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Chinese Vendors Make U.S. Headway

Sat, 05/30/2009 - 8:50pm
Monica Alleven

Both ZTE and Huawei hold small market shares compared to their counterparts,
but they’ve made progress since entering the market much later than the legacy vendors.

Vendors have had their sights set on the Chinese market since China awarded its 3G licenses earlier this year. But Chinese vendors are not sticking to their home turf. Both ZTE and Huawei have been trying Chinese Wireless Market– for years now – to stake a sizeable claim in the U.S. market, and they’re still at it.

While making progress, the vendors have a ways to go. They’re still more or less relegated to the “others” categories when it comes to U.S. market share in infrastructure and handsets. But they’re landing contracts with Tier 2 carriers, where they’re proving their mettle. And those persistent accusations that the Chinese vendors undercut their competitors on price? Both companies say they’ve made great strides in technology leadership, and they should be given props for that.

GUNNING FOR CLEARWIRE
Both Huawei and ZTE are often mentioned as potential suppliers for Clearwire. According to Will Kong, China research analyst at iSuppli, WiMAX represents an opportunity for the two vendors in the United States. The most likely scenario with Clearwire would be Huawei getting an infrastructure contract and ZTE a handset or device-type deal.

Neither company would comment directly on any contract talks. Huawei says it intends to go after all the WiMAX opportunities in North America. At the end of the first quarter, the company had 41 contracts globally for WiMAX. ZTE has been shipping devices to Sprint under the Xhom brand and said it will continue to develop products for WiMAX. With Sprint Nextel being the primary stake-holder in Clearwire, ZTE hopes its relationship will continue.

As of late May, Clearwire had made no major vendor announcements other than the core IP that Cisco Systems will provide, although many in the industry expect the company to announce more suppliers. The mobile WiMAX service provider has been using radio solutions from Motorola and Samsung.

“For our microwave backhaul networks, we have used off-the-shelf microwave products from suppliers like DragonWave and Motorola,” says Clearwire spokeswoman Susan Johnston. “Our labs are constantly testing new equipment from many vendors in the spirit of continuous improvement, but we are not prepared to name additional new infrastructure vendors at this time.”

Raymond Kim
Kim: ZTE wants to be both cost and technology leader.

THEIR ASPIRATIONS
“Certainly, we would like to expand our customer base in the U.S.,” says Raymond Kim, general manager of ZTE USA. The company has been in the United States since the early part of 2000. Its first U.S. handset customer was MetroPCS.

Huawei entered the North American market in 2001, so it’s not as if it just sprang on the scene, either. Charlie Chen, senior vice president of marketing and product management at Huawei Technologies North America, says since Day One, the company has been committed to the U.S. market and step by step has established a reputation.

Executives at Huawei, the far bigger of the two companies based on revenue worldwide, say it’s important to note that Huawei is not just a company with headquarters in China. It’s a global company selling around the world, with R&D and innovation centers outside China, and it doesn’t favor any one particular type of technology.

“For us, it is not technology for technology’s sake,” says Sarvesh Sharma, director of network solutions/office of the CTO. “We are a very customer-focused company. We don’t fall in love with a technology … Our goal is to develop products that our customer requires.”

While Huawei builds its U.S. customer base, it is seeing great success worldwide. Huawei’s corporate target for 2009 contract sales is $30 billion, according to Alliance Development Group (ADG) based in Beijing, China. Huawei has become the fifth- largest telecom company after Cisco, Ericsson, Alcatel-Lucent and Nokia Siemens Networks (NSN) – and is likely to be No. 3 in 2009 based on Huawei’s forecast and that of Alcatel-Lucent and NSN, ADG says. The Dell’Oro Group says the rapid rollout of 3G in China put Huawei ahead of Alcatel-Lucent in wireless infrastructure market the first three months of this year.

PRICES, PRICES
What about those persistent reports that the Chinese vendors undercut the competition on price? That’s not so, says Chen. To win a customer, “you really focus on several aspects,” he says. “Price is just one small area.” The solutions must be strong enough performance-wise to win the confidence of operators, and different operators seek different solutions. “We have to tailor our solutions to best fit their scenario,” he says. Lowering prices just leads to the competition doing the same, and “we want to maintain a healthy environment. Everybody should have a good profit margin.”

ZTE’s Kim says five years ago, there might have been a gap between the Chinese and top-tier suppliers in the West; however, that gap has disappeared and in that aspect, ZTE is bringing the best available technology to the table. “We want to be the technology leader as well as the cost leader,” he says.

That said, Kim acknowledges having rocked the boat when the Chinese entered the market. Traditionally, telecom vendors enjoyed very high margins. Consequently, they built up their organizations. Once the margins shrunk, it was hard to scale back fast enough. ZTE’s margins weren’t as good as the incumbents, but it didn’t have all the overhead costs associated with that, either, and it has remained profitable, he says. In fact, ZTE is hiring when much of the industry is downsizing.

The two vendors seem to be proving their technological muscle – and longevity. When asked what advantages Huawei and ZTE have in the U.S. market, iSuppli’s Kong says there are two. One of them is price. The other is having complete product lines with long-term developments plans.

For ZTE and Huawei, it appears that patience is leading to profits.

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