Huawei Trains Its Gaze Inward; Chinese Telecom-Gear Supplier Won’t Seek Big Acquisitions in Near Term

Huawei Trains Its Gaze Inward

Chinese Telecom-Gear Supplier Won’t Seek Big Acquisitions in Near Term

JURO OSAWA

Oct. 10, 2013 10:15 a.m. ET

SHENZHEN, China—Huawei Technologies Co. of China won’t consider any major acquisitions at least for 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 board director said. “For the next five to 10 years, we will stay focused on internal management improvement,” said Chen Lifang , a Huawei senior vice president in charge of the company’s external relations and one of its 13 board directors. She added that as Huawei is already a sizable company with 150,000 employees, more effort needs to be spent on making its decision-making faster and management leaner.Huawei, a privately 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, said Ms. Chen.

The director’s comments about Huawei’s strategic priorities come after some analysts and bankers earlier this year speculated whether the technology company was a potential buyer for struggling Canadian smartphone maker BlackBerry Ltd. BB.T -0.59% BeforeMicrosoft Corp. MSFT +1.18% last month announced a deal to buy Nokia Corp.’sNOK1V.HE +3.56% mobile-phone business, some market rumors had named Huawei as a potential buyer.

Ms. Chen said that 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 being 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 is now closing in on industry leader Ericsson ERIC-B.SK +2.52% . Aside from its mainstay equipment business, Huawei is also a major vendor of smartphones, mainly low-cost handsets powered by Google Inc. GOOG +0.81% ‘s Android.

Among Huawei’s top priorities will be continued investment in its research-and-development operations, according to Ms. Chen. Huawei’s management hasn’t cut back on its R&D spending even during periods of economic weakness, and she said that policy won’t change in the future. Last year, Huawei spent about $4.8 billion on R&D, or nearly 14% of its group revenue, up sharply from the $3.8 billion it 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. In July, Huawei said that its revenue for the first half of this year 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 claimed that the Chinese company posed a national-security threat, saying that its equipment could be used by Beijing to spy on Americans. Even though Huawei has denied such allegations, 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 BT.A.LN +1.75% PLC and Vodafone Group VOD.LN +1.25% 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 any 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 operations are still almost entirely in China. It now aims to become a more globalized company.

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