Huawei and ZTE may not feel the heat after the U.S. Intelligence Committee report
Telecom Lead India: Telecom analysts said the U.S. House of Representatives Intelligence Committee probe report may not affect sale of Huawei and ZTE products in America.
The U.S. telecom operators already were reticent to purchase equipment from Huawei and ZTE – due to scrutiny from the American government. Because of this, the committee’s announcement may not have a major negative impact on current sales levels of China’s equipment providers. However, it could deal a further setback to Huawei’s and ZTE’s efforts to penetrate the American market in the future.
“The U.S. government has blocked numerous contracts and acquisition deals between American companies and Chinese equipment makers, usually in an indirect manner,” said Lee Ratliff, principal analyst for broadband & digital home research at IHS.
Because of this intense government scrutiny and the very high risk that a deal will ultimately be nixed after wasting months of time and millions of dollars, many U.S. companies are hesitant to work with Huawei and ZTE. The difference now is the U.S. government has publicly issued its official findings regarding its investigation of the Chinese telecom equipment vendors.
Huawei and ZTE are unlikely to see their sales decline despite the U.S. government’s action. Neither company has been able to crack the U.S. market for communications infrastructure equipment even after more than a decade of effort.
On Monday, both ZTE and Huawei clarified that they are not posing any security threat to America.
The U.S. isn’t the only government taking action on this issue. In 2010, Huawei and ZTE reported that the Indian government started blocking purchase orders placed with them based on similar security concerns.
Huawei and ZTE’s inability to penetrate the U.S. has not prevented them from rising to the top ranks in the global wireless communications infrastructure equipment market. Huawei during the first nine months of 2011 became the world’s largest supplier, with revenue of $8.9 billion and market share of 28.7 percent, as presented in the table attached. The company had been in third place for the entire year of 2010, behind Ericsson and Nokia Siemens Networks.
Huawei is regarded as a price and technology leader. It has won contracts with many European carriers for 4G deployment and network management and with many carriers in the emerging markets for 3G deployment.
ZTE ranked fifth during the first nine months of 2011, with revenue of $2.0 billion and market share of 6.4 percent.
Meanwhile, Huawei generated around 4 percent of its group sales from the United States, while ZTE’s U.S. revenues made up 2-3 percent of its overall figure. The bulk of both companies’ U.S. sales comes from selling handsets through U.S. carriers such as Verizon, Sprint and T-Mobile USA.