huawei logo.jpgHuawei,
the fast-growing Chinese telecoms equipment maker, is now the world's
largest supplier of optical networking hardware according to Infonetics
Research.

The achievement may not mean much to most readers —
Huawei focusses on big-ticket capital equipment and its customers are
mostly telephone companies.

Nevertheless, the rapid rise of Huawei, mentioned before on EngagingChina,
is startling, particularly in a technologically advanced sector like
optical networking, traditionally dominated by western suppliers like
Nortel, Alcatel and Lucent (in the throws of merging with Alcatel ).

Huawei's
achievement shows how China's emerging technology giants can not only
compete on the global stage but increasingly win. According to Michael
Howard, Infonetics' principal analyst:

Huawei
is the big story this quarter, with sales up an amazing 83% and a
larger foothold in the EMEA region. For the first time in optical
network hardware market history, Alcatel is not in first place.”

Huawei
jumped from fourth to first position in the second quarter of 2006, and
Howard cautions that for the next quarter it may slip back down again.
Its current victory may be short-lived but I suspect that it won't be
long before Huawei finds a more permanent place at the top.

The
market for optical networking equipment was worth $10.8bn last year but
carriers are no longer rushing to spend in this area — memories of
dotcom excesses are still fresh — and Infonetics says the market will
be worth just $12.3bn by 2009.

Huawei appears to have the right
strategy to cope with this environment. Its products are as
technologically advanced as the western competition but its prices are
up to 30 per cent cheaper, which makes them particularly attractive to
carriers in emerging markets, where the best growth opportunities lie.

The
changed dynamics and tumbling prices in the telecoms hardware business
have led to a wave of acquisitions and mergers — most recently Lucent
and Alcatel.

3Com is the latest western equipment supplier to be placed in the frame, this time as a target for for a private equity buyer.

Ironically,
the main attraction of 3Com is not its traditional business but its
51:49 joint venture with Huawei, which began in 2003. Dubbed H-3C, the
JV allows 3Com to sell Huawei's high-end networking gear in the US and
elsewhere at much cheaper prices than rival Cisco. This hidden jewel
now accounts for half of 3Com's sales, and 3Com has announced it is negotiating to increase its stake in H-3C.

Time
may be running out, however. Starting 15 November, both 3Com and Huawei
can bid to purchase the equity interest in H-3C held by the other,
under the terms of their existing agreement. I would not be surprised
if Huawei decides it wants the H-3C business all for itself.

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