Sunday 3 May 2009
Huawei and ZTE Moving Up the Global Scales. Ericsson Next?
China’s two telecoms tigers, Huawei and ZTE, are so far the only two among all their major competitors who have managed to maintain sales and profit growth. Now their ambitious competitive strategies are beginning to challenge behemoth Ericsson for dominance in the telecoms industry.
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Huawei and ZTE Moving Up the Global Scales. Ericsson Next?
CSC staff, Shanghai
5 May 2009
China’s two telecoms tigers, Huawei and ZTE, are so far the only two among all their major competitors who have managed to maintain sales and profit growth. Now their ambitious competitive strategies are beginning to challenge behemoth Ericsson for dominance in the telecoms industry.
Huawei’s financial 2008 performance stunned analysts and the industry. Total sales reached $18.329 billion, up 42.7%, year on year, and net profit hit $1.15 billion, up 20%. Huawei’s net profit ratio was 6.28%.
Meanwhile, ZTE, also based in Shenzhen, showed strong growth. In 2008, operation income totaled 44.29 billion yuan, a jump of 27.3%, year on year, while net profits totaled 1.66 billion yuan, up a hefty 32.58%.
2008 was a crucial year for the restructuring of the global telecoms industry. Nortel’s bankruptcy application in January seems to have been the first in a series of toppling dominos. Nokia-Siemens’ financial report, in the second year after its restructuring, while showing a 14% increase in sales to €15.309, also reveals a negative €300 million in company operations profit. (The loss in 2007 was €1.3 billion.) The situation at Alcatel-Lucent was even worse, the company’s annual sales dropping by 5%, year on year, to €17 billion, and its loss continuing to grow to €5.173 billion. (Its loss in 2007 was €1.3 billion.) Even Ericsson, famous for stable growth, saw a decline. Although the company’s 2008 sales continued to grow by 11% to 209 billion Swedish kronas, its net profit slumped 47% to 11.67 Swedish kronas.
Performance of mobile phone makers also proved to be unsatisfactory. Global sales of Nokia, the world’s No.1 cell phone maker, dropped 0.7%, year on year, to €50.7 billion, and operations profits slumped 37.8% to €4.966 billion. Faced with the double threat of Samsung and LG, the joint venture Sony-Ericsson is also in decline, 2008 sales sagging by 13% to €11.244. For the first time it saw a loss in net profit, of €730 billion.
Cisco, with its dominance in the digital-telecoms industry, may be the only one among US and European giants continuing to enjoy good days. In 2008, sales rose 13% to $39.5 billion, and its net profit rose 11% to $8.1 billion.
A new ranking is forming among the global telecoms leaders. Ericsson maintains its status as the world’s No. 1, followed by Nokia and Cisco, but Huawei, Alcatel-Lucent, and ZTE now rank fourth, fifth, and sixth, respectively. Huawei and ZTE ranked fifth and eighth in 2007.
And due to the steady competitive decline of Nokia-Siemens and Alcatel-Lucent, Ericsson is gradually becoming the only key rival of Huawei and ZTE. (Cisco mainly focuses on detailed areas such as digital business.)
Huawei has seen significant achievements in the past few years, especially in terms of production efficiency per head, which has reached $210,000, surging 31% from $160,000 in 2007. Although this number is still distant from Ericsson’s $320,000 and Cisco’s $590,000, Huawei is making strides that cannot be ignored.
Huawei’s growth in other areas has also surprised the industry. According to INFORMA, a consulting company, in 2008 Huawei ranked the third in the global mobile equipment market. It also launched the first LTE-oriented WCEMA/HSPA jointly with Telus and Bell, based in Canada. Meanwhile, Huawei’s applications for international patents reached 1,737, ranking No.1 in the world.
Huawei plans to suspend hiring in 2009, as the company needs to consolidate its current employees. Meanwhile, it also plans to strengthen financial management in order to further increase efficiency per head.
Huawei Senior Vice-President Xu Zhijun said that, after the fast pace of the recent years and the increase in sales scale, Huawei would try to control its growth in 2009, and focus on management and improvement in supply chain and financial process.
Huawei has commissioned Accenture to run a new client relations management project for the company, to improve client relations and accounts receivable management. “Through facilitating the process ranging from opportunity to contract, and to cash, our efficiency will be further improved,” said Xu Zhijun.
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