tbr 4q10 huawei report

TBR

T 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

Fourth Calendar Quarter 2010

Fourth Fiscal Quarter 2010 Ended Dec. 31, 2010

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

4.79

Publish Date: March 21, 2011

Author: Chris Antlitz ([email protected]), NBQ Analyst

Content Editor: Michael Sullivan-Trainor, NBQ Executive Analyst

TBR

Huawei 4Q10 | Network Business Quarterly ©2011 Technology Business Research, Inc. 2

Contents

Company Analysis

3 Executive Summary

7 Strategy Overview

11 Corporate SWOT Analysis

14 Financial Model Strategy

17 Go-to-Market & Product Strategies

18 Alliance & Acquisition Strategies

19 Geographic Analysis

21 Resource Management Strategy

22 Future Outlook

Company Data Models

24 Income Statement

25 Balance Sheet

26 Revenue Model

27 Geographic Model

28 Operating Expense Model

29 Forecast Model

30 Financial Graphs

33 Go-to-Market & Resource Mgmt. Graphs

34 Acquisitions Table

35 Strategic Alliance and Partnerships Table

37 Product Announcement Table

40 Customer Deals Table

50 Facilities Table

52 Management Table

53 About TBR

TBR


Huawei successfully weathered the decline in Chinese spend for 3G rollout in 2010, making up for it with solid execution in EMEA

Huawei is striving to drive software and services revenue to maintain its lofty growth rate.

• TBR estimates gross margin rose 40 basis points from 2009 to 40%, as sales mix moved toward higher-margin software, services and next-generation infrastructure.

• The device business rebounded sharply from 2009 on strong unit shipments and a more favorable mix skewed toward smartphones.

• Huawei benefited from the revival in optical transport spend, but TBR believes the vendor trailed Alcatel-Lucent and Ciena in the space in 2010.

• We believe Huawei is exercising its generous credit lines with Chinese banks to offer attractive financing to cash-strapped operators in developing countries. As such, TBR estimates Huawei will grow sales faster than peers in CALA and Africa, where access to capital is scarce, especially for large-scale deployments.

• Huawei is using resource localization to establish hubs in key markets and make customers more comfortable using a foreign vendor for their network needs.

TBR Position:

Huawei’s Corporate Strategies • Execute on three-pronged security plan in U.S. to

assuage government fears

• Triple terminal sales within three to five years by manufacturing and bringing to market low-cost smartphones and tablets sporting the Android OS

• Establish leadership position in 4G, particularly TD-LTE

• Invest in software and services assets to better compete against Ericsson, Alcatel-Lucent, and Nokia Siemens

Executive Summary

$3,595 $4,518

$10,147 $9,800 $3,799 $5,743

$3,843 $6,014

$900

$1,539

$923 $1,820

$4,399

$6,040 $6,500

$9,912

$146

$231

$408

$454

$0

$4,000

$8,000

$12,000

$16,000

$20,000

$24,000

$28,000

2007 2008 2009 2010 Est.

Rev

enu

e in

Mill

ion

s

HUAWEI REVENUE BY REGION

NorthAmerica

EMEA

CALA

APAC (ex-China)

China

SOURCE: TBR ESTIMATES AND HUAWEI

TBR

TBR


Though Huawei has won the largest number of 4G contracts thus far, rivals Alcatel-Lucent and Ericsson’s LTE contracts are worth more

Quarterly Segment Performance

Segment Key Changes & Drivers 2010

Revenue Estimate

Growth Y/Y

Trends to Monitor

Wireless

Huawei is ahead of rivals in number of 4G deals signed, but the value of those deals pales in comparison to the lucrative LTE contracts won by Alcatel-Lucent and Ericsson for AT&T, Verizon and other Tier 1 operators.

$8.5 billion

34.3%

Huawei’s launch of a SingleRAN that supports both TD-LTE and WiMAX could be a hot seller for WiMAX operators looking for a relatively inexpensive way to migrate to LTE. Some examples include Clearwire and Yota. This could also expand the TD-LTE ecosystem, which is currently running the FDD-LTE iteration of the 4G technology.

Fixed

Huawei continued to grow FTTx deployments with numerous deals. In 2H10 alone, Huawei won two deals for FTTH deployments, one with Telekom Brunei Berhad in Brunei and the other with Qtel in Qatar.

$2 billion 27.7%

• Huawei has strong FTTx offerings and provides reliable, quality access equipment at better prices than competitors.

• Huawei also leads in GPON and EPON.

Optical

The largest optical deals Huawei signed in 2H10 were with China Mobile and PCCW for 40G solutions.

$5.8 billion

12.9%

Huawei will benefit from BT’s decision to increase fiber investment by £1 billion ($1.5 billion) through 2015, as the vendor has been a key supplier of optical access and transmission equipment to BT since 2008.

Executive Summary

TBR


Data was the fastest-growing segment in 2010, as operators boosted capacity on their networks


Segment Key Changes & Drivers 2010

Revenue Estimate

Growth Y/Y

Trends to Monitor

Data

• Demand for routers was strong in 2010, exemplified by MegaFon’s purchase of an IP/MPLS solution from Huawei in October.

• Operators are allocating a larger portion of their capex budgets to IP to bulk up network capacity to contend with rising data usage.

$2.4 billion

57.1%

Operators are stressing efficiency on a cost per bit basis, as revenue derived from data is growing at a far slower rate than data usage. This trend bodes well for sales of Huawei’s SingleRAN, backhaul and IP solutions.

Services &

Software

• Huawei realized strong growth across rollout, maintenance, professional and managed services. Being selected for end-to-end network deployments and/or upgrades is helping Huawei drive incremental growth in services.

• Traction in software remains elusive, though Huawei is investing aggressively in its portfolio.

$4.9 billion

34.5%

Huawei is bulking up its services arm to better compete against heavyweights Ericsson, Alcatel-Lucent and Nokia Siemens for lucrative outsourcing contracts; however, it will be some time before Huawei can undertake a mega-services deal.

Terminals IDEOS smartphone series launched in September and sold 1 million units in first two months.

$4.5 billion

21.6%

IDEOS will be offered by carriers and retailers in more than 70 countries in 2011, helping Huawei quickly gain market share.

Executive Summary

TBR


Huawei’s balance sheet is “stretched” compared to peers, reflecting liberal credit policies, inefficient inventory management and a rising debt load

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.

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. We believe this practice could weaken Huawei’s balance sheet if cash-strapped operators struggle to pay back outstanding debt.

Executive Summary

VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK

BUSINESS QUARTERLY VENDOR BENCHMARK

FINANCIAL METRICS TBR Score

Company

Figure

Average in

Class

Standard

Deviation/2

Revenue Growth Year-to-Year 8.44 28.3% 9.0% 5.6%

Revenue/Employee 3.53 229,694$ 383,236$ 104,419$

Gross Margin 5.52 40.0% 37.3% 5.2%

SG&A as % of Sa les 4.74 17.9% 17.3% 2.2%

R&D as % of Sa les 6.65 10.0% 13.1% 1.9%

Operating Margin 6.27 11.9% 6.4% 4.3%

Days Cash Outstanding 3.98 70.60 115.04 43.59

Total Asset Turns 6.99 1.16 0.91 0.13

Current Ratio 3.78 1.48 1.76 0.23

Debt/Assets 2.16 0.69 0.52 0.06

Return on Assets 8.11 14.2% 5.6% 2.8%Return on Equity 9.42 45.6% 13.3% 7.3%

TOTAL AVERAGE TBR SCORE

GO-TO-MARKET & SERVICES METRICS TBR Score

Company

Figure

Average in

Class

Standard

Deviation/2

Network/Comm. Equipment Market Share 5.37 13.7% 12.2% 3.9%

Mobi le Phone Market Share 3.66 2.2% 10.2% 6.0%Days Sa les Outstanding 1.01 154.96 80.19 18.74

TOTAL AVERAGE TBR SCORE

RESOURCE MANAGEMENT METRICS TBR Score

Company

Figure

Average in

Class

Standard

Deviation/2

Inventory Turns/Year 3.99 6.21 8.13 1.90Fixed Asset Turns/Year 6.48 19.11 14.59 3.04

TOTAL AVERAGE TBR SCORE 5.24

5.80

3.35

TBR

4Q09 1Q10 2Q10 3Q10 4Q10

Financia l Model Strategy: 5.67 5.55 5.64 5.74 5.80

Go-to-Market & Services Strategies : 3.27 3.21 3.35 3.51 3.35

Resource Management Strategy: 5.29 4.92 4.93 5.27 5.24

TOTAL AVERAGE TBR SCORE: 4.74 4.56 4.64 4.84 4.79

TBR SCORING SUMMARY:CALENDAR QUARTER RESULTS

TBR


Huawei’s three-pronged security strategy is a good first step to reduce barriers to expansion in the United States market

Function Key Strategies TBR Assessment

Overall

• Build on initial success in North America to become a key supplier to network operators

► • 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.

• Grow business in India by localizing presence

►

• 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.

• Employ three-pronged security strategy to allay U.S. concerns

►

• 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.

Financial

• Grow sales 20% in 2010 by focusing on international expansion

► • Huawei exceeded its sales target for 2010 by $1.8 billion, and TBR

estimates broad sales growth in all of Huawei’s operating segments.

• Invest 10% of revenue in R&D

►

• TBR estimates Huawei boosted its R&D spend to 10% of revenue in 2010 after spending just under 9% of sales in the previous two years. The jump reflects confidence in the global economic recovery and a strong push into services and software. Huawei is also investing heavily in TD-LTE.

Strategy Overview

TBR


Huawei is investing heavily in North America and India to support growth

Function Key Strategies TBR Assessment

Go-to-Market

• Establish leadership position in 4G (WiMAX and LTE)

►

• Huawei won the largest share of the LTE and WiMAX contracts awarded in 2010 and 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 will become a meaningful contributor to overall revenue by 2014.

• Leverage Android to gain traction in smartphone and tablet markets

►

• Selling low-cost Android powered devices via carriers will help Huawei quickly gain market share in smartphones and tablets. iPad and Xoom are not affordable by the general population of most countries and offerings by Samsung and LG seek to capture the midmarket. This leaves the low tier up for grabs, a space Huawei thrives in due to its low-cost operating structure and resistance to pursuing expensive advertising programs.

R&D and Delivery Strategy

• Establish R&D centers in strategic cities to leverage local talent pools

►

• Huawei opened an R&D center in Ottawa in August – the vendor’s second R&D facility in North America. This base of operations in Canada will help Huawei develop closer ties with its local customers, including BCE, SaskTel and TELUS as well as help the company enter the good graces of the Canadian government.

• $2 billion investment in India will improve prospects in the country

► • Using a localization strategy, Huawei is creating a stronghold in

India while improving its reputation with the Indian government.

Strategy Overview

TBR


Localization is central to Huawei’s India strategy – a move that will help improve its reputation with government officials while saving money

TBR Assessment of Huawei’s Resource Management Strategy

Huawei’s $2 billion investment shows the vendor views the Indian market as a strategic, long-term opportunity

With security clearances in hand and 3G deals secured, Huawei unveiled an India investment plan worth $2 billion over the next five years. The strategy is to quickly build a standalone base of operations in India. Huawei will leverage the talent pool and localize service delivery and equipment manufacturing to establish a stronghold in the country, which will alleviate government fears and help Huawei keep costs down.

• A manufacturing hub will be built near Chennai for $500 million. It will produce network infrastructure equipment for India and export to neighboring countries.

• The existing R&D center in Bangalore will expand to house 3,000 engineers, up from the current 2,000.

• Partnerships with Indian IT firms will be funded to better approach and offer differentiated solutions to the market.

• R&D budgets will rise to take advantage of the highly educated talent pool.

• Training centers will be established to coach new hires and channel partners.

These investments will boost Huawei’s India headcount from 6,000 at the end of 2010 to over 10,000 by the end of 2011, with more than 60% to be local hires.

Strategy Overview

TBR


Huawei will come to dominate the low-end smartphone and tablet markets in 2011

TBR Assessment of Huawei’s Go-to-Market Strategy

Bringing Android-powered smartphones and tablets at a fraction of the cost of rivals’ offerings to U.S. shores will resonate with mass market consumers, helping make Huawei a household name

• Huawei is clearly focused on locking up the low-tier smartphone and tablet markets. The strategy is to mass-produce a limited number of models that are widely affordable and appealing to many demographics. Huawei is able to sell its devices at a discount compared to rival offerings because of its low-cost operating structure and resistance to expensive advertising campaigns. Instead, Huawei prefers to let carriers and retailers handle the marketing portion and sweeps those cost savings to the bottom line, which helps protect margins.

• Huawei is also making inroads to big box retail stores like Best Buy and Wal-Mart. The popularity of Android smartphones and tablets is pushing retailers to offer the widest and most competitive selection of mobile devices.

• TBR believes ZTE will be Huawei’s only significant competitor in the low-end space. Apple clearly owns the high end and RIM, Samsung, Nokia, Motorola and others are all jockeying to grab share in the mid- to high-end segments.

• With competitors focused on balancing ASP and volume, Huawei is able to move in and quickly ramp-up unit shipments; however, TBR forecasts Huawei Device to have an excellent year in 2011.

Strategy Overview

TBR


Nokia Siemens is Huawei’s biggest threat from the West, as it is willing to compete against the Chinese on price to win market share

Corporate SWOT Analysis

Strengths • 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 & 3 telecom operators in emerging markets

Weaknesses • Need to add capabilities fast to match incumbent

NEPs

• 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

Opportunities • Supply TD-LTE 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

Threats • Nokia Siemens prioritizing market share gains over

profitability puts downward pressure on contract pricing

• Reshuffling of Chinese telecom industry could dampen Huawei’s growth prospects in home market

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

TBR


Opportunity: Supply TD-LTE market

Huawei stands to be a key beneficiary of TD-LTE-related contracts, especially as Western vendors focus on the FDD version of the technology

• Huawei is positioning itself to become a leader in TD-LTE, the iteration selected by Chinese operators for their 4G migration. In 4Q10, Huawei partnered with Sequans Communications to develop and commercialize TD-LTE hardware for the global marketplace and unveiled a new version of SingleRAN that supports both WiMAX and TD-LTE.

• Unlike FDD-LTE, which uses paired spectrum, TD-LTE uses unpaired spectrum channels. Though TD-LTE is slightly less efficient at transmitting data than FDD-LTE, the version gives operators greater flexibility to use varying frequencies when operating their 4G network. Unpaired spectrum is also much less expensive than paired spectrum, which incentivizes its use by operators.

• A push to develop TD-LTE in China has helped the technology catch up with FDD-LTE, making it a contender for commercial deployment. While European and North American operators are likely to go with FDD-LTE, TBR believes TD-LTE will be the standard of choice in China, Russia and India, where local vendors like Huawei and rival ZTE will push their version of the technology and where operators can find meaningful cost savings in the use of unpaired spectrum.

• Though the Chinese government has been quiet regarding 4G license allocation, the big three Chinese telcos have all begun formulating their 4G ambitions. TD-LTE trials are slated to begin in 2011 and both Huawei and ZTE stand to be key beneficiaries of this next investment cycle to 4G in APAC, especially since Western vendors are almost completely focused on FDD-LTE to service their core customers.

The partnership with Sequans and the unveiling of a dual-mode TD-LTE/WiMAX SingleRAN base station show Huawei is serious about TD-LTE


TBR


Huawei is at a crossroads, as its historical focus on network deployment must shift to software and services to further grow Tier 1 accounts

Weakness: Need to add capabilities fast to match incumbent NEPs

Huawei may pursue alliances and/or acquisitions to address its relative weakness in services and software

• Huawei is becoming a mature company. Though sales were strong in 2010, TBR believes Huawei’s growth rate will moderate in the coming years as it becomes more difficult to grow revenue off a larger base.

• Huawei has built its empire on the mantra of fast deployment of low-cost, high-quality products. While this strategy has been extremely successful thus far, the company now finds itself at a crossroads and must adapt to be successful in the future.

• With India representing the last large market for new network deployment, long-term revenue growth will come primarily from services and software – two areas Huawei lags compared to incumbent NEPs like Alcatel-Lucent, Ericsson and Nokia Siemens.

• Though Huawei is making strides in its services and software capabilities and offerings, much work remains to be done in cultivating customer relationships and building out software platforms and multimedia solutions that service providers will feel comfortable adopting in their back-office systems.

• In services, Huawei is making progress in product-attached maintenance but lags in multivendor, primarily due to a relative lack of expertise in dealing with rivals’ systems. Professional services is another weak area for Huawei, one that includes a range of commoditized to highly specialized services. Huawei is trying to address the commoditized area with its new iCare solution.

• In software, Huawei unveiled its Digital Shopping Mall in response to the popularity of mobile applications; however, Huawei lags behind Alcatel-Lucent in applications, particularly in enablement, and lags Ericsson in video – all important spaces that will be long-term growth drivers.


TBR


Gross margin improved in 2010 on favorable sales mix, but 2011 will pressure margins as 3G rollout activity ramps up in India Revenue

• Huawei blew past its guidance of $26.2 billion for 2010, attaining $28 billion in revenue, up 28.3% from 2009.

• Given that Huawei historically issues guidance that is in line with actual figures, this outperformance speaks to the underlying strength of the service provider industry.

Expense

• TBR believes Huawei spent $2.8 billion on R&D in 2010, matching the company’s historical target spend of 10% of total revenue.

• SG&A grew an estimated 43.4% year-to-year as Huawei beefed up advertising and sales departments to meet strong demand in developing regions.

Margin

• Gross margin rose 40 basis points from 2009 to 40% as sales mix skewed more toward higher-margin software, services and next-generation hardware.

• Operating margin fell 230 basis points year-to-year to 11.9%, as Huawei boosted spending on R&D and SG&A to fund innovation in areas such as TD-LTE and applications as well as better align its sales department with market demand.

Financial Model Strategy

10%

20%

30%

40%

50%

60%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2006 2007 2008 2009 2010 Est.

In M

illio

ns

USD

HUAWEI PROFITABILITY AND GROWTH

Total Revenue Gross Profit

Operating Profit Year-to-Year Revenue Growth


TBR

36.2% 38.2% 39.7% 39.6%40.0%

7.3% 9.7%12.9% 14.1%

11.9%

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 Est.

GROSS MARGIN & OPERATING MARGIN

GROSS MARGIN OPERATING MARGIN


TBR

TBR


TBR believes Huawei saw strong growth in all of its operating segments in 2010

Revenue Performance Revenue Drivers 2010 Est. Revenue: $28 billion, +28.3% Y/Y

• Revenue grew across Huawei’s portfolio, reflecting strong operators demand for infrastructure, services and software.

• Growth returned to the terminal division in 2010, aided by a push into higher-value devices such as smartphones.

2011 Revenue and Growth Outlook

• 2011 is shaping up to be a good year for Huawei and its rivals. Growth is broad-based, and demand is being fueled by exponential rises in data traffic globally.

• India will be a key driver of infrastructure revenue in 2011, but will pressure overall margins.

• Device sales growth will accelerate in 2011 as the distribution of low-cost Android smartphones and tablets expand to reach the mass market in developed markets.


$21,821

$2,172

$423$656

$873

$1,256$800

$28,000

$21,000

$22,000

$23,000

$24,000

$25,000

$26,000

$27,000

$28,000

Rev

enu

e (i

n $

Mill

ion

s)

HUAWEI 2010 SEGMENT REVENUE GROWTH TBR


TBR

TBR

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

$1,446 $1,527

$1,950

$2,190 $3,176

$5,094

$5,750

$1,200

$1,265

$1,527

$2,400

$1,965

$2,792

$3,644

$4,900

$2,106

$3,790

$3,700

$4,500

$0

$4,000

$8,000

$12,000

$16,000

$20,000

$24,000

$28,000

2007 2008 2009 2010 Est.

Rev

enu

e in

Mill

ion

s

HUAWEI REVENUE BY SEGMENT

Handset

Service &SoftwareData

Optical

Fixed

Wireless


TBR

TBR


Huawei is investing heavily in sales and support staff and intellectual property to diversify and grow into other areas, such as software

Expense Performance Expense Segments & Strategies

2010 Est. Total OPEX: $24.6 billion, +31.7% Y/Y

Cost of Revenue

$16.8 billion

Cost of revenue grew 27.4% from 2009, slower than revenue, as mix shifted toward higher-margin products and services.

SG&A

$5 billion

Huawei is hiring aggressively in key growth markets, particularly India, Europe and the Middle East, to align its sales and support departments with the influx of business.

R&D

$2.8 billion

Huawei is investing heavily in TD-LTE (the version of LTE that will likely be rolled out by the big three Chinese operators) as well as applications, an area in which Huawei has historically had minimal involvement.


0%

10%

20%

30%

40%

50%

60%

70%

2006 2007 2008 2009 2010 Est.

HUAWEI OPEX AS A PERCENTAGE OF REVENUE

Cost of Revenue SG&A Research & Development

TBR


TBR TBR

TBR

$5,424 $7,937

$10,890 $13,188 $16,800

$1,502

$2,350

$3,236 $3,538

$5,000

$850

$1,284

$1,511 $1,953

$2,800

$0

$5,000

$10,000

$15,000

$20,000

$25,000

2006 2007 2008 2009 2010 Est.

In $

Mill

ion

s

HUAWEI OPERATING EXPENSES

Research & Development SG&A Cost of Revenue


TBR

TBR

TBR


Huawei is innovating in all major segments, hoping to become a one-stop shop for all the needs of service providers and their end-users Telecom Network Infrastructure Application & Software

Huawei launched the “Any Connection” Mobile Broadband Solution (MBB), which helps operators using HSPA seamlessly migrate to LTE. Many operators worldwide are upgrading their HSPA networks to HSPA+ to deliver higher speeds while waiting for the LTE ecosystem to mature. The MBB solution gives operators an opportunity to prepare for an eventual move to LTE while adding capacity to their network.

In its push to become an integral player in the applications space, Huawei launched its Digital Shopping Mall (DSM) in October. The Mall is a platform that aggregates and delivers apps to any Internet device. On launch, the store contained 80,000 apps ranging from music to e-books to video. App revenue is split 70:30, with 70% going to the developers and 30% to the operator supporting the mobile device. Alcatel-Lucent has similar offerings in this space and Huawei’s entrance poses a sizable threat, especially as it is compatible with all major smartphone operating systems, including Symbian, RIM and Android.

Professional Services Devices

• iCare is a professional services solution that assists service providers in the planning, evaluation and optimization of IP, optical, microwave and FTTx networks. This packaged offering shows Huawei is determined to become more involved in services.

• Huawei has become a major player in managed services in India, challenging Alcatel-Lucent for the No. 3 spot in provider by revenue; however, Huawei will not pose a major threat to Ericsson and NSN, as Indian operators tend to award their equipment suppliers with managed services contracts rather than seek outside providers.

• Android is central to Huawei’s smartphone and tablet strategy. Using Google’s open source OS rather than a homegrown OS helps Huawei save money on software and deliver more value on the hardware portion of the device.

• Huawei launched its IDEOS series in September 2010. Priced between $100-$200 unsubsidized and free from some carriers subsidized, these smartphones are affordable and appeal to a large demographic in not only the U.S. and Europe, but also in emerging markets, where smartphones are in high demand but most models are too expensive for the general population.

• Huawei reported 1 million IDEOS series smartphones sold in the first two months of launch and that IDEOS devices are available in over 70 countries.

Go-to-Market & Product Strategies

TBR


Canada will act as a launchpad for Huawei’s North American ambitions

Alliance & Acquisition Strategies

TBR Assessment of Huawei’s Alliance & Acquisition Strategy

Huawei makes several moves in Canada and will retrench for another push into the United States

• Huawei is making major investments in North America as it tries to break into the United States market. With the U.S. government blocking Huawei’s every move stateside, the vendor is investing heavily in Canada to prove it has no ill intentions. So far, the Canadian government has been supportive of Huawei’s North American activities.

• In November, Huawei announced it would devote $67 million over five years to the expansion of its main North American R&D center in Ottawa. In stark contrast to the U.S. government, the province of Ontario is providing Huawei with a $6.5 million grant to put toward the expansion.

• To further increase its Canadian presence, Huawei partnered with two of Canada’s largest telecommunications companies, Telus and Bell Canada. In separate deals, Huawei and the telecoms agreed to establish joint innovation centers in Canada. Huawei has had a strong relationship with both operators since they gave the company its first major North American infrastructure deals in 2008.

• Huawei has clearly set itself up for a long-term push into North America. In January, Huawei opened its new Canadian headquarters outside of Toronto, moving its sales and marketing groups into the building and stressing a new focus on cloud computing. Cloud computing is poised to become the major initiative behind Huawei’s North American strategy.

• What the combination of these moves will do to quell the U.S. government’s concerns is unclear. In the short term, there are no indications of decreased hostility on the part of the government, with officials forcing Huawei to divest the May 2010 3Leaf acquisition in March.

• Huawei will likely not be allowed to make significant acquisitions or win large infrastructure supply agreements in the United States this year, but establishing a foundation in Canada should prove worthwhile. With its ties to the Chinese military and limited history on the continent, government officials have rebuffed Huawei’s advances. As Huawei builds its reputation in Canada and among small service providers in the United States, the U.S. government may soften its negative view of the company.

TBR


Huawei’s focus on international expansion cost it some ground in China, as Alcatel-Lucent, Ericsson and Nokia Siemens all locked up large deals

Geographic Analysis


Geo Key Deals & Drivers 2010

Revenue Estimate

Growth Y/Y

Trends to Monitor

China

• In November, Huawei was selected to upgrade China Mobile’s 10G backbone network to 40G.

• Surprisingly, Huawei was sidelined in its home market in 2010 while Alcatel-Lucent, Ericsson and Nokia Siemens all landed lucrative frame agreements and services contracts with leading operators China Mobile, China Unicom and China Telecom.

• Poor performance in China suggests Huawei was overly focused on growing its share of the international pie rather than maintaining its market share in China.

$9.8 billion

–3.4%

• TBR estimates absolute capex spend by incumbent Chinese telcos will continue to decline through 2012 as spending shifts from network buildouts to less capital-intensive services and software upgrades.

• Chinese telcos will trial TD-LTE in 2011, but commercial deployments are not expected for at least another year.

APAC (ex-

China)

• Deals inked in September with Bharti Airtel, MTS and Tata began to ramp up in 4Q10, but will not become a major contributor to revenue until 2011.

• APAC growth was fueled by deals with operators in Cambodia, Malaysia and Bangladesh.

$6 billion

56.5%

India sales bottomed out in 2010. TBR expects India to be a key contributor to Huawei’s top-line growth in 2011 as 3G networks are deployed across the country.

FISCAL YEAR 2004 2005 2006 2007 2008 2009 2010 Est.

China 73.0% 60.0% 34.7% 28.0% 25.0% 46.5% 35.0%

International 27.0% 40.0% 65.3% 72.0% 75.0% 53.5% 65.0%


HUAWEI GEOGRAPHIC REVENUE TBR

TBR


Some European operators are becoming comfortable using Huawei as an exclusive provider of all their network needs, rather than just portions Quarterly Segment Performance

Geo Key Deals & Drivers 2010

Revenue Estimate

Growth Y/Y

Trends to Monitor

North America

• Canada is the driver of North American revenue, while deal flow in the United States remains weak due to government roadblocks.

• Huawei still managed to win several deals in the U.S. in 2010 with Tier 2 & 3 service providers; its terminals are increasingly offered by the top six wireless operators.

$454 million

11.3%

• Huawei’s opportunities with U.S. Tier 1 operators will likely be limited to handsets due to regulatory barriers, but the vendor’s prospects for Tier 2 and cable operator contracts are bright.

• TBR also expects Huawei’s presence in the smartphone and tablet markets to pick up after the company’s release of a series of low-cost Android devices.

EMEA

• Huawei landed three end-to-end 4G contracts in 4Q10 with operators across Europe, including T-Mobile in Austria, Datame Oy in Finland and Aero2 in Poland.

• These 4G deals show operators are becoming more comfortable with Huawei and entrusting the vendor with all aspects of deployment, rather than just bits and pieces.

$9.9 billion

52.5%

• MEA will be challenged as uprisings across the region cause some operators to rein in capex spending.

• This revelation will hamper plans by Huawei, Ericsson and Alcatel-Lucent to increase involvement in the Middle East, which holds much promise for both network upgrades and greenfield deployments on the service provider and enterprise space.

CALA Huawei is well-positioned in CALA and has a strategic advantage thanks to its credit lines from Chinese banks.

$1.8 billion

97.1%

Operators in Latin America are aggressively bulking up capacity on their fixed and mobile networks to prepare for increased broadband usage.

Geographic Analysis

TBR


Huawei is expanding its international presence to support existing operations and capitalize on future opportunities

Resource Management Strategy

Investments/R&D Focus • Huawei’s failure to keep 3Leaf assets upon U.S.

government review reflects the company’s ongoing struggle to expand its presence in the United States. Huawei had purchased 3Leaf in May 2010 for $2 million, including the firm’s virtualization and server patents.

• Failure to win part of a Sprint supply contract led Huawei to scale back its partnership with Amerilink. Both companies continue to work together on joint sales opportunities in the United States, but the secure delivery program has been dissolved.

Huawei’s Worldwide Operations

• Huawei opened its Canadian HQ in Markham, Ontario in January and plans to spend $67 million on R&D in the country over the next five years. Of Huawei’s estimated 1,500 employees in North America, 500 are based in Canada.

• Huawei will gain leverage in the United States by becoming a strong player in the neighboring Canadian telecom equipment market. The vendor’s strategy is to use channel partners and reference contracts to penetrate new customer accounts.

Personnel Changes • Huawei ended 2010 with 110,000 employees, up

15,000, or 15.8%, year-to-year.

• Chinese headcount fell 13% in 2010 to 59,000 due to the relocation of employees to Europe and other countries across APAC, particularly India.

• Huawei hired former CTO of Nortel John Roese to lead its North American R&D team. Roese has worked for several well-known U.S. tech firms and is expected to help Huawei improve its image among regulators in North America.

$171

$139

$159

$207

$230

$100

$125

$150

$175

$200

$225

$250

2005 2006 2007 2008 2009

Rev

enu

e In

Th

ou

san

ds

ANNUAL REVENUE PER EMPLOYEE

SOURCE: TBR AND HUAWEI

TBR

TBR


India will be a key driver of revenue growth in 2011 for most vendors as 3G is deployed, but margins will be pressured due to weak pricing TBR Outlook

Industry

• Operators will have to adjust their business models to match the shift from a voice-centric environment to a data-centric environment. Tiered data plans will become commonplace to better monetize bandwidth, while investment in RAN modernization, backhaul, IP, HSPA+ and LTE will gain momentum as operators seek to scale capacity at a lower cost per bit and improve speeds.

• Though component shortages are easing, access to parts continues to be a headache for not only network vendors, but also handset and other device manufacturers. This challenge has created sizable backlogs for equipment suppliers and will need to be filled in 2011. Component supplies could tighten further following the disaster in Japan as the country is a major manufacturer and exporter of many critical electronic parts that go into a wide array of network infrastructure equipment and end-user electronic devices.

• India will be a key revenue driver in 2011, as all operators with 3G licenses had awarded rollout contracts by the end of 2010, but the weak pricing environment will pressure gross margins.

Competitors

Ericsson’s purchase of Nortel’s wireless assets and Nokia Siemens’ buyout of Motorola’s wireless business have solidified both vendors’ stakes in North America. TBR believes the altered competitive landscape in North America will make it more difficult for marginalized players like Huawei to win business.

Company Strategy

• Huawei will build a good reputation in Canada by working closely with operators, employing locally, and investing in its new R&D center in Ottawa. The hope is that good relations with the Canadian people will help assuage government fears about Huawei selling its products in the United States.

• Huawei is bulking up its services and applications businesses to better compete with its Western rivals and drive margin growth.

Future Outlook

TBR


Huawei will likely grow faster than its industry in 2011 as its strategy to grow market share and enter higher-margin areas continues to bear fruit

TBR Outlook

Financial

• Revenue will grow faster than the network infrastructure industry, as Huawei continues to win contracts and take market share in developed markets like Western Europe and Canada.

• Gross margin will be pressured as 3G rollout activity in India ramps up, but better mix in developed markets should offset most of this decline.

• SG&A will trend higher as a percentage of revenue as Huawei builds out its sales and support staff in developed markets.

Go-to-Market

• Huawei will push its SingleRAN platform as a cost- and energy-efficient solution that can help operators more easily converge their 2G, 3G and, increasingly, 4G network assets.

• Huawei will fine-tune its TD-LTE solution and bring it to market in 2011 just in time for Chinese operators to begin trials.

• Huawei will focus on winning small portions of contracts with new customers to establish relationships and position the company for a greater share of future contracts.

Resource Management

• Huawei will focus on building out manufacturing, R&D and support facilities in India to address Indian concerns and take advantage of the country’s relatively low labor costs.

• Huawei will also beef up R&D facilities and sales & marketing staff in North America as the company prepares for rapid expansion in Canada and the United States.

• Localization will remain integral to Huawei’s strategy of tapping new talent pools and rapidly expanding its international operations.

Future Outlook

TBR


Appendix – Income Statement HUAWEI TECHNOLOGIES CORPORATION

Consolidated Income Statement

(in $ Thousands)

CALENDAR YEAR 2004 2005 2006 2007 2008 2009 2010 Est.

FISCAL YEAR 2004 2005 2006 2007 2008 2009 2010 Est.Revenue 3,826,687$ 5,981,542$ 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 28,000,000$

Cost of Sales 1,918,549 3,559,366 5,424,011 7,936,732 10,890,002 13,188,406 16,800,000

Gross Profit 1,908,138 2,422,176 3,079,886 4,903,381 7,180,916 8,632,557 11,200,000

R&D 487,000 588,000 850,390 1,284,011 1,510,853 1,952,862 2,800,000

SG&A 741,305 1,013,656 1,502,472 2,349,741 3,235,871 3,538,135 5,000,000

Total Operating Expenses 1,228,305 1,601,656 2,352,862 3,577,867 4,746,724 5,490,997 7,800,000

Other Operating Income/Loss 17,001 30,091 106,029 77,655 96,692 59,728 78,025

Operating Income 696,834 850,611 620,995 1,247,859 2,337,499 3,081,833 3,321,975

Net financing costs 1,605 38,369 38,918 198,881 955,810 (183,721) 323,657

Share of losses of associates 16,799 12,552 15,025 7,273 27,853 23,862 25,000

Income before income taxes 678,430 799,690 567,052 1,041,705 1,353,836 3,241,692 2,973,318

Income taxes expense 45,103 115,788 54,664 84,807 221,238 566,535 535,197

Minority Interest 9,274 3,079 200 - (1,010) 3,074 3,000

Net Income 624,053$ 680,823$ 512,188$ 956,898$ 1,133,608$ 2,672,083$ 2,435,121$

PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Revenues 50.1% 59.5% 63.8% 61.8% 60.3% 60.4% 60.0%

Gross Profit 49.9% 40.5% 36.2% 38.2% 39.7% 39.6% 40.0%

R&D 12.7% 9.8% 10.0% 10.0% 8.4% 8.9% 10.0%

SG&A 19.4% 16.9% 17.7% 18.3% 17.9% 16.2% 17.9%

Operating Income 18.2% 14.2% 7.3% 9.7% 12.9% 14.1% 11.9%

Net Income 16.3% 11.4% 6.0% 7.5% 6.3% 12.2% 8.7%

YEAR-TO-YEAR CHANGERevenue N/A 56.3% 42.2% 51.0% 40.7% 19.0% 28.3%

Cost of Revenues N/A 85.5% 52.4% 46.3% 37.2% 19.4% 27.4%

Gross Profit N/A 26.9% 27.2% 59.2% 46.4% 18.5% 29.7%

R&D N/A 20.7% 44.6% 51.0% 17.7% 27.4% 43.4%

SG&A N/A 36.7% 48.2% 56.4% 37.7% 7.8% 41.3%

Operating Income N/A 22.1% -27.0% 100.9% 87.3% 30.0% 7.8%

Net Income N/A 9.1% -24.8% 86.8% 18.5% 132.4% -8.9%


NOTE: Huawei reports annual results only

TBR

TBR


Appendix – Balance Sheet HUAWEI NETWORKS

Consolidated Balance Sheet

(in $ Thousands)

CALENDAR YEAR 2005 2006 2007 2008 2009

FISCAL YEAR 2005 2006 2007 2008 2009ASSETS

Cash and cash equivalents 883,029$ 1,056,042$ 1,892,266$ 3,033,106$ 4,279,315$

Trade and other receivables 2,322,711 3,650,086 5,488,077 7,627,720 9,263,944

Investments - 64 - - -

Inventories 1,214,842 1,420,455 2,267,276 3,325,636 3,652,028

Deferred tax assets 109,514 181,529 - 540,033 753,477

Total Current Assets 4,530,096 6,308,176 9,647,619 14,526,497 17,948,763

Plant and Equipment, Net 894,142 939,784 931,721 1,051,348 1,217,538

Intangible Assets 13,862 10,937 15,038 18,328 80,954

Other Assets 315,552 237,286 502,556 1,467,846 1,196,750

Total Assets 5,753,652$ 7,496,183$ 11,096,934$ 17,064,019$ 20,444,005$

LIABILITIES AND EQUITYInterest-bearing loans and borrowings 288,170$ 332,883$ 158,628$ 1,873,665$ 1,154,589$

Income tax payable 150,197 163,312 94,513 195,549 541,063

Trade and other payables 2,582,120 4,183,046 6,029,505 8,735,208 10,249,305

Provision for warranties 39,887 80,122 151,201 183,860 172,010

Total Current Liabilities 3,060,374 4,759,363 6,433,847 10,988,281 12,116,967

Interest-bearing loans and borrowings 253,173 39,790 215,280 148,069 1,242,863

Other payables 23,412 25,894 336,417 522,427 743,083

Total Liabilities 3,336,959 4,825,047 6,985,544 11,658,777 14,102,913

Minority Interest in Subsidiary Companies 4,912 4,286 127,539 4,762 9,223

Total Capital and Reserves 2,411,781 2,666,850 3,983,851 5,400,479 6,331,869

Total Liabilities and Equity 5,753,652$ 7,496,183$ 11,096,934$ 17,064,019$ 20,444,005$

FINANCIAL RATIOSDays Sales Outstanding 154.96 156.67 156.01 154.07 154.96

Turns on Inventory 2.93 4.12 6.96 6.46 6.25

Days Inventory Outstanding 124.58 88.67 52.41 56.48 58.36

Fixed Asset Turnover 6.69 9.27 13.72 18.23 19.23

Days Cash Outstanding 53.15 44.71 53.05 60.42 70.60

Total Asset Turnover 4.16 1.28 1.38 1.28 1.16

Debt/Asset Ratio 0.58 0.64 0.63 0.68 0.69

Current Ratio 1.48 1.33 1.50 1.32 1.48

Return on Assets 11.8% 7.7% 10.3% 8.1% 14.2%

Return on Equity 28.2% 20.2% 28.8% 24.2% 45.6%

Average Annual Revenue per Employee 170,901$ 139,408$ 158,520$ 206,520$ 229,694$

Employee Count 35,000 61,000 81,000 87,502 95,000

CNY/USD Exchange Rate 6.9292 6.831


NOTE: Huawei only reports Balance Sheet annually

TBR

TBR


Appendix – Revenue Model

CALENDAR YEAR 2005 2006 2007 2008 2009 2010 Est.

FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est.

IN $ THOUSANDS

Reported Revenue 5,981,542$ 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 28,000,000$

Wireless 2,036,287$ 2,636,208$ 3,980,435$ 5,601,984$ 6,328,079$ 8,500,000$

Fixed 1,092,800$ 1,165,034$ 1,399,572$ 1,445,673$ 1,527,467$ 1,950,000$

Optical 984,242$ 1,360,624$ 2,189,790$ 3,175,937$ 5,093,848$ 5,750,000$

Data 605,126$ 807,870$ 1,200,000$ 1,264,964$ 1,527,467$ 2,400,000$

Service & Software 687,511$ 901,413$ 1,964,537$ 2,791,957$ 3,644,101$ 4,900,000$

Handset 510,348$ 1,003,460$ 2,105,779$ 3,790,401$ 3,700,000$ 4,500,000$

PERCENTAGE OF REVENUE

Reported Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Wireless 34.0% 31.0% 31.0% 31.0% 29.0% 30.4%

Fixed 18.3% 13.7% 10.9% 8.0% 7.0% 7.0%

Optical 16.5% 16.0% 17.1% 17.6% 23.3% 20.5%

Data 10.1% 9.5% 9.3% 7.0% 7.0% 8.6%

Service & Software 11.5% 10.6% 15.3% 15.5% 16.7% 17.5%

Handset 8.5% 11.8% 16.4% 21.0% 17.0% 16.1%

YEAR-TO-YEAR CHANGE

Reported Revenue 56.3% 42.2% 51.0% 40.7% 20.8% 28.3%

Wireless N/A 29.5% 51.0% 40.7% 13.0% 34.3%

Fixed N/A 6.6% 20.1% 3.3% 5.7% 27.7%

Optical N/A 38.2% 60.9% 45.0% 60.4% 12.9%

Data N/A 33.5% 48.5% 5.4% 20.8% 57.1%

Service & Software N/A 31.1% 117.9% 42.1% 30.5% 34.5%

Handset N/A 96.6% 109.9% 80.0% -2.4% 21.6%


NOTE: Huawei reports annual results only

HUAWEI REVENUE MODEL TBR

TBR


Appendix – Geographic Model

CALENDAR YEAR 2006 2007 2008 2009 2010 Est.

FISCAL YEAR 2006 2007 2008 2009 2010 Est.

IN $ THOUSANDS

China

Sales 2,950,852$ 3,595,232$ 4,517,729$ 10,146,748$ 9,800,000$

Orders 3,850,000$ 4,853,563$ 6,356,168$ 10,042,746$ 11,500,000$

International

Sales 5,553,045$ 9,244,881$ 13,553,188$ 11,674,215$ 18,200,000$

Asia Pacific (excl. China) 2,740,511$ 3,799,383$ 5,743,188$ 3,842,815$ 6,014,000$

India 186,000$ 600,000$ 1,300,000$ 1,560,000$ 1,708,000$

CALA 450,000$ 900,000$ 1,539,000$ 923,400$ 1,820,000$

EMEA 2,270,000$ 4,399,296$ 6,040,000$ 6,500,000$ 9,912,000$

Europe 770,000$ 2,099,296$ 2,981,000$ 3,000,000$ 4,900,000$

MEA 1,500,000$ 2,300,000$ 3,059,000$ 3,500,000$ 5,012,000$

North America 92,533$ 146,203$ 231,000$ 408,000$ 454,000$

International Orders 7,150,000$ 11,146,437$ 16,943,832$ 20,115,650$ 24,500,000$

Asia Pacific (excl. China) 2,000,000$ 2,500,000$ 4,650,000$ 6,649,500$ 7,500,000$

India 350,000$ 700,000$ 2,000,000$ 2,400,000$ 4,500,000$

CALA 566,500$ 750,000$ 1,250,000$ 1,562,500$ 2,000,000$

EMEA 4,479,000$ 7,354,316$ 10,064,091$ 10,404,646$ 13,000,000$

North America 104,500$ 542,121$ 979,741$ 1,499,004$ 2,000,000$

Total Revenue 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 28,000,000$

Total Orders 11,000,000$ 16,000,000$ 23,300,000$ 30,158,396$ 36,000,000$

HUAWEI REVENUE BY GEOGRAPHIC REGION TBR

CALENDAR YEAR 2006 2007 2008 2009 2010 Est.

FISCAL YEAR 2006 2007 2008 2009 2010 Est.


China 34.7% 28.0% 25.0% 46.5% 35.0%

International 65.3% 72.0% 75.0% 53.5% 65.0%

Asia Pacific (excl. China) 32.2% 29.6% 31.8% 17.6% 21.5%

India 2.2% 4.7% 7.2% 7.1% 6.1%

CALA 5.3% 7.0% 8.5% 4.2% 6.5%

EMEA 26.7% 34.3% 33.4% 29.8% 35.4%

Europe 9.1% 16.3% 16.5% 13.7% 17.5%

MEA 17.6% 17.9% 16.9% 16.0% 17.9%

North America 1.1% 1.1% 1.3% 1.9% 1.6%

YEAR-TO-YEAR GROWTH (REVENUE)

China -17.8% 21.8% 25.7% 124.6% -3.4%

International 132.1% 66.5% 46.6% -13.9% 55.9%

Asia Pacific (excl. China) NA 38.6% 51.2% -33.1% 56.5%

India 86.0% 222.6% 116.7% 20.0% 9.5%

CALA NA 100.0% 71.0% -40.0% 97.1%

EMEA NA 93.8% 37.3% 7.6% 52.5%

Europe NA 172.6% 42.0% 0.6% 63.3%

MEA NA 53.3% 33.0% 14.4% 43.2%

North America 2993.7% 58.0% 58.0% 76.6% 11.3%

Total Revenue 42.2% 51.0% 40.7% 20.8% 28.3%

PERCENTAGE OF ORDERS

China 35.0% 30.3% 27.3% 33.3% 31.9%

International 65.0% 69.7% 72.7% 66.7% 68.1%

YEAR-TO-YEAR GROWTH (ORDERS)

China 10.3% 26.1% 31.0% 58.0% 14.5%

International 51.7% 55.9% 52.0% 18.7% 21.8%

Total Orders 34.1% 45.5% 45.6% 29.4% 19.4%


NOTE: Huawei only reports annual financial results

TBR


Appendix – OPEX Model


FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est.

IN $ THOUSANDS

Total Revenue 5,981,542$ 8,503,897$ 12,560,356$ 18,328,956$ 21,500,000$ 28,000,000$

SG&A Expense 1,013,656$ 1,502,472$ 2,349,741$ 3,235,871$ 3,538,135$ 5,000,000$

Sales & Marketing Expense 608,194$ 901,483$ 1,409,844$ 1,941,523$ 2,122,881$ 3,000,000$

General and Administrative Expense 405,462$ 600,989$ 939,896$ 1,294,349$ 1,415,254$ 2,000,000$

R&D Expense 588,000$ 850,390$ 1,284,011$ 1,510,853$ 1,952,862$ 2,800,000$

SALES AND MARKETING EXPENSE BREAKOUT

Sales Expense 364,916$ 540,890$ 845,907$ 1,164,914$ 1,273,729$ 1,800,000$

Partner and Channel Spending 91,229$ 135,223$ 211,477$ 291,228$ 318,432$ 450,000$

Marketing Spending 152,048$ 225,371$ 352,461$ 485,381$ 530,720$ 750,000$

Advertising 91,229$ 135,223$ 211,477$ 291,228$ 318,432$ 450,000$

Total Sales and Marketing Expense 608,194$ 901,483$ 1,409,844$ 1,941,523$ 2,122,881$ 3,000,000$

Total SG&A Expense 16.9% 17.7% 18.7% 17.7% 16.5% 17.9%

Sales and Marketing Expense 10.2% 10.6% 11.2% 10.6% 9.9% 10.7%

Sales Expense 6.1% 6.4% 6.7% 6.4% 5.9% 6.4%

Partner and Channel Spending 1.5% 1.6% 1.7% 1.6% 1.5% 1.6%

Marketing Spending 2.5% 2.7% 2.8% 2.6% 2.5% 2.7%

Advertising 1.5% 1.6% 1.7% 1.6% 1.5% 1.6%

General and Administrative 6.8% 7.1% 7.5% 7.1% 6.6% 7.1%

CORPORATEWIDE HEADCOUNT

R&D 16,800 29,280 34,830 37,626 40,850 50,600

Marketing, Sales and Customer Service 13,300 23,180 32,400 35,001 38,000 44,000

Supply Chain 2,800 4,880 8,100 8,750 9,500 11,000

Admin. 2,100 3,660 5,670 6,125 6,650 4,400

Total Employees 35,000 61,000 81,000 87,502 95,000 110,000



HUAWEI OPERATING EXPENSE MODEL TBR

TBR


Appendix – Forecast Model


FISCAL YEAR 2005 2006 2007 2008 2009 2010 Est.

IN $ THOUSANDS

Net Sales 5,981,542$ 8,503,897$ 12,840,113$ 18,070,917$ 21,820,963$ 28,000,000$

Gross Profit 2,422,176$ 3,079,886$ 4,903,381$ 7,180,916$ 8,632,557$ 11,200,000$

SG&A 1,013,656$ 1,502,472$ 2,349,741$ 3,235,871$ 3,538,135$ 5,000,000$

R&D 588,000$ 850,390$ 1,284,011$ 1,510,853$ 1,952,862$ 2,800,000$

Operating Income 850,611$ 620,995$ 1,247,859$ 2,337,499$ 3,081,833$ 3,321,975$

Net Income 680,823$ 512,188$ 956,898$ 1,133,608$ 2,672,083$ 2,435,121$


Gross Margin 40.5% 36.2% 38.2% 39.7% 39.6% 40.0%

SG&A 16.9% 17.7% 18.3% 17.9% 16.2% 17.9%

R&D 9.8% 10.0% 10.0% 8.4% 8.9% 10.0%

Operating Margin 14.2% 7.3% 9.7% 12.9% 14.1% 11.9%

Net Margin 11.4% 6.0% 7.5% 6.3% 12.2% 8.7%

YEAR-TO-YEAR GROWTH

Net Sales N/A 42.2% 51.0% 40.7% 20.8% 28.3%

Gross Profit N/A 27.2% 59.2% 46.4% 20.2% 29.7%

SG&A N/A 48.2% 56.4% 37.7% 9.3% 41.3%

R&D N/A 44.6% 51.0% 17.7% 29.3% 43.4%

Operating Income N/A -27.0% 100.9% 87.3% 31.8% 7.8%

Net Income N/A -24.8% 86.8% 18.5% 135.7% -8.9%



HUAWEI FINANCIALS AND TBR QUARTERLY PROJECTION TBR

TBR


Financial Graphs Appendix – Financial Graphs

42.2%

51.0%

40.7%

19.0%

28.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2006 2007 2008 2009 2010 Est.

REVENUE GROWTH YEAR-TO-YEAR


TBR

0%

10%

20%

30%

40%

2006 2007 2008 2009 2010 Est.

HUAWEI REVENUE COMPOSITION

Wireless FixedOptical DataServices & Software Handset


TBR

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 Est.

HUAWEI PERCENTAGE OF REVENUE BY REGION

China APAC (excluding China)

CALA EMEA

North America


TBR

TBR

36.2% 38.2% 39.7% 39.6%40.0%

7.3% 9.7%12.9% 14.1% 11.9%

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 Est.

GROSS MARGIN & OPERATING MARGIN

GROSS MARGIN OPERATING MARGIN


TBR

TBR



11.8%

7.7%

10.3%

8.1%

14.2%

0%

4%

8%

12%

16%

2005 2006 2007 2008 2009

RETURN ON ASSETS TBR


28.2%

20.2%

28.8%

24.2%

45.6%

15%

25%

35%

45%

2005 2006 2007 2008 2009

RETURN ON EQUITY TBR


8.0%

8.5%

9.0%

9.5%

10.0%

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2006 2007 2008 2009 2010 Est.

In M

illio

ns

RESEARCH & DEVELOPMENT EXPENSE

R&D R&D as % of Total Revenue


TBR

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2006 2007 2008 2009 2010 Est.

In M

illio

ns

SELLING, GENERAL, & ADMINISTRATIVE EXPENSE

SG&A SG&A as % of Total Revenue


TBR

TBR



53.15

44.7153.05

60.42

70.60

0.00

15.00

30.00

45.00

60.00

75.00

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Go-to-Market and Resource Management Graphs Appendix – Go-to-Market and Resource Management Graphs

154.96 156.67 156.01 154.07 154.96

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Huawei Acquisitions

Company Description

M4S October 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 Alliances Company Scope of Partnership

Intertrust Technologies March 2011

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

Force10 Networks February 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 DSP February 2011

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

Carrier IQ February 2011

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

Smartworld January 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 Telecom January 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 Communications October 2010

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

Appendix – Alliances

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Huawei Alliances (continued) Company Scope of Partnership

Amerilink Telecom August 2010

Huawei partnered with Amerilink Telecom, a startup run by former Sprint employees, to help the vendor penetrate further into the North American market. Amerilink has also 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.

IPWireless July 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.

PerSay April 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.

Opera Software February 2010

Huawei and Opera entered a partnership whereby Huawei will preinstall the Opera Mobile 10 browser on various models of its mobile phones. Opera’s cross-platform user interface software allows operators and device manufacturers to install a mobile browser across a variety of devices.

German Telecom T-Mobile January 2010

Huawei, German Telecom and T-Mobile signed a Memorandum of Understanding to identify, develop and test M2M solutions. The partners will acquire pilot customers to test M2M products and services, as well as build out distribution and business models around M2M.

Tianjin Jinke Electronics System January 2010

Huawei and Tianjin Jinke will develop and bring to market e-publishing solutions for telecom carriers. Tianjin Jinke will build terminals for its e-readers, while Huawei will provide back-office software to manage copyrights, billing, publishing and customs. The first e-reader will be launched with China Mobile in early 2010.

Appendix – Alliances

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Huawei Recent Product Announcements Product Series Configuration

AR G3 Enterprise Access Router March 2011

Configured with third-generation router architecture to support mobile and fixed WAN access as well as multi-service processing. Uses multi-core 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 980 February 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.

iCare February 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.

E398 December 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 SingleRAN November 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.

Intelligent 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.

Appendix – Recent Product Announcements

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Huawei Recent Product Announcements (continued) Product Series Configuration

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 multi-service gateway for security and routing.

SuperMIMO September 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 ODN June 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 T16 June 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 Product Announcements (continued) Product Series Configuration

iManager U2000-TeMIp SNMP-based solution March 2010

• Pre-integration solution for network fault management developed with HP

• iManager U2000 provides end-to-end visualized management, accurate error locating and enhanced O&M efficiency

• This solution decreases the Operation Support System integration period for operators

E398 Modem February 2010

• Triple-mode LTE modem compatible with LTE, UMTS and GSM

• Based on Qualcomm’s MDM9200TM chipset

• Allows users to switch between standards

iManager U2520 February 2010

• IP network assessment and optimization system that integrates IP control and IP forwarding planes

• Includes visualized IP service quality and visualized IP route functions

SingleRAN@Broad Solution February 2010

• Mobile broadband solution that handles increased mobile data traffic

• Decreases per-bit cost in sites, transport and operation & maintenance

CX600-X1/X2 Metro Services Platform February 2010

• 300 mm-depth IP platform with 20G/40Gbps capacity

• Enables IP intelligence on metro network edge and drive convergence and improves capability and flexibility

• Enhances the IPTime broadband metro solution

IPTime Mobile Backhaul Solution January 2010

• 1588v2-compliant DSL prototype addresses issues with GPS clock synchronization

• Time synchronization accuracy to nanosecond level

• DSL with microcell and LTE base stations leverage existing copper wire from legacy networks

• Backhaul option for operators building out 3G and or 4G networks


TBR


Huawei Recent Customer Deals

Company Scope of Deal

MTC Lebanon March 2011

Building end-to-end 3G network for MTC, including the provision of RAN and packet switching. Also providing range of professional services.

Vodafone Hutchison (VHA) Australia February 2011

Huawei 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

Etisalat United Arab Emirates February 2011

Deploying commercial LTE network across United Arab Emirates for Etisalat.

Cell C South Africa February 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 Holdings Brazil, Mexico February 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 Networks United States February 2011

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

2degrees New Zealand February 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.

Appendix – Customer Deals

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Huawei Recent Customer Deals (continued)


Telkom South Africa February 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.

WIND Canada January 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 Arabia January 2011

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

Libya Silphium Mediterranean Sea January 2011

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

Vodafone Ghana January 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.

TeliaSonera Norway January 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 a future upgrade to 84 Mbps.

Kyivstar Ukraine January 2011

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


TBR




T-Mobile Austria December 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.

Government Guyana December 2010

Guyana government 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 America December 2010

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

TTST Trinidad & Tobago December 2010

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

China Unicom China December 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 Wireless United States November 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.

Bite Latvia November 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.


TBR




CamGSM Cambodia November 2010

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

China Mobile China November 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 Oy Finland November 2010

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

Aero2 Poland November 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.

Movistar Peru November 2010

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

Grameenphone Bangladesh November 2010

Huawei 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.

MTN Nigeria October 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.


TBR




Telekom Brunei Berhad Brunei October 2010

Huawei 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.

MegaFon Russia October 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.

Vodafone Italy October 2010

Paying Huawei €1 billion (or $1.4 billion) to supply and deploy its HSPA+ SingleRAN solution to 12% of Italy’s population (about 1800 towns).

Lattelecom Latvia October 2010

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

du United Arab Emirates September 2010

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

Bharti Airtel India September 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 also 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.

MTS India September 2010

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


TBR




Safaricom Kenya September 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.

Mobyland Poland September 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 Teleservices India September 2010

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

Qtel Qatar August 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.

BT United Kingdom August 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 Berhad Malaysia August 2010

Huawei will build and manage an end-to-end turn-key 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, and will particularly target enterprise customers.

Vodafone United Kingdom August 2010

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


TBR


Huawei Recent Customer Deals (continued) Company Scope of Deal

Telefonica World August 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 India August 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.

PCCW Hong Kong August 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.

SingTel Singapore August 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 TieTong China August 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.

StarHub Singapore July 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.

Vodafone Germany July 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.


TBR


Huawei Recent Customer Deals (continued) Company Scope of Deal

ONO Spain July 2010

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

Wind Italy June 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 will also purchase core network equipment supporting SDH and VoIP and IMS infrastructure from Huawei to support its all-IP strategy.

Suddenlink Communications United States June 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 Spain June 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.

NET Brazil May 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.

HiBeam Internet & Voice United States May 2010

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

vividwireless Australia May 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 to build and Huawei will build out additional WiMAX networks for vividwireless in 2H10.


TBR




Saudi Telecom Company (STC) Saudi Arabia April 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.

SaskTel Canada March 2010

SaskTel is using Huawei’s SingleRAN solution to build out an HSPA+ network in Canada. Huawei’s solution allows smooth migration to LTE.

MobiTel Cambodia March 2010

MobiTel is paying Huawei $200 million to expand network coverage in Cambodia, and the deal consists of equipment and services.

Telefonica O2 Germany March 2010

Huawei will assume control of field service and maintenance of Telefonica O2’s mobile communications infrastructure in Germany once it completes the network expansion. At that time, 220 employees will be transferred to Huawei.

Telenor Denmark Denmark February 2010

As part of a contract signed with Telenor, Huawei will deploy a Mobile Backhaul Commercial Network in Denmark. In addition, Huawei will provide its Packet Transport Network mobile compliant backhaul solution. The network will comply with the new industry standard IEEE 1588v2 to enable an efficient LTE conversion.

China Unicom China February 2010

Huawei is expanding China Unicom’s China 169 backbone network by deploying its NE5000E cluster router system, which will provide four new backbone nodes in Chengdu, Xi’an, Chongqing and Wuhan.

MobileOne (M1) Singapore January 2010

Huawei will provide an ATCA platform-based IMS solution for M1, so the operator can offer VoIP, IPTV, Centrex and HD video conferencing to its subscribers in Singapore.


TBR




LPTIC Libya January 2010

Huawei Marine Network was contracted by the Libya Post Telecommunication and Information Company to lay 177 km of T-E submarine optical fiber cable, with 3.2 Tbit/s of capacity, connecting Tobruk and Emasaed in Libya.

China Telecom China January 2010

Huawei deployed two CDMA2000 1x EV-DO Rev. B networks in Beijing and Guangzhou for China Telecom. The 3G networks, which operate in the 2.1 GHz and 800 MHz dual-band frequencies, will allow China Telecom to offer its subscribers VoIP, VoD and streaming media.

GlobeNet Americas January 2010

GlobeNet will use Huawei’s OSN 6800 NG-DWDM OTN optical platform hardware to connect its cable landing station in New Jersey to points of presence in New York, Brazil, Venezuela, Bermuda and Florida. The platform supports 10 Gbps, 40 Gbps and 100 Gbps wavelengths. Huawei will also upgrade the software on GlobeNet’s existing iManager T2000 Network Management System.

UGL Limited Australia January 2010

Huawei will supply UGL Limited with a GSM-R solution that will cover 1,455 km of track and 70 km of rail tunnels across the Sydney metro network. UGL, a rail engineering firm, was awarded $225 million in December to design, install and manage a digital train radio system on RailCorp’s electric rail network.

Zain Nigeria January 2010

Huawei installed a blade mobile softswitch for Zain that will cover 8 million customers in Nigeria.

MTN Ghana January 2010

Huawei deployed a UMTS900 platform on MTN’s network in Ghana. The platform, which is based on Huawei’s 3900-Series Node B, operates in the 900 MHz frequency and will operate in conjunction with MTN’s GSM network.

Omantel Oman January 2010

Omantel will pay Huawei $26 million to expand coverage of its fixed line network in Oman.


TBR


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

Appendix – Facilities Table

TBR


Huawei’s Facilities (continued) Location Function

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

Shenzhen, China R&D Facility

Shanghai, China R&D Facility

Nanjing, China R&D Facility

Hangzhou, China R&D Facility

Chengdu, 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

Appendix – Facilities Table

TBR


Huawei Key Management Name Position

Ren Zhengfei Chief Executive Officer

Justin Chen Chief Operating Officer

Matt Bross Chief Technology Officer

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

Appendix – Management Table

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T 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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