Huawei Expands in Russian Tech Services After Putin’s China Deal

Huawei Technologies Co., China’s biggest maker of phone-network equipment, seeks to capitalize on the country’s strengthening ties with Russia by expanding into services for energy giants such as OAO Gazprom.

The Chinese company is adding products such as systems used by oil and gas companies to manage pipelines and offshore fields, Deng Yi, vice president at Huawei’s enterprise unit, said in a interview in Moscow. The $400 billion deal signed by Gazprom last month to ship gas to China is helping to facilitate business between the countries, he said.

Huawei, whose main business competes against Ericsson AB (ERICB) and Nokia Oyj in building phone networks, targets a quadrupling of sales to $10 billion at its enterprise unit by 2017. Russia has boosted ties to China after the U.S. and European Union imposed sanctions on the country to punish it for annexing the Crimean peninsula from Ukraine, with President Vladimir Putin visiting Shanghai last month to help forge the gas deal.

Set up in 1987 by ex-military man Ren Zhengfei, Huawei has grown into the world’s largest wireless-network maker after Sweden’s Ericsson. The Shenzhen, China-based company’s annual sales in Russia exceed $1 billion, ranking it among the five biggest markets for the company, Deng said.

While the bulk of Huawei’s revenue comes from phone networks, sales at the enterprise business in Russia can potentially increase more than 40 percent a year, he said.

Sanctions Threat

The closely held company has built 4G networks for OAO Russian Railways in Sochi to provide passengers with data connections and enable train-traffic monitoring. It also supplies data-processing systems to Russia’s largest lender OAO Sberbank (SBER), Deng said. This month, Huawei won a contract worth at least $600 million from wireless carrier OAO MegaFon. (MFON)

Russia’s information-technology services market reached $34 billion last year, with natural-resource companies such as oil and gas accounting for about 10 percent of that, according to research firm IDC. Service providers include Hewlett-Packard Co. (HPQ), Microsoft Corp., International Business Machines Corp., SAP SE and Oracle Corp. (ORCL), according to IDC.

“Given the threat of economic sanctions, the Russian government is urging its companies to reduce dependence on U.S. vendors,” said Elena Semenovskaya, head of research at IDC Russia. “This geopolitical situation is favorable for the expansion of Chinese IT-services providers that previously had a very limited presence in Russia.”

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Ville Heiskanen, Thomas Mulier

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