FOCUS - Huawei gains against Cisco in China router market
BEIJING, Nov 24, 2004 (XFN-ASIA via COMTEX) -- Shenzhen-based Huawei Technologies Co controls over one-third of China's booming network equipment market and is steadily eating away at Cisco Systems Inc's 40 pct market share due to its aggressive pricing policy and close customer relations, analysts said. "Huawei is picking up quite fast, and I believe the market share for Cisco and Juniper is decreasing," said Liu Zhoujiao, a research analyst with Frost & Sullivan, who covers the telecom markets in so-called Greater China. "Huawei has been on track (to grab new market share) for a few quarters." Cisco Systems and rival Juniper Networks dominate the US and European Internet router markets. Cisco, the world's largest networking company, reported lower-than-expected earnings and sales growth for the fiscal first quarter ended in October, and warned that the slowdown will continue into the second quarter. It also raised alarm bells over new competitors from Asia. "We are starting to see a slew of new competitors out of Asia, especially China," said Cisco chief executive John Chambers, noting that sales in Asia contributed 10 pct of Cisco's revenue in the quarter, with sales in China at three pct of the total. And Huawei, analysts said, has proved itself to be a tough competitor. Liu said Huawei's products in smaller deals are up to 30 to 40 pct cheaper than similar solutions from Cisco, though Cisco offers discounts of more than 50 pct off the listed price in larger deals to offset the price gap between international and Chinese producers. In the Chinese market for higher-end routers, Cisco still has a greater lead, controlling about 50 pct of the market, while Huawei controls between 30 and 33 pct, according to data from Frost & Sullivan and CCID, a research arm of the Ministry of Information Industry in China. The market size for higher-end routers in China will grow to between 480 and 640 mln usd in 2004. It totaled around 150 mln usd in the third quarter, according to Frost & Sullivan. But Cisco's lead in the high-end market is slipping, with Huawei pushing Juniper to number three in terms of China market share. "Huawei's product quality is not as good as Cisco's, especially in high-end products. But price plays a very important role in the competition for the medium- and low-end market," said Jiang Mingtao, a telecom analyst with CCID. "Domestic companies benefit from a cheaper labor force and favorable taxation policies, and thus are able to offer much lower prices, especially for high-end products," Jiang said. In addition, analysts said, Huawei enjoys an edge in dealing with clients. Compared to US-listed competitors such as Cisco and Juniper, privately owned Huawei's corporate culture fully exploits its standing in the Chinese market. "Based on our understanding, the company has a very flexible policy where they can communicate with the clients. They can be very flexible in that relationship," said Liu of Frost & Sullivan. Huawei's spokesman, Richard Lee, confirmed that the company's sales force is given considerable flexibility in dealing with customers. CCID's Jiang said a low threshold for entry into the high-end router market has increased the fierce competition on price. This has allowed companies such as Huawei and some medium-sized companies such as Harbour Networks, a company set up by a former Huawei executive, to launch high-end products, pushing larger foreign competitors out of the high-end router market. Most of Huawei's manufacturing facilities are in China, further driving down product costs. The company has 22,000 employees in 70 countries and recorded sales contract volume in 2003 of 3.83 bln usd, an increase of 42 pct year-on-year, according to the company's website. But Huawei's Lee said his company's gross profit margin was significantly lower than Cisco's. "It's hard for Huawei to overtake Cisco in the near future. No one can deny that Cisco is still the leader in the industry," he said. Cisco did not respond to repeated interview requests. Frost & Sullivan's Liu said his research showed that Cisco would also continue to enjoy an edge in larger China deals for political reasons. Because of the large US trade deficit with China, Liu said, China's big telecom operators would likely choose US-based companies over domestic ones in an effort to improve the bilateral trade balance. "They will see what is the best way to benefit the country in a political sense. They will still take these things into consideration," Liu said. "So it's not only an issue of the price of the products." (1 usd = 8.3 yuan) tom.wang@xfn.com jes.nielsen@xfn.com tw/jrn/pxz/wk
By Staff Reporter
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KEYWORD: ChinaINDUSTRY KEYWORD: Computer HardwareSUBJECT CODE: Equities-Other market analysis
