Huawei 2006 Target: $8 Billion

Privately held Huawei Technologies Co. Ltd. says it expects to see revenues and orders to grow more than 30 percent in 2006. The equipment vendor made this prediction last week in a special meeting with industry and financial analysts at its headquarters in Shenzhen, China.

The company says it expects to see revenues in 2006 of $7.8 billion, compared to $5.9 billion in revenues for 2005. The company says its orders -- the value of its signed contracts that haven't been converted to audited revenues -- should be about $10.7 billion in 2006, compared to the $8.2 billion in orders it announced for 2005. (See Huawei Beats 2005 Sales Target.)

According to information shared with analysts, Huawei is increasing its percentage of sales outside of China, a strategic priority that the vendor has now had for a few years. The company booked more than 57 percent of its sales outside of China, leaving nearly 43 percent coming from its home country. By comparison, in 2004, Huawei booked 59 percent of its sales inside of China and 41 percent of its sales elsewhere. (See Huawei Doubles Overseas.)

Though less than 1 percent of its sales came from North America in 2005, that figure could change dramatically in 2007, as the company's new joint venture with Nortel will be fully operational by then. (See Nortel & Huawei: Broadband Buddies.)

What's also remarkable about Huawei's revenue breakdowns is that some 30 percent of its 2005 sales fall into the EMEA category -- Europe, the Middle East, and Africa. "Of the three large Chinese equipment vendors, Huawei is the only one to penetrate a mature market like Europe," says Light Reading Insider contributing analyst James Crawshaw, who attended Huawei's meeting.

In the last few months, Huawei has been picked to build a UMTS network for Vodafone Group plc (NYSE: VOD) in the Czech Republic; it has won a contract to provide UMTS gear for KPN Mobile 's core network; and it was arguably the most controversial vendor choice for part of BT Group plc (NYSE: BT; London: BTA)'s 21CN. (See Vodafone Czechs Out Huawei, KPN Picks Huawei 3G Core, and Vendors Sign BT 21CN Contracts.)

"Huawei's strength is its product breadth and huge talent pool for R&D," says Scott Clavenna, Heavy Reading chief analyst. "Who else can sell you a cell phone, a set-top box, a router, a softswitch, and a DWDM system that can transmit 5,000 kilometers without regeneration?"

The 35,000-employee company is impressive, but not infallible. Clavenna says Huawei was as open as it has ever been about the challenges facing it during the next several months. "Where Huawei will need work ,and where it is already seeing challenges, is in building up its local sales and support in Western markets," he says. "This is already chewing into its margins and limiting its ability to compete exclusively on price."

Crawshaw says Huawei seems "behind the curve on IPTV, compared to ZTE and UTStarcom." He also notes that the company seems to be "struggling to take the carrier concept of IMS and translate it into a specific product portfolio."

But he notes that the vendor continues to be strong in broadband access, optical networking, and wireless equipment. And, though it is having difficulty penetrating India, Crawshaw says Huawei is still among the strongest competitors in the world's emerging markets. (See BSNL Shuns Huawei.)

— Phil Harvey, News Editor, Light Reading