Huawei Places Big Deals on Hold

SHENZHEN, China—Huawei Technologies Co. of China won't consider any major acquisitions for at least the next five years, as the world's second-largest supplier of telecommunications-network equipment focuses on ways to improve management efficiency and sustain growth, a member of its board said.

"For the next five to 10 years, we will stay focused on internal management improvement," said Chen Lifang , Huawei's senior vice president in charge of external relations and one of the company's 13 directors.  

Huawei already is a sizable company, with 150,000 employees, she said, and more effort needs to be spent on making decisions faster and management leaner.

Huawei, a closely held company based in the southern city of Shenzhen, also won't seek an initial public offering of stock for at least the next five years, Ms. Chen said.

Her comments about Huawei's strategic priorities came after some analysts and bankers earlier this year speculated that the technology company could be a potential buyer for struggling Canadian smartphone maker BlackBerry Ltd. Before Microsoft Corp. last month announced a deal to buy Nokia Corp.'s mobile-phone business, some people had named Huawei as a potential buyer.

Ms. Chen said Huawei Chief Executive Ren Zhengfei , who set up the company in 1987, has stated internally that Huawei shouldn't make major acquisitions or have an IPO over the next five to 10 years, a view she said is shared by other board members.

Huawei sells its network gear, such as routers, switches and antennas, to more than 500 carriers globally. Having outpaced many Western competitors in that market, the company now is closing in on industry leader Ericsson.

Aside from its mainstay equipment business, Huawei also is a major vendor of smartphones, mainly low-cost handsets powered by Google Inc. Android operating system.

Among Huawei's top priorities will be continued investment in research and development, according to Ms. Chen. Huawei hasn't cut back on R&D spending even during periods of economic weakness, and she said that policy won't change. Huawei spent about $4.8 billion on R&D last year, or nearly 14% of group revenue, up sharply from the $3.8 billion spent in 2011. Currently, about half of Huawei's workforce is engaged in R&D.

Huawei's recent growth has been fueled in part by demand for faster fourth-generation mobile networks. Huawei in July said first-half revenue rose 11% from a year earlier to 113.8 billion yuan ($18.6 billion). The company expects a net-profit margin of around 7% to 8% this year.

Still, the company faces many challenges abroad. Last year, some U.S. lawmakers said the Chinese company posed a national-security threat because its equipment could be used by Beijing to spy on Americans.

Huawei has denied such allegations, but the company was effectively shut out of the U.S. market with little hope of winning any business there for now.

"We need to think about our image in people's eyes," said Ms. Chen, who as Huawei's head of public and government relations is leading a drive to eliminate concerns such as those raised in the U.S.

"We also need to think about how to better coexist with other companies in this industry…so that we will be seen as a good corporate citizen," she said.

Even in the U.K., where Huawei already has a significant presence by working with clients such as BT Group PLC and Vodafone Group PLC, a parliamentary report in June raised questions about a possible security risk stemming from Huawei's strong presence in the nation's telecom market.

Concerns linked to the dependence on foreign technology suppliers aren't unique to the U.S. or other specific parts of the world, Ms. Chen said. "It takes time to adjust to this issue," she said.

While Huawei generates nearly 70% of its revenue outside China, its management still is almost entirely in China. Huawei now aims to become a more globalized company.

Ms. Chen said Huawei is trying to delegate more power to some of its overseas offices. For example, the company is turning its London office into a hub for international financial operations. And senior executives are likely to spend more than half of their time outside China, she said.

Source: Wall Street Journal by Juro Osawa