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Huawei powers ahead with strong R&D focus

2015-04-13 09:30:02Source:China DailyAuthor:

A counter of Huawei is seen at an electronic products market in Shanghai, Feb 17, 2015. [Photo/IC]
Editor's note: An increasing number of Chinese companies are emerging on the world stage as they strive to establish their brands outside the country. This report, the ninth in the series, is by Gao Yuan.

It took 30 years for the Guangdong city of Shenzhen, the nation's first special economic zone, to rise from a backwater to become one of the most vibrant economies.

Tens of thousands of enterprises in the electronics sector now call Shenzhen home.

Huawei Technologies Co Ltd is one of them. The company, now 28 years old, has had a growth trajectory similar to that of the city's own economic miracle.

The company, which long ago was an obscure electronics plant with registered capital of only 21,000 yuan ($3,430 at current exchange rates), is now a global giant that generates more than $46 billion in annual sales.

The executives of Huawei attribute its success to innovation, saying the company's long years of investment in research and development is finally paying off.

Yu Chengdong, senior vice-president of Huawei, said that R&D investment, equivalent to nearly 10 percent of annual revenue, has enabled Huawei to gain a technological edge over most of its competitors.

"The eight-core fourth-generation mobile chips we rolled out last year were a first for the industry. Designing a cutting-edge product like this requires deep collaboration among mathematicians, physicists and telecom experts," Yu said. "Research talent is a core advantage for us to enter the global stage."

Huawei's technologies are used in more than 150 4G networks around the globe, more than any other provider. Its major clients are from Europe and Asia.

Huawei entered the foreign market 16 years ago. Five years ago, it restructured its business units to improve its global business.

Guo Ping, rotating chief executive of Huawei, said: "We have 16 research centers globally so that we can take advantage of more international talent to upgrade our products. We hired Russians to write algorithms, French experts in product design, Japanese scientists to develop new materials.

"Each year, we have more than 10,000 graduates joining us as engineers...they will safeguard our competitiveness in the global market."

After overtaking Ericsson in 2013, the sales volume of Huawei is now on par with that of the United States-based Cisco Systems Inc. China and other emerging markets' booming demand for 4G networks will greatly lift Huawei's presence in the 4G telecom equipment market, according to a report from research firm International Data Corp.

The US is the only major market that Huawei has failed to penetrate. Regulators there have blocked the Chinese company from telecom infrastructure construction projects, citing concerns over information security. The company has said that its products are safe and the technologies are transparent.

Industry insiders blame the setback for the worsening Sino-US relations in information security. They believe it is more of a political matter.

Huawei is taking advantage of its relationship with carriers to launch smartphones. In the past year, its flagship handset, Mate 7, was even in short supply at points amid huge demand. That is quite an achievement for Huawei, given the tough competition in Chinese smartphone market.

Huawei was the third-largest smartphone vendor in China by shipments as of the end of 2014, according to IDC. Its 11 percent market share only lags those of Xiaomi Corp and Apple Inc.

It has ambitious goals in the consumer electronics sector. In March, the company unveiled its first smartwatch, taking on the Apple Watch. It also aims for a bigger presence in developed markets where profit margins could be higher.

Wang Jingwen, a researcher at Canalys China, said that Huawei has shipped more products in Western European markets such as Spain and Germany than other Chinese brands, including ZTE Corp and Lenovo Group Ltd.

But entering other developed markets will not be easy.

"In developed markets, (Chinese) vendors will find it even harder to build brand awareness as well as bring higher-end products," Wang said. "Most consumers already use smartphones from the big players such as Apple and Samsung Electronics Co Ltd. The operators usually set higher standards for smartphone products."