Huawei seeking capital and foothold in U.S.

Huawei Technologies Co. Ltd., the Chinese vendor of entry-tier phones, is seeking a capital infusion for its handset division to fuel international expansion of that business, particularly in the United States.
Such a move would provide a brand-building opportunity and also free up resources to power the vendor’s more formidable network infrastructure business.
Huawei took bids from interested parties last week and has retained investment banking firm Morgan Stanley to facilitate the process, according to news reports. AT&T and Vodafone have been mentioned as network operators that might have an interest in Huawei, as have private-equity firms.
Because its handsets tend to be re-badged by operators, Huawei is considered more of a contract manufacturer, according to analyst Neil Mawston at Strategy Analytics. Unlike some compatriot firms in China, however, whose fortunes have rapidly risen and fallen, Huawei appears to be rapidly expanding its handset business.
Mawston said his firm forecasts 30 million units this year for Huawei, 50% growth over last year’s 20 million units, which gave it a 2% global market share. Those units include both handsets and USB modems, the analyst said. Only about 10% of Huawei’s unit sales carry the Huawei brand, the analyst said.
“It’s difficult to see where the money might come from,” Mawston said. “If a single operator bought the company, that might preclude bulk deals with competing operators. The challenge, as always, is getting relationships with multiple operators. Private equity usually offers cost-cutting expertise, but Huawei already is pretty lean.”
One of Huawei’s apparent conditions for an investor is that a new entity preserve the Huawei brand so the company can realize its ambition to expand globally. Huawei already has a modest deal in the United States with MetroPCS Communications Inc. and last year cut a huge deal with global operator Vodafone to provide low-cost handsets for the latter’s emerging markets.
Should Huawei gain the needed capital and operator support in the U.S. – Chinese rival ZTE Corp. is toiling at the same operator relationships – the competitive fallout might possibly jolt Kyocera Wireless or Nokia, both of which are making inroads in the U.S.’s low-tier handset market, Mawston said.
Huawei’s move reflects the perennial effort by Chinese handset vendors to gain a foothold in the U.S. to build brand and gain prestige. And should an operator buy a controlling stake, it would illustrate a growing trend among operators- Vodafone is the best example – to use low-cost handset manufacturers as a source of operator-branded devices to counter the influence of the world’s top handset OEMs (original equipment manufacturers).
Last year, ABI Research forecast that within three years, one-in-four handsets sold will be ultra-low-cost devices, an area that has been dominated by Nokia Corp. and Motorola Inc. Samsung Electronics Co. Ltd., LG Electronics Co. and Sony Ericsson Mobile Communications have taken steps to address that market, as have Huawei, ZTE, Kyocera Wireless Corp. a slew of lesser vendors serving the Chinese market.