Friday, April 29, 2005

Remember this Name

A few years ago one of the bear stories on telecommunications equipment makers was the efforts of a Chinese company, Huawei Technologies, to enter that space with—no surprise—extremely cheap product.

Testosterone-rich Silicon Valley largely laughed off the threat.

After all, Huawei traces its roots to the Chinese Army—not exactly the fountain of technological ingenuity that its Israeli counterpart has proven to be. And despite being China’s largest telecom vendor, it was hard to envision a Western newcomer like Huawei creating, selling, installing and supporting complex, mission-critical systems around the world.

But things got serious in 2003, when Cisco sued Huawei for allegedly copying Cisco router technology—so closely that an index to the Huawei user’s manual was distinguishable from Cisco’s only because of “a slightly more frequent use of decorative stars on the paper,” according to a Forbes story at the time.

The lawsuit was settled, however, and Huawei has wasted no time: just yesterday British Telecom selected Huawei to supply routers and access equipment as part of an eight-member consortium handling a $19 billion upgrade of the UK’s phone network.

Marconi Corp, which had been a huge BT vendor, was shut out of the deal, and its stock fell 38% yesterday.

For Marconi, not to mention Cisco, Alcatel, Nortel and all the other "tels" out there, it only gets harder from here.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


gvtucker said...

You might want to double check your consonants, Jeff.

That BT deal is $19 Billion, not $19 million.

Tom M said...


What's your take on the 3Com-Huawei JV? More specifically as it relates to 3com.

Jeff Matthews said...

3Com needs their JV with Huawei to work, badly. Their layer 2 switching business is half the company and going away.

Some people look on 3Com as a call option on Huawei. I'm not sure the call will ever be 'in the money,' given the fact that high-tech joint-ventures don't seem to work, particularly where the two parties have such different agendas.

If it works, obviously 3Com wins, but I do not have confidence that 3Com shareholders will see it.

That is an opinion based solely on my view that 3Com has the weak hand.

I would welcome more informed views than mine on the issue of 1) how the JV is progressing; 2) whether there is internal strife; 3) whether 3Com will likely benefit from the JV, or will Huawei suck them dry and move on.

And p.s. $19 BILLION, not million it is; that has been corrected.

Tom M said...
This comment has been removed by a blog administrator.
Tom M said...

Has any tech company ever come out ahead (or even) being involved in a Chinese JV? And why do I keep thinking about all the time and money Motorola spent teaching the Chinese how to make semiconductors and build cell phones?

k9thunder said...

I traded COMS in its glory days in late 90's. Then came upon in 2003 upon reading Fred Hickey saying positive things on Barrons last year. It was only 1 or 2 tech stock the infamous tech bear recommended.

Since then saw it hit around $9 to retreat to current low of $3. Have accumulated more in low $3 to low $4 with latest conviction on an article from Barrons on high inside buying activities. That said I expect little from COMS and its management.

I agree with your assessment of the JV with Huawei. I think it's marriage of convinience and Huawei si apt to get more out it then COMS.

k9thunder said...

Now good point raised by Tom M on JV in China... Only handful (P&G and few others) are making money on JV in China.

I have been to China 20 times plus since 1998 on business. My background in doing business in China range from pharmaceutical (JV with US company) to computer products for 1 of the biggest software company to consumer electronics for well know European company as project manager for major launches.

I attend USC's annual Asia biz conference in March and history says JV with Chinese companies and especially SOEs (former state owned enterprises - communist owned inefficient companies)faild miserably. It was only way to enter China market in early to mid 90's and many foreign company were forced to do JV with SOEs and many bailed out having lost most of their investment. Worst part was giving away the technology.

So I think COMS will get the raw deal out of Huawei...

Tom M said...

A bit off topic, but since we are talking about has-beens, this is too funny not to share (Michael can sleep easier now):

Sun Microsystems considers large acquisition - report (SUNW) By Heather Wilson
SAN FRANCISCO (MarketWatch) -- Sun Microsystems (SUNW) has set its sights on larger acquisitions, according to a published report Sunday. Sun Chairman and CEO Scott McNealy told Spanish newspaper El Pais that: "We have made some small purchases and we are going to make some bigger ones which generate more revenue." McNealy told El Pais that Dell (DELL) was not one of its targets. "We have no interest in buying Dell. We are very different," he told the paper.

Jeff Matthews said...

I'm a little disappointed we haven't heard any real positives on the deal from the 3Com point of view.

Does that mean the JV is not working for 3Com, or just indicate a lack of interest altogether in 3Com?

qgr said...

Next deal pending? Or just a way for Vodafone to squee better terms from established suppliers?

Huawei Meets Vodafone's Needs