Huawei viewed as a Top Telecom Tech Innovator, but Locked Out of U.S. and Australian Markets

In a recent SF Chronicle article, Andrew S. Ross concluded that China’s Huawei was one of the world’s top technology innovators.  He wrote, “Huawei is now not just the world’s largest supplier of telecom equipment, but an increasingly ambitious player in high-tech sectors ranging from network servers to mobile telephony.”

“On display inside the company’s glass-encased space-age building are a bevy of sophisticated products: data management centers, solar-powered small footprint base stations, cloud-based software services, videoconferencing systems, smart phones and, most recently, a tablet aimed at the business market,” Ross added.

Operating in 140 countries, Huawei recorded $32 billion in sales last year and looks to triple that number in the next 10 years. The Shanghai center, where much of the mobile phone R&D occurs, employs 10,000 people out of a global workforce of 140,000. That includes approximately 700 employees in its Santa Clara, CA based Research Center.  The company operates 23 R&D centers worldwide.  Some of the hot longer term research projects include: photonics, optics and  LTE (Long Term Evolution) Advanced devices. Huawei installed the world’s first LTE network in Oslo in 2009.  LTE Advanced (True “4G”) is several years from commercial implementation.

Huawei was rated the fifth most innovative company in the world by Fast Company magazine in 2010 (behind Facebook, Amazon, Apple and Google).  The company serves as a model for what the Chinese government would like its economy to be.  Innovation in technology is a key component of China’s five-year plan for “rebalancing” the economy and “higher quality growth.” That cannot be achieved without greater involvement of the private sector, say analysts, including the World Bank and the Development Research Center, a Chinese government agency, which in a recent report called for substantially scaling back the role of the country’s giant state-owned enterprises.

“Huawei is building some of the best, most innovative and fastest equipment in the industry,” Fortune magazine wrote last year.  

“Up to now, the (communist) party has seen SOEs as the driving force of Chinese innovation,” said David Wolf, a Beijing-based corporate consultant and author of a soon-to-be-published book on China’s telecom companies. “They still think they’re the horses to back, and it will take a great deal to persuade party leaders to change course. But if they do, it will change the face of Chinese business.”

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In addition to its 700 employees in Santa Clara, another 1,000 are employed elsewhere in the United States, where Huawei spent $230 million on R&D alone last year. Earlier this year, Huawei awarded $6 billion worth of contracts to three California companies, including advanced semiconductor maker Avago Technologies, in San Jose.

But that seems not to have impressed the U.S. government, which has killed at least four deals involving Huawei and U.S. companies in recent years, including the acquisition of 3Leaf -a failing Silicon Valley virtualization and cloud computing company, based on national security concerns.  Another huge scuttled deal was Huawei prohibited from selling network equipment gear to Sprint for Network Vision- its next generation broadband wireless network (Samsung, Alcatel-Lucent, and Ericcson were selected).  The U.S. believes that the Chinese military still controls privately held Huawei.

The Australian government has just recently banned Huawei from providing network systems for the A$36 billion (US$37.6 billion) national Next-generation Broadband Network (NBN)- also because of security concerns.  

Australia’s Prime Minister Julia Gillard has confirmed that Huawei will not be allowed to participate in the NBN for (unspecified) security reasons that are in the “national interest,” and, reports Reuters, went on to highlight China’s rules on overseas investments in communications networks.

This presents a huge road block for Huawei’s fast growth and global dominance of the telecom network equipment business.  Will they fight back?

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