China's Huawei to go it alone in network gear, handsets

Reuters

* Will not do acquisitions in either business line -exec

* On track to hit 10 pct sales growth target this year, next

* Gradual approach to growing handset business

By Leila Abboud

LONDON, Nov 5 (Reuters) - China's Huawei is notplanning acquisitions to expand its telecom network equipmentand mobile phone businesses, preferring a go-it-alone strategycentred on R&D firepower and building a consumer brand, thegroup's co-chief executive said.

Speaking in London on Tuesday, Eric Xu, who now holds therotating CEO job, also said Huawei would have no problem hittingits target for 10 percent revenue growth this year and next onstrong demand from global telecom carriers and consumers.

Shenzhen-based Huawei earned roughly 73 percent of its 220.2billion yuan ($36.1 billion) sales last year on networkequipment for telecom operators, while 22 percent came frommobile phones and other consumer devices like wifi dongles.Nearly three quarters of revenue is earned outside China, makingHuawei one of the country's first truly global companies.

"We will not do any acquisitions to support the businessobjectives we have for our smartphone business, rather we willtake a step-by-step approach to build it," Xu told reporters.

As for the telecom gear unit, Xu also said no acquisitionswere planned.

Huawei has expanded globally in the past decade to becomethe world number two behind Sweden's Ericsson, takingmarket share from Europe's Alcatel-Lucent and Nokia's NSN unit via lower prices and strong technology.

"Any acquisition would bring us similar technology to whatwe already have in our portfolio and that does not bring anysynergies," said the 46 year-old executive.

"The customers also want multiple choices of vendors."

Xu's remarks come as the telecom equipment and mobile phonesectors could be moving into a period of consolidation as weakerplayers struggle to stay with the rapid pace of technologicalchange. Nokia is considering strategic options including atie-up with rival Alcatel-Lucent after it unloaded its mobiledevice business to Microsoft, sources earlier toldReuters.

In handsets, Canada's Blackberry tried and failed tosell itself, although Xu said Huawei was never in talks with thecompany. Taiwan's HTC is also seen by some analysts aspossible takeover prey as its sales tank under pressure fromSamsung and Apple.

Regardless of the deal-making landscape, Huawei, which wasfounded in 1987 by Ren Zhengfei, an engineer who got his startin the Chinese army, does not think it needs to snap up weakenedrivals to keep up its rapid growth.

Instead, Xu said the group would emphasise R&D to stay aheadof the competition in network gear. He cited a $600 millioninvestment it was making in early research into next-generationmobile technology known as 5G that will multiply download speedsfrom 4G technology still being rolled out in much of the world.

Huawei spent 14 percent of its sales last year on R&D, onpar with leader Ericsson.

In handsets it took a long-term view and was focusing onsmartphones aimed at developed markets and not on the lower end.

Xu said the group would refrain from massive advertisingcampaigns while it worked on improving products, strengtheningits supply chain and may open stores for distribution.

"We are not yet satisfied with this business. Only whenthese three goals are met will we start to increase ourinvestment on the marketing and branding side," he explained.

The strategy appears to be working, although in market shareHuawei remains far smaller than leaders Samsung and Apple.

In the third quarter, Huawei took the third-place spot fromLG in terms of smartphone shipments helped by its Ascend P6model, selling 12.7 million phones and taking its market shareto 5.1 percent globally, according to Strategy Analytics.

Samsung led with 35.2 percent and Apple had 13.4 percent.

Xu admits that building a global brand takes time, and itcould temporarily lose the third spot if rivals' new handsetsappeal to fickle consumers, but Huawei is playing the long game.

"Our PR agency told us we should help consumers learn how topronounce the name Huawei, and maybe over time they will come toknow the brand."

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