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Huawei Pushing Aside Cisco and Ericsson

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This Chinese company's business model is taking the world by storm.

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Enter the Dragon!

There was a time, about a decade ago, that Cisco (CSCO) executives would comment that Huawei was so good at copying (aka appropriating) Cisco's technology that it even replicated bugs in the software. What was once a joke has morphed into a juggernaut in the communications-equipment marketplace that shows no sign of abating.

Huawei has pushed itself onto the world stage of equipment OEMs for carriers worldwide in wireless, IP-broadband, core networks, software, and services. According to market research firm Informa, Huawei is now the number three supplier of wireless infrastructure equipment, trailing only Ericsson (ERIC) and Alcatel (ALA).

As you can see in the graph below, Huawei has been growing like a weed and nothing suggests that it will be slowing down anytime soon.



As you can see from this second graph, part of the reason for Huawei's success is that it's willing to operate at a lower margin level than its competitors and willing to accept a lower level of cash generation as well. That is the result of much more aggressive pricing, yielding market share gains.



Huawei doesn't break out its revenue by market segment, but there's a pretty good chance that 2009 results will look much like the past several years.

One of the only areas for wireless infrastructure spending this year has been China's 3G build-out. To no one's surprise -- with the apparent exception of the CEO of Nokia (NOK) -- the bulk of the 3G contracts from China's three primary carriers went to the "home team" -- Huawei and ZTE.

However, there's another factor at play in Huawei's success and it will be extremely difficult for its competitors to counter.
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