Chinese vendors' magic trick

Huawei, ZTE, and FiberHome have all reported their 2010 results. Collectively, the three vendors reported domestic China revenues of $15.07bn, up 9.7% from 2009. While both ZTE and Huawei have significant device businesses, all three get the vast majority of revenues from service providers’ capex budgets. Hence, it’s hard to reconcile their surge in China revenues with the 17% decline in 2010 Chinese capex.

 

We believe this inconsistency can be explained by two factors. First, China remains a tough market for foreign suppliers, even for localized vendor Alcatel Shanghai Bell. Second, there is increased private (non-carrier) spending on carrier-grade network infrastructure in China. Government, finance, energy, transport, media/cable/broadcasting, and other vertical industries are driving this. We expect these factors to persist for some years.

 

At least three key local Chinese vendors had double-digit increases in global revenues for 2010:

 

· Huawei: up 25.4% to $27.32 billion

 

· ZTE: up 17.9% to $10.39 billion

 

· FiberHome: up 21.3% to $826 million

 

Huawei and ZTE are discussed in numerous Ovum reports. (For instance, see “Huawei stays ambitious as growth slows down”). FiberHome, though, usually flies under the radar. It is relatively small, publishes results only in Chinese, and is influenced by its 1974 founding as the Wuhan Research Institute of Telecommunications. That has some benefits, such as access to government R&D support, cheap financing, and a strong pipeline of skilled labor in local universities, but it also contributes to a relatively conservative corporate culture.

 

Particularly in optics, though, FiberHome is important to watch, because of its systems products, its cabling division and affiliates (including a big venture with Fujikura), and its components subsidiaries, notably WTD and Accelink. The latter went public in Shenzhen in August 2009.

 

FiberHome’s 2010 filing confirmed its tiny overseas presence: 93% of 2010 revenues were from China, from 96% in 2009. Its annual report flags internationalization as a key goal, and targets an improved marketing system to accomplish this.