HONG KONG (Reuters) – China’s Huawei Technologies is making an aggressive push into the consumer electronics space, marketing its new smartphones and tablet PCs in glitzy Beijing malls and even a Milan fashion show as it seeks to emerge from decades of obscurity.

Huawei is betting on Google Inc’s Android operating system for its smartphones, taking aim at grabbing market share from Apple’s iPhone and Samsung Electronics’ Galaxy in a move that is pushing the private company to open its once closed doors to the outside technology world.

After repeated requests, Huawei recently granted rare access to a research & development center in Shenzhen, putting on display its new approach and its entry into the consumer space.

The building is dotted with evidence of Huawei’s drive for innovation.

On one floor, the R&D team displayed an array of products still in the works — a 4G network card, a smartphone with a wireless charger and a snazzy smartphone with a see-through case.

Having built itself into the world’s No. 2 network equipment provider, with plans to nearly quadruple revenues to $100 billion in ten years, analysts are banking that Huawei is up to its newest consumer market challenge.

“I cannot predict if Huawei has the makings to be Asia’s next Samsung, but I would definitely not count it out,” said Matt Walker, principal analyst at research firm Ovum.

Huawei has surpassed the likes of Alcatel Lucent and Nokia Siemens Networks among gear makers. It now hopes to double its cell phone shipments to 60 million this year, including 15 million smartphones.

“We hope to become the world’s No. 3 in cell phone shipments and the world’s No. 5 in terms of revenues within five years,” Victor Xu, chief marketing officer of Huawei Devices, told Reuters as he played around with a Huawei IDEOS smartphone.

Under Huawei’s previous direction, consumers weren’t “able to see our brand on the things we make,” Xu added, occasionally slipping into his pocket to grab his personal phone – an iPhone – when it rang. “But now we’re changing our strategy.”

RARE PEEK AT R&D Center

The change in strategy was in evidence when Huawei allowed Reuters exclusive access to its R&D center in China’s southern boomtown of Shenzhen recently.

On the walls along the corridor are rows of paper with hand-drawn sketches of cell phone and tablet PC designs. Just around the corner is an unusual 3D printer that spews out plaster-like handset models for the R&D staff to have a look-and-feel of their designs.

Visitors and staff at the center are barred from carrying cameras and flash memory cards to ensure new designs are kept under wraps.

“I’ve noticed a lot of interesting innovations going on in Huawei,” said Hagen Fendler, chief design director of handsets, who moved from Germany last year to join Huawei after working for Siemens.

“Twenty years ago, virtually no one has heard of Korea’s LG Electronics in Europe, but now it’s a big brand. I think Huawei will be able to achieve the same in China,” said Fendler, one of many foreign R&D staff Huawei has hired globally to beef up its technology and designs.

While Huawei’s network equipment has had success globally, one destination remains elusive — the United States. It hopes smartphones and tablet PCs will help it capture that market.

With its network gear business plateauing in some markets, such as China, Huawei hopes to cash in on fast-growing mobile devices. Selling at about 1,500 yuan, Huawei’s smartphones have been sold in markets from Australia to Kenya.

Global smartphone shipments exceeded PC shipments for the first time in the fourth quarter of 2010, with the cell phone market expanding to $341.4 billion by 2015 and smartphone sales contributing to three quarters of that, industry figures showed.

Setting up its own marketing channels instead of relying on distributors is another area Huawei has to work on.

“Huawei needs to create a brand that consumers can identify with and it will need its own marketing channels instead of relying just on distributors. From what we see, distributors aren’t that keen on selling Huawei’s handsets,” said Ji Yongqing, author of the Chinese-language book “Huawei’s World”.

Huawei’s spectacular growth and global standing have boosted its profile, but its ambitious overseas expansion plans have previously hit roadblocks on suspicions the company maintains links with China’s military.

Part of that perception is fed by the extremely low profile kept by its CEO, and his past as an ex-officer with the PLA who founded Huawei 24 years ago with just 21,000 yuan ($3,230). Two decades later, CEO Ren Zhengfei has seen his investment soar.

In the latest edition of Fortune magazine, Ren was ranked the fifth most powerful businessman in Asia, just behind Samsung Group’s chairman and CEO Lee Kun-hee.

Underscoring the company’s transitive phase, a source says that Ren, a former member of the People’s Liberation Army, owns two phones — one Huawei and the other, an iPhone4

In February, Huawei said it would back away from buying the assets of U.S. server technology firm 3Leaf Technologies for $2 million after the U.S. government raised concerns over national security. [ID:nN19134618] Three years ago, Huawei had to drop a massive investment into U.S. telecom 3Com, under similar pressure from U.S. government officials.

Chinese telecommunications giant Huawei is marking its tenth year anniversary in the U.S. today by opening a new R&D headquarters in Santa Clara, Calif.

The 200,000 square-foot facility is said to include multiple state-of-the-art research labs and is set to create new jobs in the region.

Huawei’s North America president, Charles Ding, said the firm was committed to working on more “customer-centric innovation” that would create “new growth opportunities for the company.”

The firm first planted its flag in American soil back in 2001, by establishing offices in Plano, Texas, growing from that initial seed into an operation that now boasts some 1,100 employees in 12 branch offices and seven R&D centers.

Indeed, Huawei claims that last year alone it procured $6.1 billion from U.S.-based companies and invested $103 million locally in research and development.

“Huawei has a legacy as a technology innovator and global leader with facilities around the world,” said Mayor Jamie Matthews of Santa Clara. “Since establishing offices in the heart of Silicon Valley in 2002, Huawei has been a job creator and active participant in the community, and this new facility represents the continued investment and commitment to cultivating local talent and contributing to the economy in this critical region.”

Liz Kerton, president of Silicon Valley’s Telecom Council said that while excited about Huawei’s plans in the area, she was hardly surprised.

“Silicon Valley continues to be a magnet for telecommunications innovation and wireless technology,” she told RCR. “With so many potential partners just a short drive away, it’s a natural choice, and there is a lot of local talent with experience in cellular networks, platforms, and applications. The startups that surround us here are unequalled, and the region offers a deep, deep pool of resources, with offices from over 20 global telcos, the big mobile OS makers, database vendors, IP networking powerhouses, server hardware, and silicon expertise.”

In addition to opening up its new R&D center, Huawei also announced a partnership with America’s Promise Alliance, a leading organization focused on community and nonpartisan advocacy.

As part of the partnership, Huawei said it would donate $100,000 to ten charities across the U.S. for educational programs to better prepare children for school, work and life.

Chinese telecom-gear maker Huawei Technologies Co. is a finalist for a contract to build out the fourth-generation wireless network for U.S. Cellular Corp., the country’s sixth largest wireless carrier, people familiar with the matter say.

In addition, Huawei says it is in talks with federal, state and local government agencies to provide wireless technology to build the U.S.’s first nation-wide public-safety network.

On Monday, several U.S. lawmakers sent a letter to President Barack Obama, asking the government to seek a “permanent legislative solution” to stop Huawei’s efforts to sell network infrastructure equipment in the U.S. The letter was signed by Republican Sens. Jon Kyl, Saxby Chambliss, Richard Burr, James Inhofe and Tom Coburn, and Republican Rep. Darrell Issa.

In addition, the letter urges the president to prevent Huawei from receiving government subsidies. And it asks the appropriate government agencies to disclose whether any federal funds have been used to buy products or services from Huawei.

The company has come under fire from some U.S. lawmakers as it tries to find new ways to expand into the U.S. market. They have expressed concern about Huawei’s ties to the Chinese government and military and the security implications of including its equipment in critical U.S. infrastructure.

Huawei, the world’s No. 2 maker of telecom gear, has repeatedly denied such links and has offered to open its equipment and software to third-party inspection. In an open letter posted on the company’s website in February, Deputy Chairman Ken Hu called claims against Huawei “falsehoods” that “have had significant and negative impact on our business activity.”

Referring to the legislators’ letter, Bill Plummer, vice president for government affairs for Huawei USA, said that the company has been cooperating fully with the government on the issue of bidding on public-safety- network business.

He added that a few weeks ago, Huawei sent a letter to the U.S. Department of Homeland Security to inform it of the company’s intent to bid on public-safety-network business. The U.S. Department of Commerce’s National Institute of Standards and Technology is already working with the company to test Huawei’s LTE technology for use in public-safety networks.

The legislators’ letter marks the latest attempt by some U.S. officials to stop Huawei from landing significant U.S. business. In 2008, such concerns scuttled a Huawei deal to buy electronics manufacturer 3Com. Similar worries last year helped sink Huawei’s bid to win a part in a multibillion-dollar network upgrade by Sprint Nextel Corp.

So far, Huawei has closed deals in North America only with smaller wireless operators such as Clearwire Corp. and Cox Communications Inc. In contrast, in Europe the company has won contracts with such companies as BT Group PLC.

A final decision on the U.S. Cellular contract is expected in the next few weeks, said one person familiar with the matter. Other finalists are L.M. Ericsson and Alcatel-Lucent SA, two of the people said.

U.S. Cellular has more than six million customers in 26 states. The Chicago-based firm, a subsidiary of Telephone & Data Systems Inc., plans to roll out a 4G network based on a technology known as Long Term Evolution later this year. A spokesman for U.S. Cellular said the company is still evaluating the results of its LTE trial and has not yet selected a vendor.

Hutchison Telecommunications International (Hutchison Telecom), a Hong Kong-based operator, will initially set up LTE networks in Sweden and Denmark and has selected China-based Huawei Technologies and ZTE to supply network and terminal devices, according to industry sources.

Northern Europe is currently the largest LTE market around the world, with seven of the 17 commercial LTE networks globally in the region, the sources indicated.

Huawei and ZTE will supply LTE COE (central office equipment) and CPE (customer premises equipment) for Hutchison Telecom to deploy LTE networks and operate LTE services in the Sweden and Denmark markets, and may obtain similar orders if Hutchison wins licenses in other countries, the sources pointed out.

180 mobile telecom carriers are establishing or planning to set up LTE networks, including 50 carriers undertaking trial runs, in 70 markets, the sources cited statistics by the Global Mobile Suppliers Association (GSA) as indicating.

Huawei Technologies on Friday revealed details on its newest smartphone running on Google’s Android operating system, in the latest show of the company’s aim to boost its profile and its penetration of new markets with low-priced Android phones.

Huawei
Huawei’s touchscreen Ideos X5 The touchscreen Ideos X5, which runs on Android 2.2, will go on sale in Singapore, Hong Kong and New Zealand this month, Victor Xu, chief marketing officer for Huawei’s device division, said.

The phone will be priced at $250 to $300 and will also launch in other markets, including North America, he said in webcasted remarks, without giving a time frame for those markets.

That price range is more expensive than an earlier version of the Ideos phone, which Huawei launched in September and said would have a recommended retail price of between $100 and $200 for pay-as-you-go customers. But it’s still about half the price of certain Android phones popular in the U.S. Verizon Wireless, for instance, lists the full retail price of Motorola’s Droid X smartphone as $569.99, though it doesn’t actually sell the phone without a data package.

Huawei has launched about 10 Android smartphones and will launch 10 more smartphones in 2011, beginning with the Ideos X5, Xu said. Huawei has sold more than 1 million units of the earlier Ideos phone, driven by sales in the U.S. and Japan, he said.

The Chinese company shipped more than 3 million Android smartphones last year and over 120 million units of all handsets and other devices, Xu said. Huawei has an Android tablet device called the S7.

Despite these offerings, Huawei remains far from becoming a globally recognized handset maker. Huawei-branded phones accounted for 1.3% of the 348 million mobile phones shipped globally in the third quarter, ranking the company at eleventh place, according to market researcher IDC. Nokia phones ranked first with a 32% share, IDC said.

IDC’s figures, however, don’t include phones that are made by Huawei but branded with the name of a mobile operator, which is a common practice for the company especially in developed markets.

Separately on Friday, Huawei’s cross-town rival ZTE said it plans to launch a tablet called ZTE Light LTE this year, adding to a series of Android tablets from the company. It didn’t give any details. ZTE, which like Huawei is based in the Chinese city of Shenzhen and is mainly a maker of telecommunications equipment, has also been pushing to sell more of its Android devices in developed markets.

MetroPCS (NASDAQ:PCS) launched an Android phone for its 3G network from Huawei, giving the Chinese vendor another avenue into the U.S. handset market.

The flat-rate carrier said it will sell the Huawei Ascend, which runs version 2.1 of Google’s (NASDAQ:GOOG) Android platform. The device is MetroPCS’ second Android phone, after the LG Optimus M. MetroPCS said it will sell the Ascend for $179 without a contract. Competitor Leap Wireless (NASDAQ:LEAP) also offers the Ascend for $130. The device has a 3.5-inch screen, 3.2-megapixel camera and WiFi.

Huawei, which has struggled to break into the U.S. network infrastructure market, has found a more favorable reception on the handset front. T-Mobile USA also offers a low-cost Android phone from Huawei, the Comet, which it sells for $9.99 with a two-year contract and after a $50 rebate. The Comet also retails for $200 as a prepaid device on T-Mobile.

Huawei was the nine-largest handset maker in the world in the third quarter, according to ABI Research.

China-based Huawei Technologies accounted for 36% of the total cumulative number of signed LTE equipment supply contracts around the world as of mid-November 2010, followed by Ericsson and Nokia Siemens Networks each with 16% and Alcatel-Lucent with 14%, Taiwan-based makers cited statistics by TeleGeography Research as indicating. With main markets in the Middle East, Asia and North Africa, however, Huawei recorded the lowest share in terms of total contract value, the sources indicated.

Huawei has landed 18 contracts to supply equipment for commercial LTE networks and 70 contracts for trial LTE networks, with clients including Vodafone, T-Mobile, SoftBank Mobile and China Mobile, the sources indicated.

In addition to seven LTE networks in commercial operation around the world, there are 113 planned LTE networks in 46 countries, with most being established or to be set up in 2010-2012, and at least 55 of them starting commercial operation by the end of 2012, the sources cited statistics by the Global mobile Suppliers Association (GSA) as indicating.

The Chinese telecom equipment maker is happy to utilize Google’s Android mobile operating system to power its mobile devices, and believes the platform will soon leapfrog over Apple’s app ecosystem, executives say.

SINGAPORE–Chinese telecommunications equipment manufacturer Huawei Technologies is placing its support firmly behind Google’s mobile operating system (OS). The company is using Android to power its upcoming smartphones and tablets, and believes its app ecosystem will leapfrog Apple’s as the former matures, according to company executives.

Alex Jiang, president of Huawei’s Asia-Pacific devices department, said the firm’s commitment to the Android OS dates back to December 2008, when it joined the Google-led Open Handset Alliance (OHA). Having worked with the search giant for the past three years, Huawei is now reaping the rewards of its partnership, he noted in his presentation at the company’s launch of its Ideos smartphone on Tuesday.

The OHA, which started in 2007, was formed to foster innovation on mobile devices by providing developers with a new level of openness that enables them to work more collaboratively, according to its press statement.

Today, Huawei’s partnership with Google is paying off and its Ideos smartphone is an example of how the company plans to leverage Android’s popularity, noted Alan Wong. The regional director of marketing and product planning for Huawei South Pacific’s devices department spoke at the launch, too.

The company is positioning this handset as the “world’s first mass market smartphone” powered by the latest Android flavor, Froyo (or version 2.2), and will target the 15- to 30-year-old demographic, revealed Wong.

With Wi-Fi 802.11n and 3G HSDPA 7.2Mbps capabilities, a SD card slot to run apps from, Wi-Fi tethering and hotspot features, the “competitively priced” Ideos aims to “lower the barriers to entry” for people to enjoy mobile Internet access, he added.

When quizzed, the executive said that the Ideos’ Singapore retail price will be revealed “next week” and that the product is expected to hit the market in the fourth quarter of 2010.

The device has already been launched in the U.S., U.K., Germany and Hong Kong. After Singapore, there are plans to bring the Ideos to countries such as Malaysia, Australia and New Zealand, he said.

Fellow speaker Gerard Tan, GfK Asia’s regional account director for telecommunications, reiterated the Huawei executives’ position on Android’s popularity.

Android smartphone sales in Southeast Asian countries such as Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines have been growing quickly, he said. In these markets, sales of Android-based handsets grew from about US$1 million from January to February this year to US$11.8 million four months later in June, added Tan.

GfK Asia’s research is just one of many reports that have pointed to Android’s quick uptake in the market, and many analysts have foreseen its dominance in the smartphone segment. Investment bank and institutional securities firm Piper Jaffray, for one, said the multiple devices running Android OS will control largely half the overall smartphone market in the long run, while Apple’s iOS will take about 20 to 30 percent of the market share.

Android to leapfrog Apple’s App Store
Huawei’s Jiang also expressed confidence in the Android Market and the 70,000-plus apps that populate the marketplace, saying that even though the platform is just two-years-old and is “still a baby”, it is competing well against other platforms such as Apple’s App Store.

“We believe that the Android ecosystem, which is the fastest-growing ecosystem in the market now, is good enough for us. As it is open source, developers can easily develop and publish their apps on the Android Market, and we believe that it will eventually take over prime position from Apple,” he said.

As for whether the Ideos, with its Wi-Fi hotspot capability that can support up to eight users, will cannibalize sales of Huawei’s E5 Pocket Wi-Fi router, Jiang said there are two reasons for why he thinks this will not happen.

Firstly, consumers who buy the Ideos will ultimately use it as a phone and not as a wireless router because of each device’s unique capabilities, he stated. Secondly, the tariffs imposed by telcos are different for the two gadgets. For the E5 router, the accompanying data plan will be priced for heavy data usage, but this is not true for mobile phone plans, which are more focused on voice minutes, noted Jiang.

A little-known company working to open the U.S. market to telecommunications gear made by China’s Huawei Technologies Co. has added a pair of dignitaries to its board in an attempt to address the security concerns around Huawei.

The firm, Amerilink Telecom Corp., in recent months has recruited former congressional leader Richard Gephardt and former World Bank President James Wolfensohn as directors. It hopes the appointments will help overcome U.S. officials’ skepticism about Huawei, which has hired Amerilink as a consultant and distribution partner.

Huawei is one of the world’s top suppliers of telecom gear, but alleged ties to the Chinese military have stymied its ambitions in the U.S. market. It is currently trying to win part of a multibillion-dollar network upgrade at Sprint Nextel Corp.

Sprint says the bidding is entering the final stages and six vendors are submitting proposals. It declined to comment on Huawei or Amerilink, which have made a joint bid.

Adding directors such as Messrs. Gephardt and Wolfensohn is “very important in terms of the trust factor,” said Amerilink founder and Chairman William Owens. Mr. Owens was vice chairman of the Joint Chiefs of Staff under President Clinton and a former CEO of Nortel Networks Corp.

The appointments are part of Amerilink’s strategy to work with third parties to scrub, deliver and manage telecom equipment made by overseas suppliers such as Huawei to make sure it can’t be used by spies or to launch a cyberattack on U.S. infrastructure.

Overcoming those concerns won’t be easy. Huawei has long denied links to China’s military, but security concerns persist. Following news reports Huawei was hoping to sell gear to Sprint, eight Republican senators wrote the heads of federal agencies warning of the security implications.

In an Aug. 25 meeting between Sprint and Senate staff, the company was warned its U.S. government contracts could come under pressure if a deal with Huawei went through, according to one Republican Senate aide who was at the meeting. Sprint declined to comment.

“We need to get a better sense of the fundamental security implications raised by allowing Huawei access” to the U.S. telecom market, said Sen. Susan Collins (R., Maine), who signed the letter but wasn’t aware of Amerilink’s efforts.

To win over U.S. officials, Amerilink has launched an extensive lobbying campaign. Over the past few months, Mr. Owens and Amerilink executives have met with officials from Congress and the Obama administration, including members of the National Security Council, to detail its security plans, said people familiar with the matter.

“I predict that there will be a real fight over this,” said Stewart Baker, former assistant secretary for policy at the Department of Homeland Security and a partner at law firm Steptoe & Johnson LLP. “Huawei’s ties to the Chinese government can’t be independently measured. The company’s not listed on a stock exchange, so their books are a mystery. And there’s real worry about those ties on the part of the U.S. and other governments.”

Motorola Inc. sued Huawei in July alleging it set up a front organization staffed by former Motorola engineers to steal the company’s technology. Huawei has said the allegations are completely without merit.

Some analysts say Huawei’s entrance into the U.S. market is inevitable. It is already a mainstream supplier in Europe and Asia, and its gear is comparable to European equipment on technical grounds but less expensive. On Monday, India’s Bharti Airtel Ltd. selected Huawei as one of its suppliers for a third-generation wireless network.

Executives at telecom carriers question whether it’s fair to keep the company out on security grounds. They say Huawei hasn’t been caught in a security breach and point out that equipment giants like Cisco Systems Inc. manufacture gear in China anyway. “There are things we can do to ensure we’re protected,” AT&T Inc. Chief Executive Randall Stephenson said in an interview in June.

Huawei spokeswoman Jannie Luong Nguyen said the company will submit its products for third-party testing and verification. “Huawei takes the concerns that have been raised very seriously,” Ms. Nguyen said. “We believe that by being open and transparent, we will be able to dispel these mischaracterizations about our company and our offerings.”

Amerilink was founded in June 2009 with Huawei as its first customer. It has hired a number of former Sprint executives, including Kevin Packingham, who left Sprint last month to become Amerilink’s CEO.

Mr. Owens, who said he started and financed Amerilink with his own money, said he takes security concerns seriously. “This is the kind of thing we need to be cautious about,” Mr. Owens said.

To help ensure the telecom gear doesn’t contain any security vulnerabilities, Amerilink has hired Electronic Warfare Associates Inc., a Herndon, Va., security consultant that works for the U.S. government and military. EWA declined to comment.

Amerilink will spot-audit hardware before it is installed, and only Amerilink-authorized personnel will be allowed to access it once it’s in place. Software updates will be evaluated by the company before they are distributed over the Internet.

The process “will go far beyond any mechanism in the industry,” Mr. Gephardt said in an interview.

09/17/2010
FierceMobileContent

SHENZHEN, China–During a media junket hosted by Huawei ealier this week, Kevin Zhang, Huawei’s vice president of its global marketing department, outlined a three-pronged security plan that the firm hopes will alleviate concerns by operators and regulators, and help it win more business in the U.S. market.

The plan includes establishing a national security committee headed by Huawei CTO Matt Bross, using an accredited independent test lab to check Huawei’s proprietary software, and ensuring trusted delivery of all products by using U.S. citizens to deliver product in the U.S.

This is just the latest in a series of steps Huawei has taken to address concerns over national security. Besides the three-pronged security plan, Huawei also is working with a slew of partners–from D.C. law firms to Kansas City, Mo., startups like Amerlink Telecom, which is headed by former Sprint Nextel (NYSE:S) executive Kevin Packingham, to help it get its gear in Tier 1 operators’ hands.

Will this aggressive strategy work? I think Huawei is laying the groundwork for what may eventually be a successful strategy. After speaking this week with executives at the company’s headquarters in Shenzhen, and also in its R&D center in Shanghai, it’s clear that Huawei has set its sights on the U.S. market, and is intent on whittling marketshare away from competitors Ericsson (NASDAQ:ERIC) and Alcatel Lucent (NYSE:ALU).

In fact, if you look at Huawei’s strategy in the U.S., it’s similar to that of Swedish vendor Ericsson, which is currently the No. 1 global infrastructure vendor.

In November 2009, Ericsson relocated its CTO Hakan Eriksson to Silicon Valley to oversee the company’s IP business. The move reflected Ericsson’s growing momentum in the U.S. market and the significance if its deals with U.S. operators. Likewise, Huawei in September 2009 hired Matt Bross, formerly of BT, as its CTO, and located Bross in the United States rather than China.

Ericsson also recently expanded its presence in the U.S. by opening an R&D center in San Jose, Calif., focusing on mobile broadband, and debuting an “Experience Center” at its Plano, Texas, headquarters to house working demonstrations of LTE and other technologies. Huawei, meanwhile, has an LTE laboratory in Richardson, Texas, and has eight R&D centers in North America. The Chinese company invested more than $62 million in research and development in the U.S. last year alone. And earlier this year it announced it would add 600 jobs in North American in 2010.

Huawei is slowly making progress–the firm currently has deals with Leap Wireless (NASDAQ:LEAP), Clearwire (NASDAQ:CLWR), Cox Communications, Alltel, Cleartalk and MetroPCS (NYSE:PCS). And this slow but steady strategy is fine with Huawei executives. Zhang said in an interview (while speaking through an interpretor) that he believes the U.S. will follow Europe’s path: In Europe it took Huawei 10 years to progress from its first Tier 1 contract to market leadership, and he expects a similar timeframe for the U.S.