In a speech at the Center for American Progress in Washington, D.C. on June 15, 2011 (yesterday), Fred Hochberg, the Chairman and President of the Export-Import Bank of the United States, detailed "How the U.S. Can Lead the World in Exports: Retooling Our Export Finance Strategy for the 21st Century." Among other things, Hochberg bemoans "the proliferation of state-directed capital into the global marketplace" as disadvantaging U.S. firms. To the extent that such concerns are fact-based, they are legitimate. However, the legitimacy of Hochberg's arguments is effectively gutted by his willy-nilly parroting of what would seem to be competitor-inspired talking points.
Hochberg's speech (full text linked here), makes a number of factually false references to global telecom giant Huawei (recall, I work there).
Per Hochberg: "...One of the central reasons the company’s growth has been so dramatic – is that it’s backed by a $30 billion credit line from the Chinese Development Bank. This backing allows Huawei to significantly reduce its cost of capital and to offer financing to their buyers at rates and terms that are better than their competitors. This financing model not only affects the bottom line of companies trying to compete, but it also affects the bottom line of our economy – particularly as exports play an increasingly important role in our economic recovery and job creation. The reality is opaque state-directed capital allows foreign governments to target their financing at specific sectors and companies, while aggressively grabbing market share in an attempt to dominate a market."
All of that would be disturbing, if it were true. But it's not. And it is increasingly disturbing to hear U.S. government voices repeating statements that are patently false, and known to be so.
The facts:
The China Develop Bank (CDB) and Huawei have signed Memoranda of Understanding (MOUs) under which the CDB has indicated its willingness to make available export credits to potential Huawei customers. Such MOUs, which serve as marketing vehicles for the CDB to gain overseas business, are not the same as Lines of Credit because there are no funds actually committed by the CDB. One such MOU was signed in 2004 referencing $10 billion in credits with a five year validity period. A second MOU was signed in 2009 referencing $30 billion, also with a five year validity period. Since 2005, 35 Huawei customer projects have tapped the CDB export credits, with the aggregate amount of financing agreed to totalling $4.25bn, but with only $2.99bn having actually been extended to Huawei customers - at going market rates and according to open market-based practices. Huawei’s global sales over the same period exceeded $110 billion. Clearly, Huawei's growth is not driven by CDB or other "state-directed" support.
So, while we're at it, let's consider some additional facts. How does Huawei finance itself? Well, in terms of external financing,mainly through loans from commercial banks. Since 2000, with the growth in international markets and in order to prevent systemic risks, Huawei has adopted a diversification strategy in terms of financing resources, types and terms. Huawei now collaborates with 28 banks: 10 China-based and 18 non-China-based banks (Note: Huawei is now one of the top 50 global platinum customers of HSBC Bank, Citibank and Standard Chartered Bank). In total, these commercial banks have granted $25 billion in credit facilities to Huawei, at going market rates and terms, in compliance with the credit policies of each commercial bank, and in accord with relevant national and international laws and regulations. To date, Huawei has utilized $3.58 billion of the $25 billion, over 50% drawn from non-China-based banks.
Facts. They can be fun. Indeed, let me repeat one more set (verbatim from my June 5, 2011 post - linked here):
In his speech at the Center for American Progress, before blasting Huawei, Hochberg poses a number of rhetorical questions about America's long-term economic growth, quality of life and competitiveness. Perhaps Hochberg and others that view companies like Huawei through the complex geo-political prism of the U.S.-China relationship should jettison the politics and actually consider the answers to those very questions that he poses. Consider, for instance, the significant contributions Huawei makes to American innovation and livelihoods. In order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.
Food for thought...
June 16, 2011
June 08, 2011
Whither Nokia...
Since departing Nokia two years ago, I've posted to this blog a number of times on the company, at first reiterating thoughts related to what seemed (to me, at least) strategic mis-direction, later recalling key missteps and suggesting course-corrections, yet later wondering about potential Hail Mary solutions, and now, well, just wondering...
Nokia's share of the value-oriented smartphone market has plummeted from 49% prior to the 2007 introduction of the iPhone to 25% in the first quarter of 2011, with no bottom in near-term sight. Nokia's revenue and net income have declined by 10% and 39%, annually, on average, since 2008, and Nokia's market cap now rests somewhere around $23 billion - a gonad-shriveling fall from the peak of around $145 billion in late 2007. And, this year alone, Nokia's share price has dropped a whopping 35% - 19% in the last five days following the announcement of surprisingly "okay" first quarter results accompanied by very, very gloomy forward-looking guidance.
Damn.
On the upside, Nokia remains an Interbrand "Top 10 Global Brand" (#8 in 2010 - although this is an iffy measurement of Nokia's brand "value," which is generally acknowledged to have collapsed over the last three years)) and is still the world's largest mobile phone manufacturer, selling as many as a million entry-level and feature (non-smart) phones a day. But, alas, even the slim margins on such volume-oriented product are increasingly at risk as a host of lower-cost rivals powered by disruptive enablers like Mediatek are eating away at Nokia's last bastion.
Damn (again).
It makes you realize that the Nokia fealty to Redmond pledged in February really is a make-or-break play.
I wonder, however, if we'll even get to see if it might work, as rumors of takeover abound. Last week, Microsoft was rumored to be contemplating a $19 billion buyout - both parties denied the possibility. Huawei, HTC and ZTE were mentioned as other possible suitors - none deigned to comment on market rumor or speculation. This week, Samsung has been suggested as yet another potential contender (doubtful, but, then again, snapping up the newly WP7-committed Nokia could address Samsung's historical hiccups related to Windows Mobile and could make them a leader in two of the three dominant mobile OS's). And, of course, Google has also been referenced as potential buyer (other than to derail Microsoft's near-term plans, I have a hard time imagining why Google would consider this. Maybe three years ago. But not today - they've got a healthy stable of venders building to Android, they don't need to own one).
All interesting possibilities, some more likely than others, but, long story short, I don't see any of this happening until Nokia does some serious housecleaning and experiences some additional and significant pain that no suitor would likely be willing to stomach. For instance, if Nokia were to bail on NSN, lay off a few more thousand employees and offload the low-end and feature phone business and related assets, the resulting newly-fit and trim Nokia "smartphone" business (incorporating the in-retrospect-remarkably-overpriced Navteq assets) with a market cap around $10 billion (and retaining a significant portion of today's $8-9 billion in cash) could be an attractive purchase.
Just wondering...
Nokia's share of the value-oriented smartphone market has plummeted from 49% prior to the 2007 introduction of the iPhone to 25% in the first quarter of 2011, with no bottom in near-term sight. Nokia's revenue and net income have declined by 10% and 39%, annually, on average, since 2008, and Nokia's market cap now rests somewhere around $23 billion - a gonad-shriveling fall from the peak of around $145 billion in late 2007. And, this year alone, Nokia's share price has dropped a whopping 35% - 19% in the last five days following the announcement of surprisingly "okay" first quarter results accompanied by very, very gloomy forward-looking guidance.
Damn.
On the upside, Nokia remains an Interbrand "Top 10 Global Brand" (#8 in 2010 - although this is an iffy measurement of Nokia's brand "value," which is generally acknowledged to have collapsed over the last three years)) and is still the world's largest mobile phone manufacturer, selling as many as a million entry-level and feature (non-smart) phones a day. But, alas, even the slim margins on such volume-oriented product are increasingly at risk as a host of lower-cost rivals powered by disruptive enablers like Mediatek are eating away at Nokia's last bastion.
Damn (again).
It makes you realize that the Nokia fealty to Redmond pledged in February really is a make-or-break play.
I wonder, however, if we'll even get to see if it might work, as rumors of takeover abound. Last week, Microsoft was rumored to be contemplating a $19 billion buyout - both parties denied the possibility. Huawei, HTC and ZTE were mentioned as other possible suitors - none deigned to comment on market rumor or speculation. This week, Samsung has been suggested as yet another potential contender (doubtful, but, then again, snapping up the newly WP7-committed Nokia could address Samsung's historical hiccups related to Windows Mobile and could make them a leader in two of the three dominant mobile OS's). And, of course, Google has also been referenced as potential buyer (other than to derail Microsoft's near-term plans, I have a hard time imagining why Google would consider this. Maybe three years ago. But not today - they've got a healthy stable of venders building to Android, they don't need to own one).
All interesting possibilities, some more likely than others, but, long story short, I don't see any of this happening until Nokia does some serious housecleaning and experiences some additional and significant pain that no suitor would likely be willing to stomach. For instance, if Nokia were to bail on NSN, lay off a few more thousand employees and offload the low-end and feature phone business and related assets, the resulting newly-fit and trim Nokia "smartphone" business (incorporating the in-retrospect-remarkably-overpriced Navteq assets) with a market cap around $10 billion (and retaining a significant portion of today's $8-9 billion in cash) could be an attractive purchase.
Just wondering...
June 05, 2011
At the heart of FUD is fear - enough already!
Last week, The Economist featured an article about global technology leader Huawei - The long march of the invisible Mr. Ren (linked). All-in-all, it wasn't an imbalanced piece. It did, however, inspire some thoughtful clarifications, as follow (full disclosure, again, I work for Huawei):
Ours is truly a globalized economy and Huawei is the proof.
Born in the free-market Special Economic Zone of Shenzhen, Huawei epitomizes the Chinese version of the American dream: A start-up made big, owned by its employees, exploding across the global stage to lead markets and technological innovation. Indeed, Huawei, which blends its Chinese roots and local innovative and work-force advantages with the skills of the best-and-brightest recruited locally in markets worldwide, should be celebrated as a poster child for the global digital economy. And yet, as The Economist reports, there are indeed a handful of politicians in Washington who might well instead describe the company as somehow sinister and subsidized and linked to hostile forces. All of which is hogwash.
That Mr. Ren, Huawei’s Founder and President, does not have a history of doing media interviews is hardly grounds for suspicion, other than perhaps that he’s developed a pretty solid understanding of how the media works when it comes to Huawei. Nor is his over-a-quarter-century-old military service relevant in any way to his 20-plus year leadership of Huawei, or even unusual in the company of his global corporate peers. Indeed, if Mr. Ren weren’t Chinese – if Huawei did not have a Chinese heritage – we’d all likely have been spared years of undue media- and government-inspired Huawei-related FUD, particularly in the U.S. But, Huawei cannot change its roots in China any more than it can resolve the tensions between the U.S. and Chinese Governments which seem to be holding hostage Huawei’s further success in the U.S. marketplace.
To the extent that Huawei’s February 2011 Open Letter may not have offered sufficient fact-based clarification, particularly in the area of financing as indicated by The Economist, consider the following:
Huawei's financing – which is regularly mis-referenced as related to some sort of preferential government treatment - is mainly in the form of loans from commercial banks to meet Huawei’s capital structure and business planning requirements. Huawei’s approach is one of diversification: Huawei collaborates with 28 banks: 10 China-based, 18 non-China-based. In total, these banks have granted $25 billion in credit facilities to Huawei according to going market rates and practices. Huawei has utilized $3.58 billion of those credits, $1.88 billion from non-China-based banks, $1.70 billion from China-based banks.
Also regularly mis-understood are so-called “China Development Bank (CDB) lines of credit to Huawei.” The facts are that the CDB and Huawei have signed MOUs under which the CDB has indicated a willingness to provide export credits to potential Huawei customers. These MOUs are not lines of credit because the funds are not actually committed. Indeed, while one five-year MOU was signed in 2004 referencing $10 billion, and another in 2009 referencing $30 billion, since 2005 a total of only 35 projects have tapped the CDB export credits and only $2.99 billion have actually been extended to Huawei customers. Meanwhile, Huawei’s global sales over the same period exceeded $110 billion.
These are facts. So too are the significant contributions Huawei makes to American innovation and livelihoods. For example, in order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.
Huawei is no more mysterious than Mr. Ren is "invisible." Perhaps it is time to focus on the facts. In which spirit, I would add one more: In a market where an effective infrastructure vender duopoly exists, where there is no competitive incentive for the duopolists to innovate or rationalize their pricing, using non-commercial geo-politically-inspired shadowy “national security” excuses to lock out an innovative global technology leader with a history of competitive market-based pricing does a remarkable disservice to capital-sensitive local telecommunications carriers and each-and-every individual American consumer who very much wants to benefit from the affordable ubiquitous broadband services he/she deserves and has been promised.
You got some other "facts?" Then put up, or shut up. Enough already.
Ours is truly a globalized economy and Huawei is the proof.
Born in the free-market Special Economic Zone of Shenzhen, Huawei epitomizes the Chinese version of the American dream: A start-up made big, owned by its employees, exploding across the global stage to lead markets and technological innovation. Indeed, Huawei, which blends its Chinese roots and local innovative and work-force advantages with the skills of the best-and-brightest recruited locally in markets worldwide, should be celebrated as a poster child for the global digital economy. And yet, as The Economist reports, there are indeed a handful of politicians in Washington who might well instead describe the company as somehow sinister and subsidized and linked to hostile forces. All of which is hogwash.
That Mr. Ren, Huawei’s Founder and President, does not have a history of doing media interviews is hardly grounds for suspicion, other than perhaps that he’s developed a pretty solid understanding of how the media works when it comes to Huawei. Nor is his over-a-quarter-century-old military service relevant in any way to his 20-plus year leadership of Huawei, or even unusual in the company of his global corporate peers. Indeed, if Mr. Ren weren’t Chinese – if Huawei did not have a Chinese heritage – we’d all likely have been spared years of undue media- and government-inspired Huawei-related FUD, particularly in the U.S. But, Huawei cannot change its roots in China any more than it can resolve the tensions between the U.S. and Chinese Governments which seem to be holding hostage Huawei’s further success in the U.S. marketplace.
To the extent that Huawei’s February 2011 Open Letter may not have offered sufficient fact-based clarification, particularly in the area of financing as indicated by The Economist, consider the following:
Huawei's financing – which is regularly mis-referenced as related to some sort of preferential government treatment - is mainly in the form of loans from commercial banks to meet Huawei’s capital structure and business planning requirements. Huawei’s approach is one of diversification: Huawei collaborates with 28 banks: 10 China-based, 18 non-China-based. In total, these banks have granted $25 billion in credit facilities to Huawei according to going market rates and practices. Huawei has utilized $3.58 billion of those credits, $1.88 billion from non-China-based banks, $1.70 billion from China-based banks.
Also regularly mis-understood are so-called “China Development Bank (CDB) lines of credit to Huawei.” The facts are that the CDB and Huawei have signed MOUs under which the CDB has indicated a willingness to provide export credits to potential Huawei customers. These MOUs are not lines of credit because the funds are not actually committed. Indeed, while one five-year MOU was signed in 2004 referencing $10 billion, and another in 2009 referencing $30 billion, since 2005 a total of only 35 projects have tapped the CDB export credits and only $2.99 billion have actually been extended to Huawei customers. Meanwhile, Huawei’s global sales over the same period exceeded $110 billion.
These are facts. So too are the significant contributions Huawei makes to American innovation and livelihoods. For example, in order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.
Huawei is no more mysterious than Mr. Ren is "invisible." Perhaps it is time to focus on the facts. In which spirit, I would add one more: In a market where an effective infrastructure vender duopoly exists, where there is no competitive incentive for the duopolists to innovate or rationalize their pricing, using non-commercial geo-politically-inspired shadowy “national security” excuses to lock out an innovative global technology leader with a history of competitive market-based pricing does a remarkable disservice to capital-sensitive local telecommunications carriers and each-and-every individual American consumer who very much wants to benefit from the affordable ubiquitous broadband services he/she deserves and has been promised.
You got some other "facts?" Then put up, or shut up. Enough already.
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