Huawei’s Secret

Ninad Mehta points to an article in Light Reading:

The company is well on its way towards that goal, with $2.2 billion in orders during the first half of 2004, according to RBC Capital Markets analyst Mark Sue, who visited the company’s headquarters recently.

“Evident by its well-organized tours offered to customers and media, Huawei is making a concerted effort to improve its image,” Sue wrote in a note to clients on Monday.

Behind the slick tours, though, the secret to Huawei’s success is cheap labor — a benefit that eventually rises to the top line. “Huawei will often discount its products 15 percent to 30 percent vs. its competitors,” Sue writes, “but due to its cost structure, Huawei may have similar gross margins.”

While 12 percent of Huawei’s revenues go to R&D, some 46 percent of Huawei’s 22,000 employees are focused there, Sue reports. “Whereas a Western vendor may be able to affordably send one engineering representative to a customer, Huawei can send 4 or 5 at a comparable cost.”

Will Huawei’s R&D manpower matter outside of China? You bet. Huawei says 80 percent of its massive R&D workforce is deployed in software development — a crucial piece of the rapid service provisioning and opex savings that carriers crave.

“Huawei’s R&D costs can be as low as 30 percent that of competitors,” Sue writes. “Consequently, Huawei may continue to price aggressively, especially as it attempts to build initial footprints at large carriers.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.