% 7.3% 7.2%

0.0%

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2005 2006 2007 Est.

Gross Margin Operating Margin

TBR believes Huawei’s gross margin totaled 35.5%, down 70 basis points year-to-year. We also
believe the operating margin declined by 10 basis points year-to-year, as expenses increased as a
percentage of revenue. We estimate the company’s operating income totaled $842 million in 2007,
up $221 million, or 35.7% year-to-year.

Note: TBR performs extensive revenue and profit modeling on the IT industry, covering
professional services, computer, software, peripherals, networking and wireless handheld
devices. Please contact Vice President of Sales James McIlroy (mcilroy@tbri.com) or NBQ
Director John Byrne (john.byrne@tbri.com) at 603-929-1166 for further information.



TBR

Alliance & Acquisition Strategies
In February, Huawei and Symantec commenced a joint venture, headquartered in Chengdu, China,
that will produce security and storage appliances to enterprises. Huawei licenses technology and
Symantec licenses storage and security software. The deal was originally announced in May 2007,
but had to undergo a regulatory approval process. The new company, which will be called
Huawei-Symantec Inc., sells x86 systems with Symantec’s antivirus and content scanning software
and will also utilize a new line of network-attached storage (NAS) and a storage area network
(SAN) developed by Huawei packaged with Symantec’s Storage Foundation software. In addition to
technology, Huawei will bring its integrated supply chain, integrated product development
management practices, IP licenses, R&D capabilities, manufacturing ability and engineering skill

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(including over 750 employees) to the venture. The deal allows Huawei to gain access to a strong
software portfolio, and enables Symantec to enter the Chinese market and take advantage of
Huawei’s established presence. Huawei maintains a majority 51% ownership in the venture, with
Symantec owning the balance; Symantec also contributed $150 million to the venture.

TBR Huawei’s Joint Venture Partnerships
COMPANY SCOPE OF PARTNERSHIP
Qualcomm Huawei and Qualcomm collaborated to test the first end-to-end VoIP call using CDMA2000 1x
November 2007 EV-DO Rev. A access through the IP Multimedia Subsystem network.

Symantec In May 2007, Huawei and Symantec announced a joint venture to develop and distribute security and
May 2007 storage appliances to telecom carriers. The venture, of which Huawei and Symantec own 51% and
49%, respectively, concentrates on constructing hardware to develop and maintain IP networks.
Global Marine In May 2007, the companies entered into a Memorandum of Understanding with the intent to form a
Systems Limited joint venture to provide submarine network solutions. Global Marine Systems is an independent
subsea cable installation and maintenance company.
Siemens (TD Tech) Huawei and Siemens established a $100 million joint venture in early 2004 to focus on TD-SCDMA
technology for the Chinese market, and then potentially outside of China. Siemens and China’s
Datang are the major developers of TD-SCDMA technology.
HP HP and Huawei say they have a long-standing relationship of working together to meet the needs of
operators worldwide. In March, HP and Huawei announced a more concrete relationship based on
OSS, which includes OSS integration, joint solutions, go-to-market plans and global services.
Microsoft Relationship was established in 2003 to integrate Microsoft technology into Huawei solutions.
Huawei says there may be new areas in which the companies will work together in the future.
SOURCE: TBR AND HUAWEI.

TBR Huawei’s Supplier Partners and Joint Initiatives
COMPANY SCOPE OF PARTNERSHIP COMPANY SCOPE OF PARTNERSHIP
3Com Mid- to low-end data products Microsoft Enterprise network solution development
Agere Systems Network component supplier Motorola Base station development (Huawei OEM
to Motorola)

BEA Systems IMS network infrastructure Nortel Joint partnership on broadband access
(discontinued)
Brightstar Terminal products Philips Semiconductors, including 3G ASICs
BroadSoft, Inc. IMS solutions QUALCOMM 3G chipsets for mobile phones, UMTS
receiver technology
Cosmobic Joint venture with NEC and Panasonic on RadiSys MRS Products
3G mobile phones Corporation
CounterPath IMS/FMC services with CounterPath’s Radvision Unified visual communications over IP,
Solutions eyeBeam softphone 3G and emerging next-generation networks
D-Link Component products and exchanges Sun Java development for 3G platform
Microsystems
Foxconn Terminal equipment CPE Sylantro Application feature for IMS Core 3.0


TBR

TBR Huawei’s Supplier Partners and Joint Initiatives
COMPANY SCOPE OF PARTNERSHIP COMPANY SCOPE OF PARTNERSHIP
Giant Online game applications Synaptics Capacitive sensing technology
Interactive
Infineon 3G chipsets for mobile phones TD Tech Siemens joint venture on TD-SCDMA
Technologies
Intel WiMAX development Texas Digital signal processing
Instruments
Irdeto IPTV content security The Orchard AIMI digital music solution
Kasenna Video-on-demand core component VIVO VIVO GSM Evolution Project
LightPoint Free Space Optical Network products Tundra Serial RapidIO Switch, Digital Signal

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Semiconductor Processors
SOURCE: HUAWEI AND TBR.



TBR

Go-to-Market & Product Strategies
Huawei has recently tried to transform the notion that it is just a low-cost provider: The company
asserts that on many of the bids it has won, it has not been the lowest bidder. Huawei has
transitioned to a total solutions provider, pushing the quality of products over the price of the
solution. The company has developed strong market positions by combining its cost-effective
approach with compliance to standard technical requirement for in-demand service provider
equipment. For example, Huawei has made significant inroads in the fiber to the home market by
introducing standards-compliant GPON technology; in 2006, the company introduced a 1 Terabit
GPON switch, the SmartAX OFA5920. The company also focused on long haul DWDM and
next-generation SDH/SONET, achieving fast revenue growth.

SM
Huawei is also a provider of devices: In 2007 the company reported terminal sales of 40 million,
including handsets, data cards, fixed wireless terminals and gateways, to total $2.5 billion.
Huawei’s mobile broadband device sales total 8 million to date, with the majority of sales to
Europe, the United States and Japan.
The key to Huawei’s go-to-market strategy is to target its technical and cost-competitive assets at
growth opportunities where service providers are seeking new ways to add network capacity at a
relatively low capex investment. TBR believes the company will continue to be successful if it does
not stray from this formula, which is the core of its differentiation.

TBR Huawei’s Recent Product Introductions
KEY MARKET
PRODUCT SERIES CONFIGURATION
POSITIONING
iManager T2000 Transport network management system Available in North America
V200R004NA Manages multi-services, alarm correlation analysis, only, reduces customers’
March 2008 system security solution, system reliability solution operating costs
OptiX BWS 1600S Reliable submarine cable system Marketed to overseas carriers
V100R002 Can be configured as 100G/50G/25GHz channel as a large-capacity,
March 2008 space, which adopts SuperDRZ, AFEC, long-distance submarine
RAMAN/ROPA/HBA, TDC technologies cable
E510 datacard Mobile TV capable 3.5G datacard Targeted to both professionals
March 2008 2M HSUPA stick and entertainment users
iManager T2000 Transport network Element-level Management Medium- and small-scale
V200R006C01 System (EMS), Sub-Network Management System transport network
February 2008 (SNMS) management
End-to-end management, alarm correlation analysis,
automatic fault diagnosis, system security solution,
system reliability solution, intelligent and legacy
services
IP Transport Transport solution offering improved broadband in Marketed to carriers
Infrastructure for Mobile 2G/3G mobile networks transitioning from 2G to 3G,

Evolution (IPTime) GPS-grade packet clock synchronization HSPA or LTE
February 2008 OAM and protection capabilities
Pseudo-Wire Emulation Edge to Edge capability
Supports TDM, Ethernet, microwave, xDSL, xPON
Green Sites Solution Decrease base station consumption by approximately Environmentally friendly,
February 2008 60% reduces power consumption ,
DPD and A-Doherty power amplifier technologies decreases noise and pollution
OptiX BWS 1600A Standard TL1 command interfaces, NEBS-compliant Available in North America
V100R003 hardware architecture, UL and FCC-compliant only
January 2008 Solutions for long-haul backbone transmission
networks, metropolitan backbone and access networks


TBR

TBR Huawei’s Recent Product Introductions
KEY MARKET
PRODUCT SERIES CONFIGURATION
POSITIONING
Vodafone Mobile High Speed Uplink Packet Access Designed for mobile users
Broadband USB Modem Enables uplink speeds up to 2 Mbps and download wanting style and portability
Stick (E172) rates up to 7.2 Mbps
January 2008 Compatible with newest Windows and Mac operating
systems
iManager N2000 BMS Support management for MA5600T V8R5 and For access network devices
V200R011C01 MA5680T V8R5
November 2007 O&M Efficient Subsystems
1-1.75 million broadband user capacity

SM
Quidway AR 19/29/49 VPR V5 software platform Puts adaptive services on one
Series Router V300R001 IPv6 and MPLS TE Platform platform for Medium to Large
November 2007 Businesses
Hardware Encryption Algorithm
High Density Voice
CF and USB Interface
WiMAX Commercial Uses HSPA/LTE/UMB co-platform infrastructure Provide operator base stations
Solution Integrates 4G technologies, Hybrid Automatic with 30% cost savings while
October 2007 Repeat-reQuest, Multiple Input Multiple Output doubling system capability
Can utilize WiMAX with GSM, CDMA, IMS, NGN,
DSL
Huawei DataCom iManager N2000 DMS V300R003 Provide NM solutions that

Network Management iManager NSM V200R005 comply with the eTOM/TOM
System model
October 2007
EoMPLS+ Metro Service Platform CX Series Integrates VoIP, P2P, VOD,
October 2007 Multi Service Control Gateway ME 60 series IPTV, NGN and 3G into one
platform, which helps
operators evolve to FMC
SOURCE: HUAWEI.



TBR

Customer & Vertical Market Strategies
Huawei has demonstrated a desire to address the enterprise market through the acquisition of a stake
in 3Com and a proposed joint venture with Symantec. Though the 3Com deal did not work out as
originally planned, it still exhibits Huawei’s strategy to pursue the enterprise market. 3Com,
including H3C, its former joint Venture with Huawei, provides enterprise networking solutions to
corporations. The Huawei-Symantec joint venture focusing on security and storage is a new area for
Huawei, which previously had limited experience in the high-end storage market. The venture will
package Symantec’s software with Huawei’s hardware to offer a complete product to enterprises.
TBR notes that partnerships and joint ventures will enable Huawei to gain access to companies that
have successfully penetrated the enterprise market.

SM
In its primary business serving network operators, the company stepped up its focus on Tier 1
markets. In December 2007, Huawei closed a deal with T-Mobile International to supply Packet
Switched Core Networks (PS-CN) in five countries in Europe, including Germany, the United
Kingdom, Austria, the Netherlands and the Czech Republic. Huawei will install next-generation
PS-CN equipment in place of T-Mobile’s existing networks, which were supplied by Nortel. The
PS-CN infrastructure elements include Serving GPRS Support Node (SGSN) and Gateway GPRS
Support Node (GGSN), the two primary data network pieces in GSM and WCDMA/3G networks.
In July 2006, Huawei provided IP Multimedia Subsystem (IMS) infrastructure and applications to
Magyar Telekom, a subsidiary of Deutsche Telekom. TBR believes this next step of collaboration
between the companies is an important step for Huawei in its quest to penetrate and maintain Tier 1

accounts worldwide. It also sends a message to operators that Huawei is a legitimate choice when it
comes to decisions concerning infrastructure selection and implementation. Additional past big wins
for the company in Europe include Telecom Italia, Orange, Vodafone Spain and Telefonica Spain.
However, the company continues to garner the bulk of its business from emerging markets. As
shown below, the company has recently scored major deals with Chinese and Indian operators,
including China Netcom, China Unicom, China Mobile, Tata Indicom and BNSL.

TBR Huawei’s Recent Customer Deals
CLIENT SCOPE OF DEAL
China Netcom Huawei was selected by China Netcom to provide 40% of the company’s optical access
China solutions. The deal positions Huawei as China Netcom’s largest supplier of optical solutions.
March 2008
China Unicom Huawei will provide China Unicom with a CDMA network involving more than 1,600
China frequencies.
February 2008
Tata Indicom The commercial network of Tata Indicom is utilizing Huawei’s All-IP CDMA solution to bring
India telecom across India.
February 2008

China Railway Ministry Huawei will build the communication system for the high speed train line from
China Guangdong-Shenzhen-Hong Kong. Huawei is meeting the Railways requirements by using a
weak field GSM-R solution.
February 2008
China Mobile Huawei upgraded China Mobile’s long-distance network to allow an All-IP technology.
China
February 2008
PT Telekomunikasi Huawei completed its project to deploy a CDMA2000 network for Telekomunikasi.
Indonesia
February 2008
Mobily Mobility chose Huawei to install a Packet Switched Core Network for HSDPA in Saudi Arabia.
Saudi Arabia
January 2008


TBR

MTNL Huawei assisted MTNL install its Multi Protocol Label Switching network, which will provide
India India with Internet, VoIP and IPTV.
January 2008
TransTelecom Huawei will construct a commercial WiMAX network for TransTelecom in Bulgaria. The
Bulgaria WiMAX network will run on a 3.5GHz frequency band, including terminals, and will include
an upgrade of central exchange equipment.
January 2008
MetroPCS Huawei will provide MetroPCS with the Huawei M318 handset, marking the first Huawei
US mobile phone in the North American market. The handset offers text messaging, speaker
phone, 1.5-inch color display, WAP 2.0, BREW and 72-chord ringtones.
December 2007

SM
VympelCom Huawei will supply VympelCom with equipment to construct a 3G network. Equipment will
Russia include radio elements, network core, switches and systems of data packet transfer.
December 2007
Babilon-T Huawei will deploy a commercial WiMAX network in Tajikistan for Babilon-T, representing
Tajikistan the first commercial WiMAX deployment in Central Asia. Included in the WiMAX agreement
December 2007 is an end-to-end Mobile WiMAX network, base stations, wireless access services node
gateway, network management equipment and terminals.
SingTel Huawei constructed an All IP Broadband Network for SingTel. The solution includes
Singapore Huawei’s core router, NE80E, NE5000E and large-capacity IP DSLAM SmartAX MA5600.
December 2007
ITC Huawei will provide International Telecommunication Company (ITC) with an All IP CDMA

Ukraine network in Ukraine. The voice core network will include IP softswitch, high-speed core data
network and an EV-DO Rev. A radio access network.
December 2007
T-Mobile International Huawei will supply T-Mobile International with Packet Switched Core Networks (PS-CN) in
Europe Germany, the United Kingdom, Austria, the Netherlands and the Czech Republic. Huawei will
swap current networks with PS-CN equipment.
December 2007
Mobily Huawei will provide an IP bearer network for Mobily in Saudi Arabia. The solution will
Saudi Arabia include Huawei’s core routers NE5000E, NE40E and network management systems iManager
November 2007 N2000, DMS and NSM.
China Mobile Huawei completed construction of the world’s first Internet Protocol-based base station
China subsystem (IP BSS) commercial network in China for China Mobile.
October 2007
Warid Group Huawei will construct an IMS system for the Warid Group in Uganda. In addition to the IMS
Uganda system, Huawei will supply GSM network parts, wireless base stations, a VAS platform,
long-distance/international gateway offices and an IP bearer network.
September 2007
Bharti Airtel Lanka Huawei signed a three-year, $150 million managed networks deal with Bharti Airtel Lanka, a
Private Limited subsidiary of Bharti Airtel Limited. Included in the agreement is construction and management
Sri Lanka of the core network, Node Bs and BTSs and end-to-end 2G/3G network solutions.
September 2007
PTK Centertel Huawei will construct a UMTS/HSPAnetwork for PTK Centertel in Poland. Huawei will
Poland install its new generation Node B solution which supports HSDPA, HSUPA and IP RAN.

September 2007
EMOBILE Huawei will expand EMOBILE’s network with HSPA technologies, including 2,300 distributed
Japan Node Bs and an iDBS system.
September 2007
China Mobile Huawei will construct a GSM base station on Mount Everest for China Mobile. The base
China station will cover Everest’s base camp and the main route to the summit.
September 2007
Saudi Telecom Huawei will construct the first WiMAX 802.16e network in the Middle East for Saudi
Saudi Arabia Telecom. Included in the deal is an end-to-end WiMAX 802.16e network, base station, access
service network gateway, network management system, authorization, authentication and
August 2007
accounting system.


TBR

QSC AG Huawei completed a multi-service control gateway ME60 installation in the All IP network of
Germany QSC AG in Germany.
August 2007
StarHub Huawei completed construction of an HSUPA commercial network in Singapore for StarHub.
Singapore The network includes 1,000 next-generation distributed Node B base stations.
August 2007
Alltel Huawei will provide PC data cards products for Alltel Wireless in the United States. The
United States Huawei EC360 data card will be available for customer purchase at Alltel retail stores.
August 2007

SM
China Unicom Huawei announced it had been selected by China Unicom, a leading service provider in China,
China to deploy a next-generation IP network. The contract makes Huawei China Unicom’s largest IP
Network Transformation Partner, supplying all of China Unicom’s Core Router purchases and
July 2007
67% of the service provider’s Edge Router purchases.
Reliance Reliance Communications Ltd. announced awarding a network expansion contract to Huawei
Communications Ltd. worth more than $200 million. The contract covers the deployment of an all-IP Next Generation
India Network. Under the agreement Huawei will provide services for CDMA and GSM base
July 2007 stations, including BSC (Base Station Controller) and switches.
Leap Wireless Huawei announced it signed CDMA2000 infrastructure agreements with Cricket
United States Communications, Inc., a wholly owned subsidiary of Leap Wireless International, Inc. and
Deanali Spectrum Operations, LLC for deployment of Huawei’s latest third-generation CDMA
July 2007
technology.

Telecom Italia Huawei was selected by Telecom Italia to expand and upgrade its HSDPA (high-Speed
Italy Downlink Packet Access) networks covering Southern Italy, including the city of Palermo. The
expansion is intended to increase Telecom Italia’s network capacity to allow for new services
July 2007
through Europe.
Kalimat Telecom Kalimat Telecom awarded Huawei a $275 million infrastructure contract to deploy a fixed
Iraq wireless network in Iraq.
July 2007
Uganda Telecom Huawei was chosen to augment Uganda Telecom’s GSM network to 70% national coverage. In
Uganda the $50 million deal, Huawei will supply and install 200 Base Transmission Stations.
July 2007



TBR

Geographic Analysis
Huawei is looking to fuel 2008 growth through international expansion. In 2007, Huawei derived
72% of total revenue from the international segment, up 670 basis points from the previous year.
With a current stronghold in emerging markets, the company is focusing on growing overseas
business in developed European and U.S. markets. To date, Huawei has deployed products and
services in over 100 countries. The company touts its international expansion, including 12 R&D
centers, 28 training centers and 100 branch offices internationally. This rapid international
expansion enables Huawei to increase its proximity to customers, gain a better understanding of the
local markets and increase local headcount.

HUAWEI GEOGRAPHIC REVENUE

SM
TBR
FISCAL YEAR 2004 2005 2006 2007
China 73.0% 60.0% 34.7% 28.0%
International 27.0% 40.0% 65.3% 72.0%
SOURCE: TBR ESTIMATES AND HUAWEI.

Huawei continues to utilize its low-cost manufacturing process to offer economical solutions to
emerging countries. The vendor has established a strong foothold in emerging markets, which have
helped drive the company’s rapid growth. Huawei experienced growth of 35% year-to-year in 2007
in the Middle East & North Africa (MENA) region to bring the geography to 17% of total revenue.
The company is targeting 30% year-to-year growth in 2008, expected to be fueled by 3G

deployments.
As China frantically prepares for the 2008 Beijing Olympic Games, Huawei has signed multiple
deals to prepare for the onslaught of data-hungry athletes, officials, press and international
spectators. In March, China Netcom selected Huawei to provide 40% of the company’s optical
access solutions, making Huawei China Netcom’s largest supplier of optical solutions. China
Netcom will provide fixed communication services for the 2008 Beijing Olympics, requiring the
company to enhance its broadband services through the deployment of optical access solutions.
Huawei will provide the SmartAX5600T series optical access equipment, enabling China Netcom to
provide multi-play services to customers. Huawei won the largest portion of the contract after a
bidding process involving 12 vendors.
Also in anticipation of the 2008 Beijing Games, Huawei was selected to deploy and upgrade a
CDMA network for China Unicom. The network will cover Tianjin City, one of the cities hosting
Olympic events, in North China. Huawei will supply an All-IP solution to the carrier, including
core network and radio access equipment. The upgraded network will enable the operator to meet
high network demand during the Games.
TBR believes China will continue to be a significant market for Huawei. As the vendor branches out
internationally, China still remains the largest single-country proportion of total revenue. TBR
anticipates demand for network deployments and upgrades will continue after the 2008 Beijing

Olympics as the country expands the TD-SCDMA technology deployment and continues to add
subscribers at a rapid pace.


TBR

Resource Management Strategy
In 2007, Huawei increased its total headcount to 70,000, up from 61,000 in 2006. TBR believes the
majority of the hires occurred in the R&D field. In 2007, Huawei reported half of the total
headcount was committed to R&D activities, translating to approximately 35,000 individuals, up
from 40% of the 2006 total headcount, or 24,400 individuals. This jump in R&D staff supports the
company’s commitment to R&D and innovation and also speaks to the company’s international
expansion. The company has benefited from low-cost labor in both China and India, where the
company is growing R&D operations. TBR believes Huawei will continue to hire engineers globally
and headcount will increase once again in 2008.
Huawei drives innovation by earmarking approximately 10% of total revenue to R&D activities. Of

SM
the company’s R&D spend, 10% of that is spent on “pre-research,” enabling the company to
proactively pursue emerging technologies. At the end of 2007, the company had filed 26,880 patent
applications, of which 4,256 had been approved.
In January, Huawei and Vodafone announced they would jointly construct an Application
Innovation Centre in Madrid, Spain that will develop innovative mobile products and services. The
companies will work together and leverage synergies to develop products and solutions for
Vodafone.

TBR Huawei’s Facilities

LOCATION FUNCTION
Shenzhen, China Chinese Headquarters, East Pacific Headquarters
Basingstoke, United Kingdom European Headquarters
Moscow, Russia CIS Headquarters
Plano, Texas, United States North American 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
Stockholm, Sweden R&D Facility
Bangalore, India R&D Facility
Dallas, Texas, United States R&D Facility
Silicon Valley, Calif., United States R&D Facility
Moscow, Russia R&D Facility
Shenzhen, China R&D Facility
Shanghai, China R&D Facility
Beijing, China R&D Facility

Nanjing, China R&D Facility
Hangzhou, China R&D Facility
Chengdu, China R&D Facility


Huawei Analyst 4Q07(TBR)

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