Visitors approaching the headquarters of Chinese telecoms equipment maker Huawei by car get plenty of notice of the turn-off. The company has its own lane for several miles on the Meiguan Expressway. It isn’t the fast lane, but if you believe Huawei’s explosive sales growth can continue despite a global recession, it should be.

As more established rivals batten down the hatches by slashing jobs and trimming spending, the company, whose name roughly translates as “achievement for China”, expects orders to rise 44% this year to $23 billion (£16 billion).

“We predict further rapid growth next year,” said Charles Huang, Huawei’s marketing president. “We have no plans for any cut in terms of human resources and investment.”

Set up 20 years ago and now one of China’s big export successes, Huawei inspires admiration and suspicion in equal measure. It produces the building blocks of the internet: mobile-phone base stations, broadband connection boxes, data-storage units and all the wiring in between.

Its headquarters, which feature a building modelled on the White House, are in Shenzhen a city of 8m that has become the workshop for the world, an hour’s drive north of Hong Kong in southern China.

Youngsters in jeans roam the lawns in the sultry November heat. Many of them live on campus, which has its own karaoke bar, doctor’s surgery and basketball courts. Another 5,000 graduates will be recruited next year to bolster a global workforce that has soared 56% to 97,000 in just 15 months. Some 43,000 are in research and development.

The trend for faster communications networks, with greater volumes of data being sent and received, points to a rosy future for those that supply the kit. Yet lately, success has been rare for telecoms equipment makers. Companies such as Vodafone and Orange are exploring ways of sharing infrastructure to save money. Others are holding off spending on unproved new technologies.

Mergers in the sector have had painful results. Neither the combination of Alcatel and Lucent nor the merger of the networking equipment arms of Nokia and Siemens have proved their worth.

Against that backdrop, Huawei’s growth has been breathtaking. It does not have the scale of the big names but it is catching up fast. Its sales have soared 490% in the past five years, according to Gartner research, compared with 128% at Ericsson of Sweden, 109% at America’s Motorola and 93% at California-based Cisco. Profits last year rose 32% to $674m on sales that were up 48 % at $12.56 billion.

However, suggestions of state financial support and closeness to the Chinese military have prevented it from breaking into the one market that would give it global status: North America. Although 72% of orders came from outside China last year, barely 2% of those were from the US.

“We are a latecomer to the US market,” said Huang. “The reason is we have had only a very short time to acquaint ourselves with each other.”

Washington lawmakers think otherwise. They caused a stink over plans for Huawei and the private equity firm Bain Capital to take a stake in US equipment maker 3Com, citing security concerns. It does not help that Huawei’s founder and chief executive, Ren Zhengfei, who does not grant interviews, is a former soldier in the People’s Liberation Army.

Huang said he cannot understand such suspicions. “If a young person experiences military service and after that has his own career, then you say this company has a military background. If that logic is true, then I’m afraid that 80% of the companies in the world will be related to the military.”

Huawei does, however, derive 0.5% of annual sales from running networks for the Chinese military.

Vodafone is one of many big customers that has no qualms about the company, which supplies it with unbranded 3G phones. It also commands an estimated 90% market share in Europe for “dongles” – the plug-ins that connect laptops to mobile broadband.

Still, analysts are sceptical about its methods. In 2003 Cisco filed a lawsuit against Huawei for allegedly copying its software. The spat was quietly settled out of court.

Even with accounts audited by KPMG, some observers question the numbers. “Huawei’s ability to remain profitable while gaining substantial market share has been remarkable,” said Richard Windsor, an analyst at Nomura. “The lawsuit damaged the company’s reputation and made many vendors wary of dealing with it.”

Market watchers at Ovum say that Huawei’s selective disclosure “can create challenges for analysts akin to reading tarot cards or palms”.

That is unlikely to change soon. Huawei has no plans to float like its Chinese rival ZTE. Last month it scrapped the sale of a $2 billion controlling stake in its handset division to Bain because of falling valuations.

Huawei’s big break in Britain came in 2005 when it won the contract for BT’s £10 billion network upgrade. That deal spelt the end for its British rival Marconi, which was sold to Ericsson soon after.

So what is Huawei’s secret? Operators say it often undercuts rival bids by 40% to win a contract. And even then customers are offered generous payment terms. In an attempt to supply kit to fibre-optic-network owner Interoute, Huawei told the firm it would not have to pay anything for two years.

One theory is that Huawei is backed by a huge loan from the Chinese government to provide financing for customers while it seizes market share. Huang calls that story a “misunderstanding or rumour”. He added: “One way of making deals with customers is [to use] financing tools, just like other players.”

What sets Huawei apart is that it is owned by 20,000 of its staff, with not even Ren holding more than a 2% stake. Workers draw an annual dividend, but must sell back their shares if they leave the company.

Huawei is gearing up to supply next-generation base stations to allow competing mobile technologies to converge, as well as dongles offering mobile internet access of 100 megabits per second - 20 times the current speeds.

Its rivals will similarly have to pick up the pace if they are to survive.

Source:timesonline