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Huawei Funded for Overseas Expansion

Huawei Technologies Co., China’s largest phone-equipment maker, gained a US$10 billion credit line from China Development Bank to finance overseas expansion.


Huawei aims to boost sales abroad to US$4 billion this year from US$2.2 billion last year after signing the five-year facility with the State-owned lender, executive vice president Hu Yong said. The Shenzhen-based company, which plans to open offices in 20 more nations this year, had no plans for acquisitions “at the moment”, Hu said.


Access to State funds will help closely held Huawei compete with publicly traded rivals such as Ericsson AB, Cisco Systems Inc. and China’s ZTE Corp. The size of the facility would give Huawei the financial backing to follow Chinese computer maker Lenovo Group Ltd. by buying an overseas rival, said analyst Edward Yu.


“Huawei’s cash flow is quite strong already,’’ said Yu, president of Beijing-based Analysys Consulting, which researches China’s information technology industry. “This may be a sign that Huawei is about to acquire companies abroad.”


China Development Bank funds many of the nation’s biggest public projects, including the Three Gorges Dam and the Shanghai Pudong International Airport. The bank has extended US$250 billion in credit lines to more than 4,000 projects in the past decade, according to Huawei.


Huawei met a goal of doubling sales abroad last year after winning US$400 million in contracts in Kenya, Zimbabwe and Nigeria in November.


The company, whose customers include Telefonica SA of Spain and Singapore Telecommunications Ltd., is aiming to raise international sales to half of its target US$8 billion revenue next year, according to Hu. Huawei’s sales exceeded US$5 billion last year, Hu said, indicating exports were no more than 44 percent of the total. Overseas sales have quadrupled from US$558 million in 2002.


Huawei and next-biggest domestic rival ZTE won market share from companies such as Cisco by developing and selling products such as switches and routers at lower prices. The companies have benefited from operating in the world’s biggest telecom market by users: China had 330 million mobile-phone subscribers and 313 million fixed-line users at the end of November, according to the government.


Huawei, which has focused its overseas expansion on emerging markets such as Thailand, Egypt and Russia, won a 200 million euros (US$272 million) contract to supply high-speed mobile-phone equipment to Telfort BV, the No. 4 Dutch wireless operator, Dec. 8.


“The Netherlands win was a major breakthrough for Huawei,” said Duncan Clark, managing director of BDA China Ltd., a telecom market research company. “It means Huawei has broken into the developed, non-price sensitive markets.”


China’s government is making it easier for companies to expand abroad, loosening controls on capital outflows after the country’s foreign reserves rose to a record US$514.5 billion in September. Lenovo agreed last month to buy International Business Machines Corp.’s personal-computer business for US$1.25 billion.


“China is encouraging its companies to expand overseas to gain experience and boost their competitiveness, because they will face more competition at home,” said Chen Liang, an analyst at Guotai Junan Securities co. in Shanghai.


Increasing sales abroad is key to China’s companies as the nation removes tariffs and foreign ownership limits at home to meet World Trade Organization commitments. Approved Chinese investments overseas totaled US$9.3 billion between 1979 and 2002, compared with US$250 billion in overseas investment in China since 2000, government data show.


ZTE raised the maximum HK$3.1 billion (US$399 million) it sought in an initial public offering in Hong Kong last month. The company, which already has shares listed on the Shenzhen Stock Exchange, plans to use 60 percent of the proceeds to expand overseas.


“We have no plans for an IPO yet,” Huawei’s Hu said. But this credit line doesn’t preclude us from having an IPO down the road. The key is finding the ideal time. When that is, we don’t know yet.”


Huawei, which has a venture with U.S. networking equipment maker 3Com Corp. formed in March 2003, would open offices on all major continents this year, taking its total number to 70, Hu said.


(Shenzhen Daily January 5, 2005)


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