Huawei Technologies Company Ltd.

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Huawei Technologies Company Ltd.

TELECOM UPSTART IN 1988

ESTABLISHING TECHNOLOGY PARTNERSHIPS IN 1997

TELECOM UPSTART IN 1988

Huawei Technologies was founded in 1988 by Ren Zhengfei, an officer in the People’s Liberation Army, later a member of the Chinese government. Ren’s relationship with the Communist government, and with the PLA, later raised security questions in regards to the company’s international expansion, and at least at the beginning, it appears that Huawei was directly owned and controlled by the PLA. The company later claimed to have restructured its ownership, with its employees, possibly through one or more unions, controlling the majority of the company’s shares. The reclusive Ren, who refused interviews and otherwise reportedly patterned himself after Chairman Mao, was said to own 1 percent of the company.

Huawei (the word stands for “achievement” in Chinese) established its operations in the growing city of Shenzhen. That city, which was little more than a small fishing village in the late 1970s, had become one of China’s fastest-growing cities following the establishment of a free trade zone there amid the debut of China’s economic reforms in 1979. Shenzhen’s proximity to Hong Kong, facing the then-British city on the opposite bank of the Shenzhen River, as well as its natural harbor facilities, made an important part of China’s goal of establishing its own homegrown industrial and technological capacity.

Yet at first Huawei relied on foreign technology, and functioned as little more than an importer of PBX switches for China’s antiquated telephone system. Telephone penetration had traditionally been extremely low in the country, with just 200,000 lines in a nation of more than one billion at the beginning of the 1990s. The country’s ambitions of rejoining the global industrial economy, however, guaranteed explosive demand for telecommunications infrastructure and end-user equipment in the coming years. While China eagerly imported existing technologies into the country, notably through a vast number of joint ventures and technology transfer agreements with foreign partners, the government also pressed the development of homegrown technologies.

The country, and Huawei, could build its ambitions on the vast pool of technology graduates produced each year by the country’s universities. The relatively low wages and seemingly unlimited number of engineers provided a huge resource for the company as it launched its own research and development program within a year of its founding. By the beginning of the 1990s, the company had succeeded in producing its first PBX switch. Geared specifically to the Chinese market, that switch boasted a 10,000-circuit capacity. Backed by the government, Huawei gained contracts for its PBX switching equipment throughout China.

The company’s continued development efforts led to the launch of its C&C08 digital switch in 1993. By 1995, the company had begun to apply for, and earn, its own patents, and in that year the company set up its own Intellectual Property Rights department. Huawei continued to extend its R&D capabilities, opening a second research facility in Beijing in 1995, followed by an R&D center in Shanghai in 1996. These efforts helped the company roll out its HONET range of integrated access network and SDH equipment that same year. Also in 1996, the company signed its first international contract, supplying fixed-line equipment to Hong Kong-based Hutchison Whampoa.

COMPANY PERSPECTIVES

VISION: To enrich life through communication. MISSION: To focus on our customers’ market challenges and needs by providing excellent communications network solutions and services in order to consistently create maximum value for customers.

Customer Focus Strategy: Serving our customers is the only reason Huawei exists; Customer demand is the fundamental driving force of our development. High quality, excellent service, low operating costs, and giving top priority to meeting customer requirements to enhance their competitiveness and profitability. Continuously performing management transformation to realize efficient process-based organization operation for ensuring high quality endto-end delivery. Developing with our peers in the industry as both competitors and partners to jointly create a favorable environment and share the benefits of the value chain.

ESTABLISHING TECHNOLOGY PARTNERSHIPS IN 1997

Partnerships with a variety of international companies played a major role in helping the company ramp up its technologies. This was especially true as the developing GSM mobile telephone standard presented new opportunities for the company’s expansion. Where previous fixed-line and PBX-based telecommunications equipment were already mature technologies when Huawei was founded, the new wireless communications and mobile telecommunications market helped level the playing field somewhat. Faced with a lowered barrier to entry into the global technology race, Huawei quickly established a network of partnerships with many of the industry’s major players. This effort led the company to set up a series of shared research and development facilities with such partners as Texas Instruments, Cisco Systems, Motorola, Intel, Sun Microsystems, Altera, Qualcomm, Microsoft, and Infineon, starting from 1997. While the company’s aggressive pursuit of technology would later lead to new questions regarding the company’s intentions—in 2002 Cisco Systems filed a lawsuit against Huawei, alleging patent infringement and corporate espionage, among other incidents—Huawei rapidly gained expertise in the new telecom market. By 1997, the company had debuted its own GSM-platform based equipment

Huawei extended its R&D network again in 1998, opening a center in Nanjing. The following year, the company set up its first wholly owned international R&D network, in Bangalore, India. That center became the company’s largest overseas operation, with more than 1,000 employees. In 2000, the company added two new U.S. centers, targeting the high-tech corridors of Dallas and California’s Silicon Valley. By then, the company had increasingly begun to extend its operations throughout the Asian Pacific, and by 2001 claimed to be the leading producer of optical line products for the region. The South American region proved to be another strong market for the company, which established its first sales office for that continent in Brazil in 1999, followed by the establishment of a technology training center in 2000. By then, the company claimed total sales of more than $2.65 billion, though just $100 million was generated outside of China.

Huawei’s commitment to the GSM standard enabled it to target entry into the European market, which had begun building a continent-wide GSM network in the mid-1990s. Huawei moved to expand its presence in Europe and in 2000 formed a sales subsidiary in England. Over the next several years, the company expanded throughout the region, opening support offices in 26 countries. The company also entered the computer information systems market, launching a subsidiary in Moscow. Increasingly, Huawei had begun to compete head-to-head with the Europan market’s telecom equipment giants, including Siemens, Nokia, and Ericsson. A major contract for the company came in 2001 when it received the contract to deploy a 10Gbps SDH system for the city of Berlin. Huawei’s cost-competitiveness enabled its international sales to build rapidly; by the end of 2002, international sales had already topped $500 million. This growth was especially impressive given the global slump in telecommunications spending at the beginning of the decade.

Back at home, Huawei remained the dominant telecommunications equipment supplier, a position reinforced by its selection by China Mobile to roll out what became the world’s first and largest wireless LAN network in 2001. While China remained by far the company’s main market, Huawei continued to build both its reputation and global presence into the middle of the first decade of the 2000s. The company gained a major position in the Middle East, launching a next-generation UMTS network for Emirates Telecommunications Corporation in 2003. In 2004, the company added to its international clientele with the launch of a UMTS network for the Netherlands’ Telfort.

Huawei’s reputation remained shrouded in controversy, however. In 2000, the company had been accused of bypassing the Iraqi embargo, with an equipment supply contract. The company later claimed not to have fulfilled the contract; the incident, however, was said to have influenced the U.S. government’s continued suspicions of the company. As a result, if Huawei had achieved success in most of the world’s market, its presence in the United States remained highly limited.

KEY DATES

1988:: Huawei is established in Shenzhen by Ren Zhengfei as an importer of PBX network equipment before launching its own research and development operations.
1996:: Company signs first international supply contract, with Hutchison Whampoa in Hong Kong.
1999:: Huawei sets up first international R&D center in Bangalore, India.
2001:: Company establishes European sales subsidiary.
2006:: Company wins contract to supply UMTS handsets to Vodafone.

The lawsuit filed against it by Cisco Systems in 2002—alleging that the company had stolen Cisco’s technology and software in an effort to woo Cisco’s customers away—had the paradoxical effect of boosting Huawei’s stature. The lawsuit’s implicit recognition of Huawei as a rival for Cisco placed Huawei among the global industry’s major players, and in the end served to enhance Huawei’s reputation. The two companies ultimately reached an amicable settlement, and Cisco dropped the lawsuit in 2003. Nonetheless, questions over Huawei’s ownership, and intentions, continued to pose problems for the company. In India, for example, its attempt to expand its operations there was blocked by the Indian government in 2005. Similarly, the company’s interest in British electronics and technology flagship Marconi in the early 2000s raised an alarm among members of the British Parliament. That company was ultimately acquired by Sweden’s Ericsson. A new incident, when a member of Huawei’s staff was caught taking photographs of Fujitsu networking equipment after hours at a trade show, in 2004, raised further doubts about the company’s commitment to developing its own technology.

Nevertheless, the company continued to attract new and high profile contracts. By the end of 2006, the company appeared to have joined the global big league. After being awarded a contract to supply European telecom giant Vodafone’s UMTS infrastructure equipment, including its full Spanish rollout, Vodafone tapped Huawei again in 2006 to supply its first series of UMTS handsets. Part of the company’s success was attributed to its flexibility; not only was it able to agree to Vodafone’s request for a midpriced multimedia-equipped telephone, it also agreed to brand the telephones under the Vodafone name. By the end of 2006, the company’s sales had risen past $11 billion. International sales by then represented the majority of the company’s operations, at 65 percent of sales. With an ever growing homegrown technological foundation, Huawei was prepared to make a bid for the industry leadership in the new century.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Huawei Technologies operates subsidiaries in Brazil, China, India, Malaysia, Moscow, South Africa, the United Kingdom, and the United States.

PRINCIPAL COMPETITORS

Siemens AG; Sony Ericsson Mobile Communications; Hitachi Ltd.; Fujitsu General Ltd.; Motorola Inc.; Nokia Corp.; NTT DoCoMo Inc.; LG Electronics; Sharp Corp.; Reliance Industries Ltd.; Sanyo Electric Company Ltd.; Alcatel-Lucent S.A.