China's Huawei to go it alone in network gear, handsets

Tue Nov 5, 2013 10:47pm IST

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* Will not do acquisitions in either business line -exec

* On track to hit 10 pct sales growth target this year, next

* Gradual approach to growing handset business

By Leila Abboud

LONDON, Nov 5 (Reuters) - China's Huawei is not planning acquisitions to expand its telecom network equipment and mobile phone businesses, preferring a go-it-alone strategy centred on R&D firepower and building a consumer brand, the group's co-chief executive said.

Speaking in London on Tuesday, Eric Xu, who now holds the rotating CEO job, also said Huawei would have no problem hitting its target for 10 percent revenue growth this year and next on strong demand from global telecom carriers and consumers.

Shenzhen-based Huawei earned roughly 73 percent of its 220.2 billion yuan ($36.1 billion) sales last year on network equipment for telecom operators, while 22 percent came from mobile phones and other consumer devices like wifi dongles. Nearly three quarters of revenue is earned outside China, making Huawei one of the country's first truly global companies.

"We will not do any acquisitions to support the business objectives we have for our smartphone business, rather we will take a step-by-step approach to build it," Xu told reporters.

As for the telecom gear unit, Xu also said no acquisitions were planned.

Huawei has expanded globally in the past decade to become the world number two behind Sweden's Ericsson, taking market share from Europe's Alcatel-Lucent and Nokia's NSN unit via lower prices and strong technology.

"Any acquisition would bring us similar technology to what we already have in our portfolio and that does not bring any synergies," said the 46 year-old executive.

"The customers also want multiple choices of vendors."

Xu's remarks come as the telecom equipment and mobile phone sectors could be moving into a period of consolidation as weaker players struggle to stay with the rapid pace of technological change. Nokia is considering strategic options including a tie-up with rival Alcatel-Lucent after it unloaded its mobile device business to Microsoft, sources earlier told Reuters.

In handsets, Canada's Blackberry tried and failed to sell itself, although Xu said Huawei was never in talks with the company. Taiwan's HTC is also seen by some analysts as possible takeover prey as its sales tank under pressure from Samsung and Apple.

Regardless of the deal-making landscape, Huawei, which was founded in 1987 by Ren Zhengfei, an engineer who got his start in the Chinese army, does not think it needs to snap up weakened rivals to keep up its rapid growth.

Instead, Xu said the group would emphasise R&D to stay ahead of the competition in network gear. He cited a $600 million investment it was making in early research into next-generation mobile technology known as 5G that will multiply download speeds from 4G technology still being rolled out in much of the world.

Huawei spent 14 percent of its sales last year on R&D, on par with leader Ericsson.

In handsets it took a long-term view and was focusing on smartphones aimed at developed markets and not on the lower end.

Xu said the group would refrain from massive advertising campaigns while it worked on improving products, strengthening its supply chain and may open stores for distribution.

"We are not yet satisfied with this business. Only when these three goals are met will we start to increase our investment on the marketing and branding side," he explained.

The strategy appears to be working, although in market share Huawei remains far smaller than leaders Samsung and Apple.

In the third quarter, Huawei took the third-place spot from LG in terms of smartphone shipments helped by its Ascend P6 model, selling 12.7 million phones and taking its market share to 5.1 percent globally, according to Strategy Analytics.

Samsung led with 35.2 percent and Apple had 13.4 percent.

Xu admits that building a global brand takes time, and it could temporarily lose the third spot if rivals' new handsets appeal to fickle consumers, but Huawei is playing the long game.

"Our PR agency told us we should help consumers learn how to pronounce the name Huawei, and maybe over time they will come to know the brand."

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