tbr 2q11 huawei report

TBRT EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

Huawei

NETWORK BUSINESS QUARTERLYSM

Second Calendar Quarter 2011Second Fiscal Quarter 2011 Ended June 30, 2011

TBR OUTLOOK ‐ POSITIVE TBR SCORE (0‐10 SCALE)

4.83

Publish Date: Sept. 8, 2011Author: Ken Hyers ([email protected]), NMP Senior AnalystContent Editor: Scott Dennehy, NMP Senior Analyst

TBR

Huawei 2Q11 | Network Business Quarterly ©2011 Technology Business Research, Inc.2

Contents

Company Analysis3 TBR Position4 Executive Summary6 Strategy Overview8 Corporate SWOT Analysis9 Scenario Discussion12 Financial Model Strategy16 Go‐to‐Market & Product Strategies19 Alliance & Acquisition Strategies20 Geographic Analysis21 Resource Management Strategy22 Appendix

Company Data Models22 Income Statement23 Balance Sheet24 Revenue Model 25 Geographic Model26 Operating Expense Model27 Forecast Model28 Financial Graphs30 Go‐to‐Market & Resource Graphs31 Acquisitions Table32 Strategic Alliance and Partnerships Table34 Product Announcement Table37 Customer Deals Table48 Facilities Table50 Management Table51 About TBR

TBR


TBR Assessment Company Strategic ObjectivesHuawei experienced healthy revenue growth in the first half of 2011, albeit slower than in 2010, which was strong due to international sales. The company reorganized its business units to focus on opportunities in cloud services and infrastructure and a strategy it has informally dubbed “Cloud‐Pipe‐Devices.” The Cloud‐Pipe‐Devices strategy enables Huawei to deliver cloud‐ready equipment, software and services from the cloud to the network and to mobile devices, which it intends to market to network providers and directly to enterprise customers. TBR believes that by pursuing cloud services, Huawei will increase higher‐margin services and equipment sales. In doing so, however, it will be more difficult for the company to dominate the way it has as equipment supplier.

Deliver cloud solutions to enterprises and network operatorsHuawei will offer its cloud solutions directly toenterprise and network operators, who will then market the cloud solutions to their own customers.

Focus on the enterprise sector for new growthThe enterprise, and particularly SMEs, lie at the center of Huawei’s cloud solutions strategy. With significant experience providing voice, video and data solutions to fixed and mobile operators, Huawei believes it can deliver many of the same services to enterprise customers, using a cloud platform it dubs Huawei SingleCLOUD. The SingleCLOUD platform is intended to meet SMEs’ needs for a private cloud solution and to provide a public cloud solution for network operators.

Become a top‐five global handset vendor by 2013Huawei intends to become the fifth‐largest handset manufacturer, by units shipped, by 2013. That would place the company behind Nokia, Samsung, LG and RIM but ahead of Apple, Motorola and Sony Ericsson – a goal TBR believes is ambitious but achievable.

Revenue growth will slow as Huawei focuses on the enterprise market through the remainder of 2011

TBR Position

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HUAWEI PROFITABILITY AND GROWTH

Total Revenue Gross ProfitOperating Profit Year‐to‐Year Revenue Growth

SOURCE: TBR ESTIMATES AND HUAWEI

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TBR


TBR believes Huawei will exceed its 2011 revenue growth projections as 4G network contracts and an enterprise focus on cloud drive salesTBR assessment of Huawei’s strategic outlookKey takeawaysFinancial: Huawei will beat its revenue growth projections by at least 50% in 2011.Go to Market: Huawei intends to become a top‐five leader in Android handsets by 2013, but the company will face challenges as other vendors fight to retain share.Resource: Huawei’s focus on end‐to‐end cloud solutions for enterprises and telcos is a direct result of its reorganization in early 2011 and its new structure of four core businesses: Carrier, Enterprise, Devices and Other.

Strategic outlook• Huawei expects to grow revenue by 10% in 2011, down from 26% in 2010. The company attributes the decline in growth to the reorganization of its business and to lower domestic revenue as China’s operators largely complete their network buildouts. TBR believes Huawei’s revenue growth guidance is unduly conservative, and while it will not achieve 2010 levels, it will achieve revenue growth of at least 15% to 18% in 2011.

• Huawei’s mobile device strategy will concentrate on developing Android smartphones for the mass market. TBR believes Huawei is well‐positioned to develop mass market smartphones by leveraging its extensive internal R&D capabilities and outsourcing production to ODMs, such as Foxconn. Huawei is developing a broader product portfolio, creating devices for specific market segments including young fashion‐conscious consumers and professional users. Its devices, including tablets, for professionals are part of its Cloud‐Pipe‐Device strategy and will be used by enterprise customers for delivering productivity apps to mobile workers.

• Huawei’s private cloud strategy for SMEs is to deliver distributed IT through the cloud so that services and functions are no longer localized and are instead available on a distributed basis to employees in multiple locations. On the telco side, Huawei sees itself delivering public cloud solutions for operators that do not have the resources or experience to deliver cloud solutions themselves. In developed markets the target telcos will be Tier 2 operators, such as Leap or MetroPCS in the U.S., while in emerging markets the solution will be offered to a wider group of operators.

Executive Summary

C2008

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HUAWEI FULL YEAR REVENUE AND OPERATING MARGIN RESULTS AND TBR PROJECTIONS

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Huawei’s financial metrics score is no longer inflated by above average revenue growth, exposing a weak balance sheet

Key ■ Represents an area where Huawei is currently challenged versus peers

■ Represents an area where Huawei is outperforming its peers

■ Represents an area where Huawei is neither significantly outperforming nor underperforming its peers

Executive Summary

VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY VENDOR BENCHMARK

Huawei has the weakest days sales outstanding metric among its peers due to its liberal credit policies. Huawei routinely accepts IOUs from customers to boost sales and encourage investment. TBR believes this practice could weaken Huawei’s balance sheet if cash‐strapped operators struggle to pay back outstanding debt.

FINANCIAL METRICS TBR ScoreCompany Figure

Average in Class

Standard Deviation/2

Revenue Growth Year‐to‐Year 4.52 13.2% 15.3% 4.3%Revenue/Employee 3.24 248,920$ 417,045$ 95,270$ Gross Margin 5.31 41.0% 38.8% 7.0%SG&A as % of Sa les 4.99 17.0% 17.0% 2.8%R&D as % of Sa les 6.89 9.0% 13.3% 2.3%Operating Margin 6.83 14.7% 8.1% 3.6%Days Cash Outstanding 3.86 74.00 127.90 47.19Total Asset Turns 6.87 1.23 0.95 0.15Current Ratio 4.00 1.61 1.90 0.29Debt/Assets 3.24 0.60 0.47 0.07Return on Assets 8.91 15.8% 6.4% 2.4%Return on Equity 10.00 48.2% 14.5% 6.5%

TOTAL AVERAGE TBR SCORE

GO‐TO‐MARKET & SERVICES METRICS TBR ScoreCompany Figure

Average in Class


Network/Comm. Equipment Market Share 5.61 14.0% 11.6% 4.0%Mobi le Phone Market Share 3.73 2.7% 10.0% 5.8%Days Sales Outstanding 1.00 135.63 68.84 16.70

TOTAL AVERAGE TBR SCORE

RESOURCE MANAGEMENT METRICS TBR ScoreCompany Figure

Average in Class


Inventory Turns/Year 4.22 7.05 8.45 1.80Fixed Asset Turns/Year 6.40 21.00 15.73 3.75

TOTAL AVERAGE TBR SCORE 5.31

5.72

3.45

TBR2Q10 3Q10 4Q10 1Q11 2Q11

Financia l Model Strategy: 6.01 5.96 6.00 5.74 5.72

Go‐to‐Market & Services Strategies : 3.68 3.79 3.60 3.38 3.45Resource Management Strategy: 5.45 5.79 5.80 5.39 5.31

TOTAL AVERAGE TBR SCORE: 5.05 5.18 5.13 4.84 4.83

TBR SCORING SUMMARY: CALENDAR QUARTER RESULTS

TBR


Function Key Strategies TBR Assessment

Overall

Build on initial success in North America to become a key supplier to network operators.Grow business in India by localizing presence.Employ three‐pronged security strategy to allay U.S. concerns.

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Huawei has yet to land an equipment contract with a Tier 1 operator in the United States, though the vendor is finding success among Tier 2 and 3 companies.With security clearance in hand, Huawei can realize the full potential of its extensive resources in India, which include a skilled local workforce and domestic manufacturing and R&D assets. Huawei’s plan includes establishing a national security committee headed by Huawei CTO Matt Bross, using third‐party test labs to check Huawei’s source code and using U.S. citizens to deliver and install Huawei equipment.

FinancialGrow sales 10% in 2011 by focusing on enterprise customers.Invest 10% of revenue in R&D.

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Huawei is focusing on enterprise customers for cloud services as it attempts to enter new higher‐value market segments.TBR expects Huawei will continue to keep its R&D spend steady at 10% of revenue in 2011. This reflects the need to maintain heavy investment in new technologies as it continues to move from a low‐cost to a high‐value business model.

Huawei will have a difficult time penetrating the U.S. telecommunications market, even with a new strategy to quell security concerns

Strategy Overview

Key: Working: Short‐term impact expected on bottom/top line Not working: No major impact or differentiation expected

TBR


Function Key Strategies TBR Assessment

Go to Market

Establish leadership position in 4G (WiMAX and LTE).Leverage Android to gain traction in smartphone and tablet markets.

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Huawei is positioning itself to become a leader in TD‐LTE, the 4G technology of choice for Chinese operators. The vendor aims to double its commercial LTE contracts from 18 in 2010 to 36 in 2011 and expects LTE‐related revenue to become a meaningful contributor to overall revenue by 2014.Selling low‐cost Android‐powered devices via carriers will help Huawei quickly gain market share in smartphones and tablets. The low‐end smartphone space is one where Huawei thrives, due to the company’s low‐cost operating structure and resistance to pursuing expensive advertising programs.

R&D and Delivery

Establish R&D centers in strategic cities to leverage local talent pools.Invest heavily in India to capitalize on growth opportunities as the country modernizes and expands its mobile networks.

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Huawei operates R&D centers near the headquarters of most of its major customers in markets worldwide, which allows it to work closely with customers and be more responsive to their requests and needs.Using a localization strategy, Huawei is creating a stronghold in India while improving its reputation with the Indian government.

Huawei will focus on developing low‐cost Android smartphones as it attempts to become a top‐five global handset vendor

Strategy Overview

Key: Working: Short‐term impact expected on bottom/top line Not working: No major impact or differentiation expected

TBR


Corporate SWOT Analysis

Huawei will face growing challenges as it focuses on delivering cloud services to enterprises and service providersCorporate SWOT AnalysisStrengths• Leader in 4G technologies by number of contracts• SingleRAN platform is a key differentiator for winning contracts in developed regions

• Able to provide vendor‐linked financing through ties to state‐run banks in China

• Low operating costs support low‐cost pricing strategy

• Extensive installed base of Tier 2 and 3 telecom operators in emerging markets

Opportunities• Develop TD‐LTE technology for the Chinese market• Use strategic partnerships to build expertise and enter new markets

• Utilize Service Delivery Platform to establish Web 2.0 leadership

• Establish a foothold in the North American market• Develop lower‐cost, high‐end smartphones to grow share in Western markets

Weaknesses• Increasing size brings a challenge to maintaining historical efficiency

• Relatively small managed services base• Ties to Chinese government could limit international investment opportunities

• Lack of United States presence

Threats• Nokia Siemens prioritizing market share gains over profitability puts downward pressure on contract pricing

• The reshuffling of the Chinese telecom industry could dampen Huawei’s growth prospects in its home market

• A tighter monetary policy by China could limit Huawei’s domestic growth

• Huawei intends to become a leading cloud supplier but will face strong competition from other vendors and telcos

TBR


Huawei Symantec virtualization strategy lays the groundwork for buildingthe converged datacenter networkScenario Discussion: Virtualization strategy sees joint venture work with key hypervisor vendorsScenario SWOT AssessmentStrength: Huawei Symantec is a hardware‐focused company and is not tied to a specific management software vendor.Weakness: Huawei Symantec’s multivendor strategy risks alienating its strongest partner, VMware.Opportunity: Huawei Symantec is positioning itself to be a viable player in the emerging virtualization space.Threat: Huawei is a new entrant in a space dominated by Cisco and crowded by other leading vendors.

• Huawei Symantec, a joint venture between the two companies, announced at VMworld a comprehensive strategy for optimizing its datacenter infrastructure for virtualized environments. The move is part of an overall strategy to combine networking, computing, storage, and software solutions from various vendors. This is very similar to the strategy pioneered by Cisco with its Unified Computing System architecture and mirrored by other best‐of‐breed suppliers that are following Cisco’s lead.

• Huawei Symantec, which makes storage and network security solutions, announced a new strategy that intends to optimize its datacenter infrastructure for virtualized environments. Core to the strategy is working with all key partners in virtualization.

• Huawei Symantec as a equipment vendor does not develop its own management software, instead turning to virtualization management software partners. While VMware is an important partner, the joint venture is working with multiple companies that offer hypervisors for managing datacenters.

• To support its virtualization strategy, the company introduced Huawei Symantec Power Steering for VMware 1.0, which is a suite of plugins for managing the JV’s storage systems from administrators vCenter consoles.

• Huawei Symantec sees its unique value proposition coming from the fact that it also offers security solutions, and is able to leverage its total stack from a security and networking perspective.

Scenario Discussion

TBR


Scenario Discussion

Huawei is moving its smartphone portfolio upmarket to become a leading Android handset vendorScenario Discussion: Huawei introduces higher‐end smartphones as it moves into new marketsScenario SWOT AssessmentStrength: Huawei already has a strong presence in many markets as a supplier of low‐end and operator‐branded devices.Weakness: Huawei has little experience as a high‐end device maker, and its brand is not well known in Western marketsOpportunity: If Huawei can “crack the code” in developing high‐end but less expensive smartphones, it will rapidly gain market share.Threat: The Android smartphone market is crowded and it will be difficult for Huawei to gain share.

• Huawei is looking to become a high‐end smartphone developer. It hopes to leverage its expertise as a volume producer of low‐cost mobile devices to produce highly capable smartphones at a price point that undercuts those of competing devices from leading OEMs, such as HTC, Motorola and Samsung.

• Huawei already has a number of Android devices on the market, such as its iDEOS smartphone, but to date these devices have emphasized price over bleeding‐edge capabilities, have generally lagged competitors in terms of components and software, and have generally appealed to more cost‐conscious consumers that are buying their first smartphone.

• While Huawei’s goal is to move beyond its status as a fast‐follower, imitating popular smartphones from competitors, and become a genuine developer of innovative devices, its latest flagship offerings, such as the Vision smartphone, continue to follow a path blazed by other manufacturers in terms of hardware.

• The Vision, despite a 1 GHz Snapdragon processor and Android 2.3 OS, is neither first to market with the Gingerbread OS nor can it match dual‐processor offerings from leading Android OEMs. Where it differs is in introducing Huawei’s concept of a cloud‐based phone, in which apps are hosted in and downloaded from the cloud.

• TBR believes Huawei’s efforts to bring more advanced devices to market at a lower price‐point is a winning strategy as the mass‐market phone‐buying public in Western markets looks for lower‐cost devices that do not sacrifice functionality.

Huawei Vision Smartphone

TBR


Huawei’s goal is to provide all aspects of cloud delivery, from platform to device to apps

Scenario Discussion

Scenario Discussion: Huawei intends to become a leading cloud‐delivery supplier

Scenario SWOT AssessmentStrength: Huawei is able to offer elements and equipment for all aspects of cloud networks.Weakness: Huawei has a small market presence in one of the most important cloud markets: North America.Opportunity: Huawei can leverage deep partnerships with IT providers, such as IBM, to drive its enterprise‐focused strategy.Threat: Potential customers will turn to better known vendors, such as Cisco.

• Huawei believes that over the next decade, IT apps will replace voice services and web technology will replace public‐switched telephone networks. Based on a distributed computing architecture, this structure will result in lower costs and greater competitive advantages for network providers that embrace cloud delivery. Huawei intends to become a leading provider of all aspects of cloud delivery, from platforms to apps.

• Huawei will take two approaches to delivering cloud solutions, offering them directly to enterprises as well as to network operators that will then market the cloud solutions to their own customers.

• Huawei’s private cloud strategy for SMEs is to deliver distributed IT through the cloud so services and functions are no longer localized and are instead available on a distributed basis to employees in multiple locations.

• On the telco side, Huawei sees itself delivering public cloud solutions for operators that do not have the resources or experience to deliver cloud solutions themselves. In developed markets the target telcos will be Tier 2 operators, such as Leap or MetroPCS in the U.S., while in emerging markets the solution will be offered to a wider group of operators.

• On the device side, Huawei introduced a handset, its Vision smartphone, that stores users’ content, including applications, photos, videos, and music, in the cloud. Customers can store up to 160 GB of content on the cloud and can access that content as needed. A weakness of this strategy is that it requires high‐speed/high‐bandwidth 4G networks to support content downloads, but the Vision handset only supports 3G networks.

Source: Huawei

TBR


Revenue Performance and Strategies

2011 Est. Revenue: $31 billion

• In 1H11, Huawei reported revenue of CNY 98.3 billion, or $15.2 billion, amounting to growth of 11% year‐to‐year.

• Huawei was able to weather economic turmoil in developed nations and fears of a double‐dip recession by expanding its enterprise offerings and increasing device shipments by over 40%.

2011 Revenue and Growth Outlook

• TBR expects Huawei’s revenue to reach $31 billion for 2011 – an increase of 13.2% year‐to‐year – as growth will span all geographies and segments, with the exception of optical.

• Device sales growth will accelerate in 2H11 as the distribution of low‐cost Android smartphones and tablets expands to the mass market in developed markets.

TBR believes Huawei will continue to grow revenue due to the appeal of its low‐cost consumer devices

Financial Model Strategy

38.2% 39.7% 39.6%41.9% 41.0%

9.7%12.9% 14.1% 15.8% 14.7%

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HUAWEI GROSS MARGIN & OPERATING MARGIN

Gross Margin Operating Margin


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$27,381 $31,000

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HUAWEI REVENUE AND YEAR‐TO‐YEAR GROWTH

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To maintain momentum in LTE sales, Huawei has launched new microcell products designed for the North American marketSegment Revenue Performance and Strategies

Wireless$9.5 billion

• Huawei has achieved considerable success in winning 4G contracts but has not won the most lucrative contracts due to being essentially shut out of the U.S. Tier 1 market.

• Huawei is betting that its microcell solutions will prove appealing to 4G operators. Huawei points out that its small‐cell solutions are ready for market now, while competitors’ more advanced solutions are still in the testing phases. TBR believes that while Huawei does have a time‐to‐market advantage, the small‐cell market will not see significant growth until at least late 2012, at which point solutions from competitors will be available.

Fixed$1.8 billion

Huawei has established a narrow lead in terms of revenue in the broadband CPE market as the shift to FTTH continues on the basis of contract sales in China, Latin America and the Middle East.

Optical$5.3 billion

Huawei’s T‐series launched in North America in 1H11, giving the company a new option as it seeks to win metro and core optical transport equipment contracts.


$3,980 $5,602 $6,328 $8,500 $9,500 $1,400 $1,446 $1,527

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$2,190 $3,176

$5,193 $5,286 $5,265

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$2,106

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HUAWEI REVENUE BY SEGMENT

Handset Service & Software Data Optical Fixed Wireless


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HUAWEI REVENUE COMPOSITION

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Data remains a fast‐growing business for Huawei as the company pushes deeper into the enterprise IT segmentSegment Revenue Performance and Strategies

Data$2.8 billion

• Huawei continues to launch new products, such as its AR G3 Access Router, as it focuses its attention on the enterprise market.

• As part of its expansion into the enterprise IT space, Huawei is introducing a line of servers, low‐end switches, security, VoIP and storage products in 2011. TBR believes the move will position Huawei to directly compete with Cisco’s low‐end switching business.

Service & Software$5.6 billion

Huawei continues to see strong growth from rollout, maintenance, professional and managed services, but it has yet to win the kind of mega‐deal won by leaders Ericsson, NSN and Alcatel‐Lucent.

Handset$6 billion

While continuing to expand into the low‐end smartphone market, Huawei is introducing higher‐quality flagship devices to improve brand recognition.


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HUAWEI YEAR‐TO‐YEAR SEGMENT REVENUE GROWTH

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HUAWEI 2011 SEGMENT REVENUE GROWTH


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Expense Performance and Strategies

2011 Est. Operating Expenses: $26.4 billion

Cost of Revenue$18.3 billion

• TBR believes cost of revenue will grow 14.9% in 2H11, outpacing revenue growth.

• Gross margin will fall 90 basis points in 2H11 to 41% due to competition from other low‐cost Android smartphone vendors and pricing battles with NSN in the telecom infrastructure space.

SG&A$5.3 billion

• TBR estimates total 2011 SG&A will grow 15% year‐to‐year as Huawei increases sales headcount and marketing spend to support its mobile device releases.

• Total 2011 operating margin will be 14.7%, a 110‐basis‐point decrease from 2010. In 1H11, Huawei reported operating income of CNY 12.4 billion, or $1.9 billion.

R&D$2.8 billion

TBR believes Huawei’s 2011 R&D spend will be 14% higher than 2010 as the company invests in cloud computing and continues innovation around TD‐LTE.

Huawei continues to invest in sales staff and TD‐LTE technology ahead of commercial rollouts in China in 2012


$7,937 $10,890

$13,188 $15,920 $18,290

$2,350 $3,236

$3,538 $4,583

$5,271

$1,284

$1,511 $1,953

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HUAWEI OPERATING EXPENSES

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HUAWEI OPEX AS A PERCENTAGE OF REVENUE

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TBR Assessment of Huawei’s Telecom Network Infrastructure SegmentStrategy• Huawei 4G sales are bolstering the company’s position as the second‐largest infrastructure vendor. While Huawei continues to win contracts in Europe, North America (the world’s largest telecom market) remains closed to Huawei due to concerns within the U.S. government and with companies that the government does business with that Huawei software and equipment may compromise the security of U.S. communications networks.

• As a result, Huawei continues to be left out of Tier 1 operator contracts in the United States, making it difficult to pass Ericsson as the world’s leading vendor by revenue. Establishing more R&D centers, adding employees, and growing handset share in the U.S. may help ease regulators’ fears.

• TBR believes Huawei has placed itself in an advantageous position for the long term. The small 2G and 3G deals it is winning from operators in developing markets will likely lead to upgrades and expansions in the coming years as consumers adopt smartphones and increase their data usage.

Key Developments• Huawei secured 4G buildout contracts with Genius Brand, M1, and Manitoba NetSet.

o Huawei is rolling out an LTE network for Genius Brand, a joint venture between Hutchison and Hong Kong Telecom. The network will support download speeds up to 120 Mbps and cover the entire city. Huawei will deploy 2,000 base stations throughout Hong Kong, providing customers with faster internet speeds, access to wireless applications, and the ability to stream mobile content.

o In the course of a two‐phased project, Huawei will build a WiMAX network for Manitoba NetSet, providing 5,000 households in rural Canada with broadband internet access. Huawei will prepare the network for a transition to LTE by deploying its SingleRAN solution.

o M1, a mobile broadband and communications provider, awarded Huawei a five‐year, S$280 million contract to build Singapore’s first nationwide LTE network. Huawei’s end‐to‐end LTE solution includes installation of base stations and Evolved Packet Core equipment.

Go‐to‐Market & Product Strategies

With the U.S. 4G market largely closed to Huawei, the company is looking to China for major contracts

TBR


TBR Assessment of Huawei’s Devices SegmentStrategy• Huawei remains in the back of the pack in terms of device revenue but has ambitious plans to continue to introduce new mass‐market Android devices in both emerging and developed markets through 2011, which will lead to substantial market share gains in 2H11.

• Huawei is working to sell 60 million mobile phones in 2011 –twice as many as 2010 – of which 20% to 25%, or 12 to 15 million, will be Android smartphones (up from just over 3 million in 2010). If Huawei is successful in shipping this many smartphones, it will achieve its goal of becoming a top‐five smartphone vendor.

• Huawei is targeting the mass‐market late‐adopter segment of smartphone customers. These are first‐time buyers of smartphones that are looking for low‐cost entry level smartphones and that expect to pay no more than $100 to $150 for a new device

• While leading Android smartphone vendors such as HTC, Motorola and Samsung are not targeting entry‐level smartphone buyers, ZTE, which hopes to become the second‐largest smartphone vendor within the next two years, is on a direct collision course with Huawei. TBR believes ZTE will be able to leverage its greater experience in developing low‐cost handsets to outpace Huawei in overall smartphone sales.

Key Developments• Huawei introduced the Vision smartphone, which features a 3D user interface and runs Android Gingerbread 2.3 OS. The Vision boasts Bluetooth V2.1 technology, high‐speed internet, and messaging capabilities. Available in September, the Vision also includes a 5‐megapixel camera and 720p video recording.

• The E392 USB modem is the first device capable of connecting to FDD and TDD LTE, as well as GSM and CDMA networks, making it a truly global device. Most operators are deploying FDD LTE, due to their possession of paired spectrum, but China Mobile, the largest operator in China and an important Huawei customer, will deploy TDD LTE. The E392 will be available in 3Q11.

• The MediaPad is Huawei’s 7‐inch tablet featuring built‐in Wi‐Fi, GPS, and front‐ and rear‐facing cameras. The MediaPad offers a 217‐pixels‐per‐inch touch panel, a dual‐core 1.2 GHz Qualcomm processor, and Android 3.2 OS. The slate weighs less than one pound and is just one‐half‐inch thick.


Huawei’s plans to become a top‐five handset vendor will put it in direct competition with both traditional OEMs and Chinese rival ZTE

TBR



TBR Assessment of Huawei’s Services and Software Segments

Services• Huawei opened a new Network Operations Center in Madrid to support the operation and management of telecommunications networks, an area in which Huawei is far behind Ericsson and Nokia Siemens. The Madrid NOC will service customers in Spain and Western Europe, as Huawei commits to improving its share of service contracts and beefs up capabilities to attract customers. The new NOC will provide network surveillance, corrective and preventive maintenance, security management, and IT platform management for several network technologies, including UMTS, GSM, and optical.

• Huawei’s underdeveloped service base received a boost from a GSM provider in its home country. In May, Huawei secured a contract to provide managed services for over half of China Unicom Shanghai’s base station sites, covering 11 districts within Shanghai. Huawei will be responsible for maintenance of the GSM network, including preventive, planned, and corrective services. While Huawei is chasing revenue in overseas markets, the domestic Chinese market still provides a strong base for service contracts.

Software• Huawei is working to expand its offerings to enterprise customers. The company is specifically pushing its cloud and datacenter solutions, which are seeing adoption from companies in a range of verticals, including healthcare and government, due to Huawei’s price leadership. Additionally, Huawei has shipped 1,000 Telepresence solutions, including 500 in 1H11, bringing it into competition with Cisco.

• Huawei launched India’s first commercial mobile number portability (MNP) solution for IDEA. Huawei’s MNP solution is based on the signaling transfer point technology. In the process of implementing the solution, Huawei migrated 470 sets of equipment without interruption of services.

• Huawei provided China Telecom with an intelligent optical distribution network (iODN) solution to China Telecom’s fiber‐to‐the‐home deployment. iODN uses eID technology to automate deployment and management within the optical distribution network.

Huawei is attempting to come from behind in the services space while making a play for the enterprise with cloud and datacenter solutions

TBR


Huawei looks to leverage alliances and partnerships to add to its capabilities in areas where its expertise is limited

Alliance Strategy

TBR Assessment of Huawei’s Alliance StrategyAlliance Strategy• As Huawei has extended its capabilities across a wide spectrum of the telecom space, from equipment to software to services, it continues to enter new areas where its experience and reputation are weak, seeking partnerships if needed.

• Huawei Symantec is one of the most visible partnerships, with the joint venture helping the company become a serious contender in the security, storage and networking segments in North America. In July, the joint venture announced a new channel program, dubbed the Wingman Partner Program, that provides partners with marketing, sales, and educational resources to help drive sales and business development.

• Huawei is looking for alliances in the area of M2M, where it recently proposed a partnership program for M2M standards, signed a $1.4 million deal with Telus in June to establish a research lab at Carleton University in Canada, and teamed with Deutsche Telekom to develop M2M solutions and applications in 2010.

Key 1H11 AlliancesNucleus ConnectNucleus Connect and Huawei will collaboratively study 10G GPON (Gigabit Passive Optical Network) technology. The two companies will leverage their research on Fiber to the Premises network technology to increase bandwidth and uplink and downlink speeds within Nucleus Connect’s Next Generation Passive Optical Network.Phones 4UU.K.‐based retailer Phones 4U will sell two of Huawei’s Android handsets in its retail locations in 4Q11. Phones 4U will carry the Huawei Blaze and Vision smartphones, which cater to the youth segment of the market. Both companies will invest in marketing and launching the devices.Simms InternationalSimms International will roll out the Huawei Enterprise Advantage Partner (HEAP) program, a strategic endeavor to increase partnerships with Australian businesses. Through HEAP, Huawei will attract value‐added resellers, systems integrators, and technology suppliers to its partner network.

TBR


TBR expects strong growth in all of Huawei’s geographic regions, resulting from its push to ship 60 million mobile phones this year

Geographic Analysis

Geographic Performance and Strategies

North America$750 million

Government intervention continues to keep Huawei from securing Tier 1 contracts in the U.S., but with device launches and network buildout deals from Canadian operators, TBR believes Huawei will grow North American revenue 71.2% in 2011.

EMEA$11.6 billion

Huawei now places its brand on handsets in Europe, after previously making only carrier‐branded devices. The company is having success with low‐cost Android smartphones in Europe and mass‐market feature phones in MEA.

APAC (ex‐China)$6.6 billion

Huawei’s feature phones are strong sellers in India and other emerging Asian markets. The company is taking significant market share from Nokia, the longtime regional leader. The MediaPad tablet, at a lower price than competitors, is poised to become a hit in this market.

China$9.9 billion

Growth in China will turn positive in 2011, rebounding from a weak 2010 that saw the 3G investment cycle end. Looking toward 2012, Huawei has positioned itself to be a major player in the 4G LTE investment cycle.

CALA$2.1 billion

TBR believes CALA revenue will increase 18.4% in 2011, as Huawei expands its mobile device offerings to include more smartphones.

$3,595 $4,518 $10,147 $9,583 $9,920 $3,799

$5,743

$3,843 $5,887 $6,597

$900 $1,539

$923 $1,780 $2,108

$4,399

$6,040 $6,500

$9,693 $11,625

$146

$231 $408

$438 $750

$0

$11,000

$22,000

$33,000

2007 2008 2009 2010 2011 Est.

Revenue in M

illions

HUAWEI REVENUE BY REGION

North America EMEA CALA APAC (ex‐China) China


TBR

‐50%

0%

50%

100%

150%

2007 2008 2009 2010 2011 Est.

HUAWEI YEAR‐TO‐YEAR REVENUE GROWTH BY REGION

China APAC (ex‐China) CALA EMEA North America


TBR

TBR


Huawei focused on expanding operations in the West, appointing new executives and opening several facilities

Personnel Changes• TBR estimates Huawei had 120,000 employees worldwide as of June, an increase of 10,000 from the end of 2010.

• In May, Huawei hired former Samsung and Nokia mobile device executive Mark Mitchinson to head its U.K. mobile device marketing and sales operations. Mitchinson will be responsible for expanding sales in the U.K. and Ireland.

• John Suffolk was named global cybersecurity officer, effective Oct. 1. Suffolk was previously the CIO of the U.K. government. He will report to Huawei’s CEO and oversee the company’s expansion deeper into the consumer and enterprise security markets.

Investments/R&D Focus• Huawei opened an R&D center in Silicon Valley that will focus on next‐generation communications solutions. Huawei’s seven R&D facilities and eleven branch offices in the United States employ 1,100 people.

• Despite Huawei being forced to divest 3Leaf, the company remains open to smaller U.S. acquisitions. Huawei opened communications with the U.S. government and encouraged an investigation into its operations, though the government has not yet taken the offer.

• Huawei opened a Network Operations Center in Madrid to provide managed and professional services to Spain and Western Europe.

Resource Management Strategy

66,002 68,000 59,000

9,000 11,500 23,000

4,200 4,500 8,000 7,300 9,800

18,500 1,000

1,200

1,500

40,000

60,000

80,000

100,000

120,000

2008 2009 2010

HUAWEI HEADCOUNT BY REGION

North America EMEA CALA APAC (ex‐China) China


TBR

$159

$207 $230

$249 $258

$‐

$50

$100

$150

$200

$250

$300

2007 2008 2009 2010 2011 Est.

Revenue In Thousands

HUAWEI ANNUAL REVENUE PER EMPLOYEE

SOURCE: TBR AND HUAWEI

TBR

TBR


Appendix – Income StatementHUAWEI TECHNOLOGIES CORPORATIONConsolidated Income Statement(in $ Thousands)

CALENDAR YEAR 2006 2007 2008 2009 2010 2011 Est.FISCAL YEAR 2006 2007 2008 2009 2010 2011 Est.Revenue 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 27,381,153$ 31,000,000$ Cost of Sales 5,424,011 7,936,732 10,890,002 13,188,406 15,920,093 18,290,000 Gross Profit 3,079,886 4,903,381 7,180,916 8,632,557 11,461,060 12,710,000

R&D 850,390 1,284,011 1,510,853 1,952,862 2,448,062 2,790,000 SG&A 1,502,472 2,349,741 3,235,871 3,538,135 4,583,241 5,270,727 Total Operating Expenses 2,352,862 3,577,867 4,746,724 5,490,997 7,031,303 8,060,727 Other Operating Income/Loss 106,029 77,655 96,692 59,728 101,584 100,000 Operating Income 620,995 1,247,859 2,337,499 3,081,833 4,328,173 4,549,273

Net financing costs 38,918 198,881 955,810 (183,721) 271,038 275,000 Share of losses of associates 15,025 7,273 27,853 23,862 1,331 15,069 Income before income taxes 567,052 1,041,705 1,353,836 3,241,692 4,055,804 4,259,204 Income taxes expense 54,664 84,807 221,238 566,535 542,962 553,697 Minority Interest 200 ‐ (1,010) 3,074 444 ‐ Net Income 512,188$ 956,898$ 1,133,608$ 2,672,083$ 3,512,399$ 3,705,508$

PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Revenues 63.8% 61.8% 60.3% 60.4% 58.1% 59.0%Gross Profit 36.2% 38.2% 39.7% 39.6% 41.9% 41.0%R&D 10.0% 10.0% 8.4% 8.9% 8.9% 9.0%SG&A 17.7% 18.3% 17.9% 16.2% 16.7% 17.0%Operating Income 7.3% 9.7% 12.9% 14.1% 15.8% 14.7%Net Income 6.0% 7.5% 6.3% 12.2% 12.8% 12.0%

YEAR‐TO‐YEAR CHANGERevenue 42.2% 51.0% 40.7% 19.0% 24.2% 13.2%Cost of Revenues 52.4% 46.3% 37.2% 19.4% 19.5% 14.9%Gross Profit 27.2% 59.2% 46.4% 18.5% 31.4% 10.9%R&D 44.6% 51.0% 17.7% 27.4% 24.1% 14.0%SG&A 48.2% 56.4% 37.7% 7.8% 28.2% 15.0%Operating Income ‐27.0% 100.9% 87.3% 30.0% 39.0% 5.1%Net Income ‐24.8% 86.8% 18.5% 132.4% 30.1% 5.5%SOURCE: TBR ESTIMATES AND HUAWEINOTE: Huawei reports annual results only

TBR

TBR


Appendix – Balance SheetHUAWEI NETWORKSConsolidated Balance Sheet(in $ Thousands)

CALENDAR YEAR 2006 2007 2008 2009 2010FISCAL YEAR 2006 2007 2008 2009 2010ASSETSCash and cash equivalents 1,056,042$ 1,892,266$ 3,033,106$ 4,279,315$ 5,628,059$ Trade and other receivables 3,650,086 5,488,077 7,627,720 9,263,944 10,174,481 Investments 64 ‐ ‐ 1,045,967 1,231,720 Inventories 1,420,455 2,267,276 3,325,636 3,652,028 4,076,062 Total Current Assets 6,126,647 9,647,619 13,986,463 18,241,253 21,110,322 Plant and Equipment, Net 939,784 931,721 1,051,348 1,217,538 1,378,551 Intangible Assets 10,937 15,038 18,328 80,954 95,669 Other Assets 418,815 502,556 2,007,880 904,260 1,198,303 Total Assets 7,496,183$ 11,096,934$ 17,064,019$ 20,444,005$ 23,782,845$

LIABILITIES AND EQUITYInterest‐bearing loans and borrowings 332,883$ 158,628$ 1,873,665$ 1,154,589$ 397,019$ Income tax payable 163,312 94,513 195,549 541,063 618,670 Trade and other payables 4,183,046 6,029,505 8,735,208 10,249,305 11,881,146 Provision for warranties 80,122 151,201 183,860 172,010 230,079 Total Current Liabilities 4,759,363 6,433,847 10,988,281 12,116,967 13,126,913 Interest‐bearing loans and borrowings 39,790 215,280 148,069 1,242,863 1,324,136 Other payables 25,894 336,417 522,427 743,083 1,162,075 Total Liabilities 4,825,047 6,985,544 11,658,777 14,102,913 15,613,125 Minority Interest in Subsidiary Companies 4,286 127,539 4,762 9,223 4,288 Total Capital and Reserves 2,666,850 3,983,851 5,400,479 6,331,869 8,165,432 Total Liabilities and Equity 7,496,183$ 11,096,934$ 17,064,019$ 20,444,005$ 23,782,845$

FINANCIAL RATIOSDays Sales Outstanding 156.67 156.01 154.07 154.96 135.63Turns on Inventory 4.12 6.96 6.46 6.25 7.09Days Inventory Outstanding 88.67 52.41 56.48 58.36 51.51Fixed Asset Turnover 9.27 13.72 18.23 19.23 21.09Days Cash Outstanding 44.71 53.05 60.42 70.60 74.00Total Asset Turnover 1.28 1.38 1.28 1.16 1.24Debt/Asset Ratio 0.64 0.63 0.68 0.69 0.66Current Ratio 1.29 1.50 1.27 1.51 1.61Return on Assets 7.7% 10.3% 8.1% 14.2% 15.9%Return on Equity 20.2% 28.8% 24.2% 45.6% 48.5%Average Annual Revenue per Employee 139,408$ 158,520$ 206,520$ 229,694$ 248,920$ Employee Count 61,000 81,000 87,502 95,000 110,000 CNY/USD Exchange Rate 6.9292 6.831 6.763SOURCE: TBR AND HUAWEINOTE: Huawei only reports Balance Sheet annually

TBR

TBR


Appendix – Revenue Model

CALENDAR YEAR 2006 2007 2008 2009 2010 2011 Est.FISCAL YEAR 2006 2007 2008 2009 2010 2011 Est.IN $ THOUSANDSReported Revenue 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 27,381,153$ 31,000,000$ Wireless 2,636,208$ 3,980,435$ 5,601,984$ 6,328,079$ 8,500,000$ 9,500,000$ Fixed 1,165,034$ 1,399,572$ 1,445,673$ 1,527,467$ 1,750,000$ 1,800,000$ Optical 1,360,624$ 2,189,790$ 3,175,937$ 5,193,389$ 5,285,882$ 5,265,000$ Data 807,870$ 1,200,000$ 1,264,964$ 1,527,467$ 2,400,000$ 2,800,000$ Service & Software 901,413$ 1,964,537$ 2,791,957$ 3,644,101$ 4,900,000$ 5,635,000$ Handset 1,003,460$ 2,105,779$ 3,790,401$ 3,600,459$ 4,545,271$ 6,000,000$ PERCENTAGE OF REVENUEReported Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Wireless 31.0% 31.0% 31.0% 29.0% 31.0% 30.6%Fixed 13.7% 10.9% 8.0% 7.0% 6.4% 5.8%Optical 16.0% 17.1% 17.6% 23.8% 19.3% 17.0%Data 9.5% 9.3% 7.0% 7.0% 8.8% 9.0%Service & Software 10.6% 15.3% 15.5% 16.7% 17.9% 18.2%Handset 11.8% 16.4% 21.0% 16.5% 16.6% 19.4%YEAR‐TO‐YEAR CHANGEReported Revenue 42.2% 51.0% 40.7% 20.8% 25.5% 13.2%Wireless 29.5% 51.0% 40.7% 13.0% 34.3% 11.8%Fixed 6.6% 20.1% 3.3% 5.7% 14.6% 2.9%Optical 38.2% 60.9% 45.0% 63.5% 1.8% ‐0.4%Data 33.5% 48.5% 5.4% 20.8% 57.1% 16.7%Service & Software 31.1% 117.9% 42.1% 30.5% 34.5% 15.0%Handset 96.6% 109.9% 80.0% ‐5.0% 26.2% 32.0%SOURCE: TBR ESTIMATES AND HUAWEINOTE: Huawei reports annual results only

HUAWEI REVENUE MODELTBR

TBR


Appendix – Geographic Model

CALENDAR YEAR 2006 2007 2008 2009 2010 2011 Est. FISCAL YEAR 2006 2007 2008 2009 2010 2011 Est. IN $ THOUSANDSChina Sales 2,950,852$ 3,595,232$ 4,517,729$ 10,146,748$ 9,583,404$ 9,920,000$ Orders 3,850,000$ 4,853,563$ 6,356,168$ 10,042,746$ 10,544,883$ 10,000,000$ International Sales 5,553,045$ 9,244,881$ 13,553,188$ 11,674,215$ 17,797,749$ 21,080,000$ Asia Pacific (excl. China) 2,740,511$ 3,799,383$ 5,743,188$ 3,842,815$ 5,886,948$ 6,597,000$

India 186,000$ 600,000$ 1,300,000$ 1,560,000$ 1,670,250$ 3,100,000$ CALA 450,000$ 900,000$ 1,539,000$ 923,400$ 1,779,775$ 2,108,000$ EMEA 2,270,000$ 4,399,296$ 6,040,000$ 6,500,000$ 9,692,928$ 11,625,000$

Europe 770,000$ 2,099,296$ 2,981,000$ 3,000,000$ 4,791,702$ 6,510,000$ MEA 1,500,000$ 2,300,000$ 3,059,000$ 3,500,000$ 4,901,226$ 5,115,000$

North America 92,533$ 146,203$ 231,000$ 408,000$ 438,098$ 750,000$ International Orders 7,150,000$ 11,146,437$ 16,943,832$ 20,115,650$ 25,455,117$ 30,000,000$ Asia Pacific (excl. China) 2,000,000$ 2,500,000$ 4,650,000$ 6,649,500$ 6,981,975$ 7,500,000$

India 350,000$ 700,000$ 2,000,000$ 2,400,000$ 3,360,000$ 4,200,000$ CALA 566,500$ 750,000$ 1,250,000$ 1,562,500$ 1,796,875$ 2,200,000$ EMEA 4,479,000$ 7,354,316$ 10,064,091$ 10,404,646$ 10,676,267$ 17,800,000$ North America 104,500$ 542,121$ 979,741$ 1,499,004$ 2,000,000$ 2,500,000$ Total Revenue 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 27,381,153$ 31,000,000$ Total Orders 11,000,000$ 16,000,000$ 23,300,000$ 30,158,396$ 36,000,000$ 40,000,000$ PERCENTAGE OF REVENUEChina 34.7% 28.0% 25.0% 46.5% 35.0% 32.0%International 65.3% 72.0% 75.0% 53.5% 65.0% 68.0% Asia Pacific (excl. China) 32.2% 29.6% 31.8% 17.6% 21.5% 21.3%

India 2.2% 4.7% 7.2% 7.1% 6.1% 10.0% CALA 5.3% 7.0% 8.5% 4.2% 6.5% 6.8% EMEA 26.7% 34.3% 33.4% 29.8% 35.4% 37.5%

Europe 9.1% 16.3% 16.5% 13.7% 17.5% 21.0%MEA 17.6% 17.9% 16.9% 16.0% 17.9% 16.5%

North America 1.1% 1.1% 1.3% 1.9% 1.6% 2.4%YEAR‐TO‐YEAR GROWTH (REVENUE)China ‐17.8% 21.8% 25.7% 124.6% ‐5.6% 3.5%International 132.1% 66.5% 46.6% ‐13.9% 52.5% 18.4% Asia Pacific (excl. China) N/A 38.6% 51.2% ‐33.1% 53.2% 12.1%

India 86.0% 222.6% 116.7% 20.0% 7.1% 85.6% CALA N/A 100.0% 71.0% ‐40.0% 92.7% 18.4% EMEA N/A 93.8% 37.3% 7.6% 49.1% 19.9%

Europe N/A 172.6% 42.0% 0.6% 59.7% 35.9%MEA N/A 53.3% 33.0% 14.4% 40.0% 4.4%

North America 2993.7% 58.0% 58.0% 76.6% 7.4% 71.2%Total Revenue 42.2% 51.0% 40.7% 20.8% 25.5% 13.2%PERCENTAGE OF ORDERSChina 35.0% 30.3% 27.3% 33.3% 29.3% 25.0%International 65.0% 69.7% 72.7% 66.7% 70.7% 75.0%YEAR‐TO‐YEAR GROWTH (ORDERS)China 10.3% 26.1% 31.0% 58.0% 5.0% ‐5.2%International 51.7% 55.9% 52.0% 18.7% 26.5% 17.9%Total Orders 34.1% 45.5% 45.6% 29.4% 19.4% 11.1%SOURCE: TBR ESTIMATES AND HUAWEINOTE: Huawei only reports annual financial results

HUAWEI REVENUE BY GEOGRAPHIC REGIONTBR

TBR


Appendix – OPEX Model

CALENDAR YEAR 2006 2007 2008 2009 2010 2011 Est.FISCAL YEAR 2006 2007 2008 2009 2010 2011 Est.IN $ THOUSANDSTotal Revenue 8,503,897$ 12,560,356$ 18,328,956$ 21,500,000$ 27,381,153$ 31,000,000$ SG&A Expense 1,502,472$ 2,349,741$ 3,235,871$ 3,538,135$ 4,583,241$ 5,270,727$ Sales & Marketing Expense 901,483$ 1,409,844$ 1,941,523$ 2,122,881$ 2,749,945$ 3,162,436$ General and Administrative Expense 600,989$ 939,896$ 1,294,349$ 1,415,254$ 1,833,296$ 2,108,291$ R&D Expense 850,390$ 1,284,011$ 1,510,853$ 1,952,862$ 2,448,062$ 2,790,000$ SALES AND MARKETING EXPENSE BREAKOUTSales Expense 540,890$ 845,907$ 1,164,914$ 1,273,729$ 1,649,967$ 1,897,462$ Partner and Channel Spending 135,223$ 211,477$ 291,228$ 318,432$ 412,492$ 474,365$ Marketing Spending 225,371$ 352,461$ 485,381$ 530,720$ 687,486$ 790,609$

Advertising 135,223$ 211,477$ 291,228$ 318,432$ 412,492$ 474,365$ Total Sales and Marketing Expense 901,483$ 1,409,844$ 1,941,523$ 2,122,881$ 2,749,945$ 3,162,436$ Total SG&A Expense 17.7% 18.7% 17.7% 16.5% 16.7% 17.0% Sales and Marketing Expense 10.6% 11.2% 10.6% 9.9% 10.0% 10.2%

Sales Expense 6.4% 6.7% 6.4% 5.9% 6.0% 6.1%Partner and Channel Spending 1.6% 1.7% 1.6% 1.5% 1.5% 1.5%Marketing Spending 2.7% 2.8% 2.6% 2.5% 2.5% 2.6%Advertising 1.6% 1.7% 1.6% 1.5% 1.5% 1.5%

General and Administrative 7.1% 7.5% 7.1% 6.6% 6.7% 6.8%CORPORATEWIDE HEADCOUNTR&D 29,280 34,830 37,626 40,850 47,300 51,600Marketing, Sales and Customer Service 23,180 32,400 35,001 38,000 44,000 48,000Supply Chain 4,880 8,100 8,750 9,500 11,000 12,000Admin. 3,660 5,670 6,125 6,650 7,700 8,400Total Employees 61,000 81,000 87,502 95,000 110,000 120,000SOURCE: TBR ESTIMATES AND HUAWEINOTE: Huawei only reports annual financial results

HUAWEI OPERATING EXPENSE MODELTBR

TBR


Appendix – Forecast Model

CALENDAR YEAR 2006 2007 2008 2009 2010 2011 Est.FISCAL YEAR 2006 2007 2008 2009 2010 2011 Est.IN $ THOUSANDSNet Sales 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 27,381,153$ 31,000,000$ Gross Profit 3,079,886$ 4,903,381$ 7,180,916$ 8,632,557$ 11,461,060$ 12,710,000$ SG&A 1,502,472$ 2,349,741$ 3,235,871$ 3,538,135$ 4,583,241$ 5,270,727$ R&D 850,390$ 1,284,011$ 1,510,853$ 1,952,862$ 2,448,062$ 2,790,000$ Operating Income 620,995$ 1,247,859$ 2,337,499$ 3,081,833$ 4,328,173$ 4,549,273$ Net Income 512,188$ 956,898$ 1,133,608$ 2,672,083$ 3,512,399$ 3,705,508$ PERCENTAGE OF REVENUEGross Margin 36.2% 38.2% 39.7% 39.6% 41.9% 41.0%SG&A 17.7% 18.3% 17.9% 16.2% 16.7% 17.0%R&D 10.0% 10.0% 8.4% 8.9% 8.9% 9.0%Operating Margin 7.3% 9.7% 12.9% 14.1% 15.8% 14.7%Net Margin 6.0% 7.5% 6.3% 12.2% 12.8% 12.0%YEAR‐TO‐YEAR GROWTHNet Sales 42.2% 51.0% 40.7% 20.8% 25.5% 13.2%Gross Profit 27.2% 59.2% 46.4% 20.2% 32.8% 10.9%SG&A 48.2% 56.4% 37.7% 9.3% 29.5% 15.0%R&D 44.6% 51.0% 17.7% 29.3% 25.4% 14.0%Operating Income ‐27.0% 100.9% 87.3% 31.8% 40.4% 5.1%Net Income ‐24.8% 86.8% 18.5% 135.7% 31.4% 5.5%

SOURCE: TBR ESTIMATES AND HUAWEINOTE: Huawei only reports annual financial results

HUAWEI FINANCIALS AND TBR QUARTERLY PROJECTIONTBR

TBR


Financial GraphsAppendix – Financial Graphs

7.7%

10.3%

8.1%

14.2%

15.9%

0%

4%

8%

12%

16%

20%

2006 2007 2008 2009 2010

HUAWEI RETURN ON ASSETS TBR


20.2%

28.8%24.2%

45.6%48.5%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010

HUAWEI RETURN ON EQUITY TBR


$2,350

$3,236

$3,538

$4,583 $5,271

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

$0

$1,600

$3,200

$4,800

$6,400

2007 2008 2009 2010 2011 Est.

In M

illions

HUAWEI SELLING, GENERAL, & ADMINISTRATIVE EXPENSE

SG&A SG&A as % of Total Revenue


TBR

$1,284

$1,511 $1,953

$2,448 $2,790

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

$0

$800

$1,600

$2,400

$3,200

2007 2008 2009 2010 2011 Est.

In M

illions

HUAWEI RESEARCH & DEVELOPMENT EXPENSE

R&D R&D as % of Total Revenue


TBR

TBR


Financial GraphsAppendix – Financial Graphs

1.29

1.50

1.27

1.511.61

0.00

0.50

1.00

1.50

2.00

2006 2007 2008 2009 2010

HUAWEI CURRENT RATIO


TBR

44.7153.05

60.42

70.6074.00

0.00

15.00

30.00

45.00

60.00

75.00

90.00

2006 2007 2008 2009 2010

Num

ber o

f Days

HUAWEI DAYS CASH OUTSTANDING TBR


0.64 0.630.68 0.69 0.66

0.00

0.20

0.40

0.60

0.80

2006 2007 2008 2009 2010

HUAWEI DEBT/ASSET RATIO


TBR

TBR


Go‐to‐Market and Resource Management GraphsAppendix – Go‐to‐Market and Resource Management Graphs

4.12

6.966.46

6.257.09

0.00

2.00

4.00

6.00

8.00

2006 2007 2008 2009 2010

Num

ber o

f Turns

HUAWEI INVENTORY TURNS


TBR

1.281.38

1.281.16

1.24

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2006 2007 2008 2009 2010

Num

ber o

f Turns

HUAWEI TOTAL ASSET TURNOVER


TBR

9.27

13.72

18.23 19.2321.09

0.00

5.00

10.00

15.00

20.00

25.00

2006 2007 2008 2009 2010

Num

ber o

f Turns

FIXED ASSET TURNS


TBR

156.67 156.01 154.07 154.96135.63

0.00

30.00

60.00

90.00

120.00

150.00

180.00

2006 2007 2008 2009 2010

Num

ber o

f Days

HUAWEI DAYS SALES OUTSTANDING


TBR

TBR


Huawei AcquisitionsCompany Description

M4SOctober 2010

Huawei purchased Option’s RF (radio frequency) semiconductor unit M4S for €8 million (or $11 million). Both companies had been working together to develop mobile broadband solutions, such as USB modems, embedded modules, chipsets, software and services, for the European market, and Huawei’s decision to make the purchase highlights its aspirations to become an integral supplier to developed markets. Huawei and Option may establish an R&D center in Belgium.

Appendix – Acquisitions

TBR


Huawei AlliancesCompany Scope of PartnershipBeetel TeletechAugust 2011

Huawei was a partner in the development of Beetel Teletech’s 7‐inch, Android‐powered Beetel Magiq tablet computer. The tablet supports 3G and Wi‐Fi connections. Beetel is a fixed‐line telephone maker in India.

Phones 4UAugust 2011

United Kingdom‐based telecom company Phones 4U will sell two of Huawei’s Android handsets in its retail locations in 4Q11. Phones 4U will carry the Huawei Blaze and Vision. Both companies will invest in the marketing and launch plan for the two devices.

Simms InternationalAugust 2011

Huawei and Simms International formed the Huawei Enterprise Advantage Partner (HEAP) program, a strategic move to increase partnerships with Australian businesses. Through HEAP, Huawei will attract VAR’s, systems integrators, and technology suppliers.

Finisar AustraliaJuly 2011

Huawei is integrating Finisar Australia’s Wavelength Selective Switches with its next‐generation fiber broadband network systems. Huawei also will trial Finisar’s Flexgrid technology.

TELUS Carleton UniversityJune 2011

Huawei, TELUS, and Carleton University partnered to build an enterprise cloud services research lab within Carleton University’s engineering lab. The Huawei‐TELUS Innovation Center will address cloud computing security and performance themes.

Nucleus ConnectJune 2011

Nucleus Connect and Huawei will collaboratively study 10G GPON (Gigabit Passive Optical Network) technology. The two companies will leverage their research on the Fiber to the Premises network technology to increase bandwidth and uplink and downlink speeds within Nucleus Connect’s Next Generation Passive Optical Network.

Intertrust TechnologiesMarch 2011

Huawei entered into a licensing agreement to use Intertrust’s Sushi Marlin Client SDK and Bluewhale Marlin Broadband Server. Both companies also will explore business opportunities globally.

Force10 NetworksFebruary 2011

Huawei‐Symantec and Force10 Networks in long‐term partnership to combine security, storage and networking expertise to better address vertical markets in North America, particularly healthcare, finance and telecom.

SPIRIT DSPFebruary 2011

Huawei extended licensing agreement to use SPIRIT’s voice and video engines in its IMS, UC and fixed mobile convergence platforms.

Appendix – Alliances

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Huawei Alliances (continued)Company Scope of PartnershipCarrier IQFebruary 2011

Companies entered into global software licensing agreement with Huawei, integrating Carrier IQ’s solutions into its mobile broadband data terminals.

SmartworldJanuary 2011

Companies are working together to develop next‐generation optical transport and access solutions to build “smart cities.” Huawei will provide an end‐to‐end optical transport solution, and Smartworld will deploy and manage the solution for Dubai World Central (DWC) and Al‐Maktoum International Airport, both in the United Arab Emirates.

Qatar TelecomJanuary 2011

Jointly develop telecom solutions for key industries in Qatar and other Middle Eastern countries

TeleCommunication Systems (TCS)January 2011

Entered Master Purchase Agreement to give Huawei access to TCS’ location‐based services (LBS) technology; TCS will let Huawei use its end‐to‐end Xypoint LBS solutions in its own products and services. Both companies will provide operators with professional and managed services for their LBS solutions.

Sequans CommunicationsOctober 2010

Accelerating development and commercialization of TD‐LTE technology for global market.

Amerilink TelecomAugust 2010

Huawei partnered with Amerilink Telecom, a startup run by former Sprint employees, to help the vendor penetrate the North American market. Amerilink has become a key U.S. distributor of Huawei equipment. Huawei hopes its partnership will better position the firm to win deals with Tier 1 operators, particularly Sprint.

IPWirelessJuly 2010

Huawei and IPWireless will jointly conduct interoperability testing and service provider trials for each company’s Integrated Mobile Broadcast (IMB) technology. IMB technology offloads data traffic from 3G networks, allowing live video streaming and broadcasting and storage of content on mobile devices. Huawei and IPWireless are conducting these tests to ensure mobile devices are compatible with IMB networks.

PerSayApril 2010

Huawei and PerSay, a biometric speaker verification product supplier, have entered a partnership that will see PerSay’s VocalPassword and FreeSpeech voice biometrics offerings integrated with Huawei’s IP contact center product suite.

Appendix – Alliances

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Huawei Recent Product AnnouncementsProduct Series Configuration

VisionAugust 2011

The Huawei Vision smartphone features a 3D user interface and runs Android Gingerbread 2.3 OS. The Vision boasts Bluetooth V2.1 technology, high‐speed internet, and messaging capabilities. Available in September, the Vision also includes a 5‐megapixel camera and 720p video recording.

HiLink E353August 2011

The HiLink E353 data card allows users to connect to the internet within 15 seconds after it is plugged into a USB port. This is the first Huawei HiLink product to support HSPA+.

E392August 2011

Huawei introduced the E392 USB modem, the first device capable of connecting to FDD and TDD LTE, along with GSM and CDMA networks, making it a truly global device. The E392 will be available in 3Q11.

E586 MiFiAugust 2011

The E586 MiFi is a mobile Wi‐Fi hotspot offering secure internet access. It has a 4.5‐hour battery life and comes with a charging base, along with a micro SD card slot for internal memory storage.

Series S SwitchesJuly 2011

Designed for enterprise users, Series S Switches feature increased scalability, improved security, faster processing capabilities, and Huawei’s network operating system with its versatile routing platform

iManager U2100June 2011

The iManager U2100 is Huawei’s new unified network management system for large‐scale bearer networks. It can be used with Huawei’s U2000 to create an operation and management solution for large‐scale all‐IP networks.

MediaPadJune 2011

Huawei’s MediaPad is a 7‐inch tablet featuring built‐in Wi‐Fi, GPS, and front‐ and rear‐facing cameras. The MediaPad offers a 217‐pixels‐per‐inch touch panel, a dual‐core 1.2 GHz Qualcomm processor, and Android 3.2 OS. The tablet weighs less than one pound and is only one‐half‐inch thick.

xDSL CardsMay 2011

Huawei’s new xDSL copper access cards, the 48‐port COMBO Card and the 64‐port VDSL2 Card, help simplify public switched telephone network migration for operators. The COMBO Card combines ADSL2+, voice, and splitter functions to efficiently use space in telecommunications rooms. The VDSL2 Card provides 50M of bandwidth. Both cards feature MELT line testing to identify line faults.

Appendix – Recent Product Announcements

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Huawei Recent Product Announcements (continued)Product Series Configuration

200G Line CardApril 2011

The 200G high‐speed line card for high‐end routers allows operators to increase bandwidth and run more efficient networks. Decreased power consumption enabled by Huawei’s 200G line card reduces operating costs for the network provider.

AR G3 Enterprise Access RouterMarch 2011

Configured with third‐generation router architecture to support mobile and fixed WAN access as well as multiservice processing; uses multicore CPUs and non‐blocking switching architecture; has 3M PPS processing performance and 80 Gbps switching capacity. The AR G3 supports CDMA2000/WCDMA/TD‐SCDMA wireless standards as well as fixed standards including ETH, e!, XDSL, XPON (scalable to 10G PON).

OptiX RTN 980February 2011

Integrates hybrid and pure‐packet microwave transmissions; upgraded version (OptiX 900) provides throughput of 1 Gbps per frequency carrier, while basic versions range from 400 Mbps to 1 Gbps; supports aggregation of microwave transmissions in 14 RF directions and is upgradable to 28 RF directions; also supports TDM and packet cross‐connections.

“Any Connection” Mobile Broadband Backhaul (MBB)February 2011

Seamlessly evolves from UMTS and HSPA to LTE; features on‐demand routing modes between dynamic and static with 300‐mm‐depth edge routers installed in outdoor cabinets.

iCareFebruary 2011

Professional service solution that is applicable to IP, optical transmission, microwave and FTTx networks; iCare provides network planning, network evaluation and optimization for live networks as well as aids in service migration and network evolution.

E398December 2010

World’s first triple‐mode modem; supports 2G (GSM), 3G (UMTS) and LTE; the modem is initially available in select European markets.

WiMAX – TD‐LTE SingleRANNovember 2010

Contains dual‐mode remote radio unit (RRU) and dual‐mode base band unit (BBU) to support both WiMAX and TD‐LTE in the 2.3GHz, 2.5GHz and 3.5GHz frequency bands; also supports MIMO and Beamforming technologies.


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Huawei Recent Product Announcements (continued)Product Series ConfigurationIntelligent Optical Distribution Network (iODN)October 2010

Lets operators locate and operate optical fibers in an FTTH environment; supplements Huawei’s portfolio of FTTH solutions ranging from equipment to delivery and services

Digital Shopping Mall (DSM)October 2010

Provides operators with a unified service platform that aggregates internet applications and delivers cloud‐based services to end‐users; platform supports all major smartphone operating systems, including Android, RIM and Symbian. At launch, the Mall featured 80,000 apps ranging from music to e‐books to video. The store can be accessed via nearly any internet‐enabled electronic device including tablets and televisions. App revenue is split 70:30, with 70% going to developers and 30% to telecom operators.

Oceanspace S2600 Oceanspace N8300 Secospace USG2000 BSR/HSR October 2010

Storage solution tailored to SMB; offers unified storage platform and multiservice gateway for security and routing

SuperMIMOSeptember 2010

Uses four twisted frequency pairs to achieve downstream speeds of 700 Mbps at a distance of 400 meters; addresses crosstalk between multiple twisted pairs and increases DSL bandwidth by 75% from an average of 100 Mbps per twisted pair to 175 Mbps; deployable to FTTB/FTTC access and private line applications, including base station access

Easy ODNJune 2010

• End‐to‐end solution that includes optical distribution frames, fiber distribution terminals, fiber access terminals, optical filters, optical splitters, closures and access terminal boxes

• Solution lets operators deploy optical distribution networks with easy operation, maintenance and administration

OSN8800 T16June 2010

• Metropolitan OTN system accommodates data, video and storage while reducing operator costs through energy efficiency, low maintenance and space‐saving features

• Achieves 40G/100G transport and offers full‐service cross‐connection capabilities that support ODUk wavelength and packet‐cross connections


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Huawei Recent Customer DealsCompany Scope of DealGenius BrandHong KongAugust 2011

Huawei will roll out an LTE network for Genius Brand with download speeds up to 120 Mbps. Huawei will deploy 2,000 base stations throughout Hong Kong, providing customers with faster internet speeds, access to wireless applications, and the ability to stream mobile content.

China TelecomChinaAugust 2011

Huawei provided its intelligent storm solutions for China Telecom’s CDMA network at the Shenzhen Summer Universiade event. Huawei’s CDMA solutions enable the network to manage up to 10 times more traffic to cope with peak traffic times. Huawei also provided its Qchat push‐to‐talk service during the event.

Etisalat NigeriaNigeriaAugust 2011

Through a $118 million contract, Huawei will expand Etisalat Nigeria’s 2G network and build out a 3G network to improve coverage and data services. Huawei also will provide a complete array of professional services.

Manitoba NetSetCanadaJuly 2011

In the course of a two‐phased project, Huawei will build a WiMAX network for Manitoba NetSet, providing 5,000 households in rural Canada with broadband internet access. The network will be prepared for a LTE upgrade using Huawei’s SingleRAN solution.

IDEAIndiaJune 2011

Huawei launched the first commercial mobile number portability (MNP) solution in India for IDEA. Huawei’s MNP solution is based on the signaling transfer point technology. In the process of implementing the solution, Huawei migrated 470 sets of equipment without interruption of services.

KPNNetherlandsJune 2011

Huawei deployed coherent 100G services on KPN’s International WDM network. Huawei’s 100G solution supports G.652 and G.655 fibers and can transmit service over a distance of 613 kilometers with needing regeneration at an electrical site.

TDCDenmarkJune 2011

Huawei will build a national and pan‐European Optical Transportation Network for TDC, enabling the operator to provide customers with high bandwidth services, such as HD TV, video conferencing, and gaming. In the six‐year contract, Huawei will deliver its industry‐leading Dense Wavelength Division Multiplexing (DWDM) solutions.

Appendix – Customer Deals

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Huawei Recent Customer Deals (continued)Company Scope of DealChina UnicomChinaMay 2011

Huawei will provide managed services for over half of China Unicom Shanghai’s base station sites to improve network reliability. Huawei will be responsible for network maintenance, including preventative, planned, and corrective services.

M1SingaporeMay 2011

M1, a leading mobile broadband and communications provider, awarded Huawei a five‐year, S$280 million contract to build Singapore’s first LTE network. Huawei’s end‐to‐end LTE solution includes installation of base stations and the Evolved Packet Core equipment.

China TelecomChinaMay 2011

Huawei provided China Telecom with its intelligent optical distribution network (iODN) solution to improve operations and efficiency of China Telecom’s fiber‐to‐the‐home deployment. iODN uses eID technology to automate deployment and management within the optical distribution network.

Everything EverywhereUnited KingdomMay 2011

In a four‐year contract, Huawei will provide Everything Everywhere, a U.K. operator, with increased network capacity and coverage through a 2G GSM network upgrade. Huawei will upgrade all of Everything Everywhere’s radio base stations and prepare for a transition to LTE.

Superonline TurkeyMay 2011

Huawei installed the first colorless and directionless Wavelength Switched Optical Network (WSON) application in the Istanbul metro network, greatly increasing security. Huawei provides Superonline with Active Ethernet Access and Gigabit Passive Optical Access Network solutions.

MTCLebanonMarch 2011

Building end‐to‐end 3G network for MTC, including the provision of RAN and packet switching; also providing a range of professional services


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Huawei Recent Customer Deals (continued)Company Scope of DealVodafone Hutchison (VHA)AustraliaFebruary 2011

Huawei is replacing 5,800 base stations across Eastern Australia for VHA with its SingleRAN and radio network controllers (RNC). The new network equipment lets VHA deliver 2G, 3G and 4G service from a single base station at up to 42 Mbps downlink speed. VHA plans to replace an additional 2,200 base stations over the next 18 months.

EtisalatUnited Arab EmiratesFebruary 2011

Deploying commercial LTE network across United Arab Emirates for Etisalat.

Cell CSouth AfricaFebruary 2011

Deployed NGBSS solution for Cell C, letting the operator generate real‐time usage data of its postpaid, prepaid and hybrid services and provide its subscribers with converged billing.

NII HoldingsBrazil, MexicoFebruary 2011

Huawei providing end‐to‐end UMTS network, including RAN, backhaul and core, as well as TIS services for NII Holdings Push‐to‐Talk service in Brazil and Mexico.

Northeast Wireless NetworksUnited StatesFebruary 2011

Deploying Huawei’s SingleRAN solutions to bring wireless coverage to rural areas in Maine and Oregon.

2degreesNew ZealandFebruary 2011

Investing NZ $100 million (or U.S. $77 million) over the next two years to build out 2G and 3G network in New Zealand that is LTE‐ready; Huawei providing all equipment.


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Huawei Recent Customer Deals (continued)Company Scope of DealTelkomSouth AfricaFebruary 2011

Telkom secured a $127 million seven‐year loan from a syndicate of international banks to build out its 8ta mobile network in South Africa. Huawei is providing most of the network infrastructure.

WINDCanadaJanuary 2011

Deployed core network from Huawei to bring Wide Band AMR (also known as HD voice) services to its customers across Canada.

Public Telecom (PTC)Saudi ArabiaJanuary 2011

PTC, owner of Bravo, is replacing its legacy billing system with Huawei’s BSS solution to improve operational infrastructure efficiency.

Libya SilphiumMediterranean SeaJanuary 2011

Huawei Marine constructing and laying 440km submarine cable connecting Libya and Greece on behalf of the Libyan International Telecom Company (LITC).

VodafoneGhanaJanuary 2011

Awarded Huawei five‐year managed services contract to assume operations and maintenance of Vodafone’s mobile, microwave, SDH and fixed switching networking in Ghana.

TeliaSoneraNorwayJanuary 2011

Using Huawei’s SingleRAN@Broad solution to upgrade and expand operator’s GSM/HSPA+/LTE network across southern Norway. The solution will make TeliaSonera’s HSPA+ network handle 42 Mbps with the option of an upgrade to 84 Mbps.

KyivstarUkraineJanuary 2011

Kyivstar is building out FTTB network across Ukraine using Huawei’s Ethernet switches.


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Huawei Recent Customer Deals (continued)Company Scope of DealT‐MobileAustriaDecember 2010

Rolling out LTE network and upgrading T‐Mobile’s GSM network in Austria under a five‐year contract; T‐Mobile plans to cover one quarter of Austria’s population with LTE by the end of 2013.

GovernmentGuyanaDecember 2010

Guyana government is paying Huawei $35 million to deploy a wireless network at select hospitals, police stations, military outposts and other government facilities across the country.

Millicom International Cellular (MIC)Central AmericaDecember 2010

Huawei is deploying international long‐distance (ILD) network covering Guatemala, Honduras and El Salvador for Millicom.

TTSTTrinidad & TobagoDecember 2010

Huawei was the exclusive supplier of an end‐to‐end WiMAX network covering the Caribbean islands of Trinidad & Tobago for TSTT.

China UnicomChinaDecember 2010

Guangzhou Unicom, a subsidiary of China Unicom, is using Huawei’s Hybrid MSTP Transport solution to provide EDGE, HSPA+ and WLAN service during the 2010 Asian Games in Guangzhou.

SI WirelessUnited StatesNovember 2010

Building out CDMA EV‐DO network covering 1.2 million POPs in Illinois, Kentucky and Tennessee for SI Wireless; the network includes 300 cell sites and will be finished by mid‐2012.

BiteLatviaNovember 2010

Huawei upgraded all of Bite’s base stations to be LTE‐ready as well as deployed 80 additional sites. Huawei also optimized Bite’s RAN to be 20% to 30% more energy efficient.


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Huawei Recent Customer Deals (continued)Company Scope of DealCamGSMCambodiaNovember 2010

CamGSM is purchasing $500 million worth of network equipment and services from Huawei over five years. CamGSM obtained financing via the Bank of China.

China MobileChinaNovember 2010

China Mobile chose Huawei to supply and build out an 80x40G Wavelength Division Multiplexing national backbone network. Huawei’s 40G OTN solution will upgrade the wavelength capacity of China Mobile’s network from 10G to 40G.

Datame OyFinlandNovember 2010

Huawei is building end‐to‐end WiMAX network for Datame Oy that will cover 70% of Finland’s population by the end of 2013.

Aero2PolandNovember 2010

Awarded frame contract to deploy world’s first TD‐LTE network for Aero2 in Poland; Huawei is providing an end‐to‐end LTE TDD/EPC solution.

MovistarPeruNovember 2010

Movistar is replacing its CDMA equipment with Huawei’s Advanced Telecom Computing Architecture‐based (ATCA) CDMA mobile softswitch all‐IP solution.

GrameenphoneBangladeshNovember 2010

Huawei is supplying and rolling out end‐to‐end SingleRAN network across Bangladesh for Grameenphone under a three‐year contract. Products supplied include SingleCORE, SingleEPC, ngHLR and IP Signalling Transfer Point (STP) solutions. The new infrastructure will bulk up capacity of Grameenphone’s existing network so it can handle an influx of voice and data traffic.

MTNNigeriaOctober 2010

Huawei will deploy a wireless network covering 350 villages across Nigeria for MTN for $40 million by the end of May 2011. MTN is planning further network expansion in late 2011 to cover an additional 500 villages, and Huawei stands a good chance of winning that contract should it do a good job on phase one.


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Huawei Recent Customer Deals (continued)Company Scope of DealTelekom Brunei BerhadBruneiOctober 2010

Huawei is delivering end‐to‐end FTTH broadband network covering 40,000 subscribers in Brunei with 150 Mbps internet service. The project has been divided into four phases.

MegaFonRussiaOctober 2010

Using Huawei NE5000E routers to construct backbone nodes for a 40 GB IP/MPLS network in Moscow and St. Petersburg; the routers will help MegaFon optimize its existing core network by bulking up bandwidth.

VodafoneItalyOctober 2010

Paying Huawei €1 billion (or $1.4 billion) to supply and deploy its HSPA+ SingleRAN solution to 12% of Italy’s population (about 1,800 towns)

LattelecomLatviaOctober 2010

Huawei is supplying fiber optic access nodes and devices for end‐users to Lattelecom.

duUnited Arab EmiratesSeptember 2010

Upgraded du’s HSPA+ 21 Mbps network to DC‐HSPA+ 42 Mbps

Bharti AirtelIndiaSeptember 2010

Huawei will plan, design, deploy and maintain a 3G HSPA network in three telecom circles in India for Bharti Airtel. Ericsson and Nokia Siemens won similar contracts, with Ericsson garnering seven circles and Nokia Siemens landing three circles. Bharti Airtel has 3G licenses for 13 telecom circles across India.

MTSIndiaSeptember 2010

MTS India outsourced the management of all 22 of its telecom circles in India to Huawei, ZTE and Ericsson.


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Huawei Recent Customer Deals (continued)Company Scope of DealSafaricomKenyaSeptember 2010

Deployed Convergent Billing Solution (CBS) in Kenya for Safaricom; Huawei’s CBS provides online rating, real‐time control, and express billing for telecom operators.

MobylandPolandSeptember 2010

Huawei launched an 1800MHz LTE/EPC network using its SingleRAN@Broad solution for Mobyland in Poland, allowing for peak downlink speeds of 146 Mbps per user. Huawei first used a software upgrade to make Mobyland’s 2G network support LTE. This is the first commercial LTE/EPC network based on 1800MHz spectrum with 20MHz bandwidth on a single radio unit.

Tata TeleservicesIndia September 2010

Huawei will provide SingleRAN for 3G network in five of Tata’s nine telecom circles in India. Nokia Siemens won the remaining four circles.

QtelQatarAugust 2010

Huawei will roll out FTTH for Qtel in Qatar. Huawei will replace copper connections with high‐speed fiber, enabling downlink speeds up to 100Mbps. The project will last for three years.

BTUnited KingdomAugust 2010

Huawei is providing BT with optical access and transmission products, including Huawei’s SingleFAN solution, to help with the deployment of BT’s new national fiber network. BT boosted its investment in broadband by £1 billion ($1.5 billion) to bring faster internet services to two‐thirds of U.K. households by 2015. Huawei has been an integral supplier of fiber access equipment to BT since the operator’s broadband deployment began in 2008.

Maxis BerhadMalaysiaAugust 2010

Huawei will build and manage an end‐to‐end turnkey FTTx high‐speed internet network using GPON technology for Maxis Berhad. The duration of the managed services agreement is three years. Maxis Berhad plans to cover 12 million customers across Malaysia, particularly targeting enterprise customers.

VodafoneUnited KingdomAugust 2010

Vodafone is offering customers in the United Kingdom a monthly Mi‐Fi package using the Huawei R201 router.


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Huawei Recent Customer Deals (continued)Company Scope of DealTelefonicaWorldAugust 2010

Telefonica has been using Huawei’s service delivery platform (SDP) in its Latin American operations and now plans to deploy the software globally. The SDP fits Telefonica’s application development strategy by establishing a foundation for these services to be created.

Tata Teleservices IndiaAugust 2010

Tata Teleservices installed Huawei’s MSC Pool solution, boosting service and reliability for the operator’s 1.5 million subscribers in the Mumbai metro area.

PCCWHong KongAugust 2010

Huawei deployed its 40G Optical Transport Network solution for PCCW, allowing PCCW customers to experience higher bandwidth and more flexible service features. Transport capacity increases to 3.2 Terabit and bandwidth per wavelength jumps 400% with the use of technologies like 80‐wavelength 40G, Reconfiguration Optical Add/drop Multiplexer, and optical and electrical cross‐connection. In a separate agreement also announced in August, Huawei deployed its 42Mb/s Dual Carrier HSPA+ solution, doubling the downlink peak data rate of PCCW’s existing HSPA+ network covering Hong Kong.

SingTelSingaporeAugust 2010

SingTel deployed Huawei’s NE5000E 1+2 router cluster system in its converged IP backbone network. This router system, the industry’s most energy efficient, achieves 2.56T port capacity and is scalable to 200T.

China TieTongChinaAugust 2010

Huawei was selected by China TieTong Telecommunications, a subsidiary of China Mobile, to exclusively provide equipment for the expansion of the operator’s CTTNET nationwide broadband IP network. Huawei is supplying its Quidway NetEngine5000E core router, which achieve 2.56T port capacity and are scalable to 200T.

StarHubSingaporeJuly 2010

StarHub adopted a smartphone signaling solution from Huawei that enhances network performance by reducing smartphone signaling traffic. The solution reduces 56% of the redundant signaling loads in StarHub’s smartphone mobile data service.


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Huawei Recent Customer Deals (continued)Company Scope of Deal

VodafoneGermanyJuly 2010

Vodafone selected Huawei and Ericsson to upgrade its base stations to LTE and roll out LTE‐compatible base stations across rural regions of Germany. In all, Vodafone plans to have 1,500 base stations installed by 2011. Vodafone Germany is embracing wireless broadband as a less expensive alternative to rolling out fixed line access for internet services.

ONOSpainJuly 2010

ONO selected Huawei to upgrade and run its voice network under a 7‐year renewable contract. Huawei will deploy softswitches, media gateways and other IMS solutions. Huawei also will provide managed services for the network, taking on 40 ONO employees to help with activity monitoring, workflow management and configuration management.

WindItalyJune 2010

Huawei will deploy HSPA+ and LTE base stations for Italian operator Wind. Wind selected Huawei’s SingleRAN platform because it can converge GSM, HSPA and LTE RAN onto one platform. The operator also will purchase core network equipment supporting SDH and VoIP and IMS infrastructure from Huawei to support its all‐IP strategy.

Suddenlink CommunicationsUnited StatesJune 2010

Deploying Digital Terminal Adapter’s (DTA) from Huawei to offer more Video on Demand, HDTV, and Docsis 3.0 services. Suddenlink is an MSO with about 1.3 million customers, and the DTA boxes will be offered to its customers across 20 markets in the southeastern United States.

Vodafone SpainJune 2010

Vodafone Spain is offering femtocells manufactured by Huawei to its Office customers, which include 25,000 companies with over 500,000 lines across Spain. The femtocells enable Vodafone’s customers to realize better voice and data access.

NETBrazilMay 2010

Huawei will deploy its IPTime broadband metro solution for Brazilian cable and broadband provider NET. The deployment will enable high‐definition video service for NET subscribers using video packet retransmission and fast channel change, which are part of Huawei’s SingleMetro and Multiplay solutions.


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Huawei Recent Customer Deals (continued) Company Scope of DealHiBeam Internet & VoiceUnited StatesMay 2010

Huawei supplied radio equipment to HiBeam to support broadband services to subscribers in the Midwest and Southeast. Speeds can now reach 3 mbps to 6 mbps on average, with bursts up to 10 mbps. The new equipment supports migration to LTE.

vividwirelessAustraliaMay 2010

Huawei and vividwireless launched Australia’s first commercial WiMAX network in Perth. The network delivers wireless access speeds comparable to ADSL2+ connections using Beamforming and 4T4R technology. The rollout in Perth took six months, and Huawei will build out additional WiMAX networks for vividwireless in 2H10.

Saudi Telecom Company (STC)Saudi ArabiaApril 2010

Huawei will deploy a pre‐commercial LTE network for STC covering several cities in Saudi Arabia, including Riyadh and Dammam. Additionally, STC will use Huawei IP microwave products, specifically the RTN900 series, in its LTE backhaul.


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Huawei’s Facilities

Location Function

Shenzhen, China Chinese Headquarters, East Pacific Headquarters

Dusseldorf, Germany European Headquarters, Innovation Center

Darmstadt, Germany Innovation & Demo Center

Moscow, Russia CIS Headquarters

Plano, Texas, United States United States Headquarters

Markham, Ontario, Canada Canadian Headquarters

Cairo, Egypt Middle East and North Africa Headquarters

Sao Paulo, Brazil Latin American Headquarters

Johannesburg, South Africa South African Headquarters

Kuala Lumpur, Malaysia Asia Pacific Headquarters

Richardson, Texas, United States LTE Laboratory

Otemahci, Tokyo, Japan LTE Laboratory

Beijing, China R&D Facility, WiMAX Interoperability Testing Laboratory

Shenzhen, China R&D Facility

Shanghai, China R&D Facility

Nanjing, China R&D Facility

Appendix – Facilities Table

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Huawei’s Facilities (continued)Location Function

Hangzhou, China R&D Facility

Chengdu, China R&D Facility

Wuhan, China R&D Facility

Munich, Germany R&D Facility – All‐IP Network, Core Network, High‐speed Transmission

Paris, France R&D Facility – Telecom Standard, GSM‐R

Milan, Italy R&D Facility – Microwave

Stockholm, Sweden R&D Facility

Bangalore, India R&D Facility – Software

Dallas, Texas, United States R&D Facility – ASIC Technologies and Wireless Algorithm

Silicon Valley, California, United States R&D Facility

Ottawa, Canada R&D Facility – Wireline, Wireless, Optical, and IP Networking

Moscow, Russia R&D Facility – Wireless Algorithm, Application and Software

Lagos, Nigeria R&D Facility

Istanbul, Turkey R&D Facility

South Africa R&D Facility

Jakarta, Indonesia R&D and Training Facility

Madrid, Spain Network Operations Center

Appendix – Facilities Table

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Huawei Key ManagementName PositionRen Zhengfei Chief Executive Officer

Justin Chen Chief Operating Officer

Matt Bross Chief Technology Officer

Cathy Meng Chief Financial Officer

Victor Xu Chief Strategy and Marketing Officer, Huawei Device

Ken Hu Executive Vice President

Wan Biao President of Wireless

You Yiyong President of Access Network

Christian Chua President of Transport Network

Kevin Tao CEO of Huawei Device

Ying Weimin President of LTE Product Line

Yu Chengdong President, Huawei Europe

Max Yang CEO, Huawei India

Charles Ding President, Huawei North America

Sean Yang President, Huawei Canada

Charlie Chen Senior Vice President of Marketing and Product Management, Huawei USA

John Roese Senior Vice President and General Manager of North America R&D

John Suffolk Global Cyber Security Officer

Appendix – Management Table

TBRT EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

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tbr 2q11 huawei report

Business

appendix customerdeals

appendix recentproductannouncements

appendix alliances

tbrestimatesandhuawei

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