Huawei Ready to Outspend Ericsson in R&D Race to Woo Clients

Huawei Technologies Co., China’s largest maker of networking equipment, is ready to outspend Ericsson AB of Sweden in research and development in a race to win over clients not only with cheaper products.

After investing some 30 billion yuan ($4.9 billion) in 2012, Huawei is boosting its research budget this year to improve mobile and fixed network performance as well as audio and video transmissions, Li Yingtao, its head of R&D, said in an interview. The privately held company is seeking to work more closely with carriers to jointly develop products from radio-access networks to miniaturized antennas.

“The bottom line when you talk to customers about building a network is that they will ask: ‘can you do it or not?’” Li said this week in Geneva through an interpreter. “That ability depends mostly on innovation capacity. That’s why we will continue to increase our investments.”

The comments underscore China’s latest efforts to move upscale from low-cost manufacturing. While it still ranks low -- 35th place -- on the list of the most innovative countries, China is at the forefront of emerging economies measured by growth in patent filings and is among the highest rated for research and development spending, according to a World Intellectual Property Organization report presented this week at the United Nations in Geneva.

Photographer: Angel Navarrete/Bloomberg

A technician prepares lights hanging above the Huawei Technologies Co. pavilion at the Mobile World Congress in Barcelona. Close

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Photographer: Angel Navarrete/Bloomberg

A technician prepares lights hanging above the Huawei Technologies Co. pavilion at the Mobile World Congress in Barcelona.

Nokia, Ericsson

The net R&D spending by European technology companies such as Ericsson, the largest supplier of wireless networks, and Nokia Oyj (NOK1V), the former leader in handset manufacturing, grew last year at the slowest pace in three years, according to data compiled by Bloomberg.

With 21,400 employees in research, Ericsson’s R&D spending last year was almost the same size as Huawei’s, at 32.8 billion kronor ($4.9 billion), and accounted for 14.4 percent of the Stockholm-based supplier’s sales.

The ratio for Huawei, where almost half of its 150,000 workforce is in R&D, was 13.7 percent. Huawei, which is expanding its smartphone businesses -- which Ericsson has exited -- reported 2012 revenue of about $35.4 billion.

At the start of this year, Ericsson said that its 2013 R&D spending will decrease “somewhat.” Since then, the company has agreed to take back some assets following a breakup of its wireless chip venture with STMicroelectronics NV. (STM)

“Ericsson has been the technology leader in the industry for 137 years and remains committed to investing into this leadership,” said Ola Rembe, a spokesman in Stockholm.

Crosstown Rivals

Alcatel-Lucent SA, the smaller French supplier with a market value of $4.1 billion, has a 2013 R&D budget of more than 2 billion euros ($2.6 billion).

Ericsson shares fell 0.3 percent to 75.85 kronor at 9:37 a.m. in Stockholm. Alcatel-Lucent dropped 1.1 percent to 1.35 euros in Paris.

As Shenzhen-based Huawei and crosstown rival ZTE Corp. (000063) focus on higher-end products that take longer and more resources to develop, they still enjoy cheaper costs.

Huawei’s employee costs are lower than those of European and North American vendors, with a telecommunications technician in China costing less than a third of one employed in the U.S or western Europe, researcher Gartner Inc. said in October.

The manufacturer is looking for partners, industrial and academic, to help achieve new findings, Li said. The company yesterday said it’s discussing with the Imperial College London about sharing a lab to study technologies that use mathematics to crunch large amounts of data.

Nokia Siemens

Those efforts may pay off as European rivals focus on reorganizing their businesses.

Earlier this week, Nokia agreed to buy Siemens AG (SIE)’s share in their six-year venture for 1.7 billion euros. Nokia Siemens Networks, which reported 2012 revenue of 13.8 billion euros, is evaluating a sale of manufacturing plants in Finland, India and China and to outsource production, said a person familiar with the matter.

Alcatel-Lucent’s new chief executive officer, Michel Combes, said on June 19 his first move to turn around the unprofitable company will be to refocus innovation budgets on only its fastest-growing technologies of ultra-high-speed Internet.

Li argues that innovation today in network equipment should focus on making existing telecommunications services function continuously and smoothly.

“Phone calls still drop, Internet browsing is slow as soon as you hop on a train and you completely lose your connection when you board a plane,” Li said. “Today carriers don’t need a technological disruption, they need answers to their network problems. There’s still a long way to go to meet just standard needs.”

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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