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Belgium's Option Can `Survive Battle' Against China's Huawei With EU Help

By Jonathan Stearns and John Martens - Sep 30, 2010 5:53 AM PT Tweet (4)LinkedIn Share

Business ExchangeBuzz up!DiggPrint Email .Option NV, the unprofitable Belgian maker of modems, predicted a “turning point” for its business and renewed hope for innovation in the European Union should the EU make good on threats to slow imports from China.

Option Chief Executive Officer Jan Callewaert made the projections as the EU weighs imposing tariffs on wireless modems from China to counter alleged subsidies to Huawei Technologies Co. and ZTE Corp. and possible below-cost -- or “dumped” -- sales by those producers in Europe. The bloc is also threatening to apply quantitative limits, known as safeguards, on imports of the devices from all non-EU countries led by China.

At stake is Europe’s manufacturing presence in an EU market worth 1.5 billion euros ($2 billion), according to Option, the bloc’s only producer of the wireless wide-area networking modems covered by the three European trade probes. This marks the first time the EU has opened simultaneous dumping, subsidy and safeguard investigations in support of a single European producer, shifting the focus of European trade curbs against China from traditional goods such as shoes and bicycles to high- tech telecommunications.

“This will be a turning point,” Callewaert said in an interview yesterday at Option’s headquarters in Leuven, Belgium. “We should come to a level playing field. It would re-establish the company in the market with respect.”

Option exemplifies how Europe is stepping up the threat of trade curbs against China. To bolster European exporters and narrow its trade deficit, the 27-nation EU has joined the U.S. in pressing China to let its currency strengthen as the global economy recovers from the financial crisis.

Chinese Dumping

The EU imposes anti-dumping duties on dozens of Chinese goods ranging from textiles and chemicals to ironing boards and candles. China, the world’s most populous country, faces this kind of EU trade protection on about 50 products -- more than any other nation.

The EU opened the dumping and safeguard probes covering Chinese wireless modems in June and began the government-aid inquiry in mid-September -- only the second European subsidy case against China following an April one involving paper. Initial measures on modems may come within nine months of the start of the investigations.

“There is evidence of a number of unfair trade practices happening at the same time,” John Clancy, a spokesman at the European Commission, the EU’s trade authority in Brussels, said in an e-mail yesterday about the Option cases.

Market Share

Huawei and ZTE, both based in Shenzhen, now control 95 percent of the European market for the wireless modems covered by the trade probes compared with nothing in 2005, according to Option. Average prices for Option’s devices dropped 30 percent last year, following a 39 percent slide in 2008.

“We need to survive this battle,” Callewaert said. “The sooner the commission comes out with measures, the better.”

Option, which hasn’t reported a profit since the first quarter of 2008, has cut its workforce to 250 from 679 at the end of 2008. The company’s market value has fallen 97 percent from a peak in 2006.

Option had 7.65 million euros of cash and short-term investments left at the end of June after raising 20.2 million euros in a stock sale to existing shareholders in December. The company is selling a unit developing a wireless radio transceiver for the next generation of embedded modems to avoid running out of cash, according to Callewaert.

‘Canary in Coal Mine’

Huawei reported that 2009 sales rose 19 percent to 149.1 billion yuan ($22.3 billion) and Tim Watkins, the company’s western Europe vice president, predicts that revenue will climb to about $30 billion this year. Huawei is the world’s only supplier of telecom equipment that ranks among the three largest vendors in fixed, mobile and Internet-based networks.

China’s biggest telecom-equipment maker beat Stockholm- based Ericsson AB, the world’s No. 1 provider of wireless phone networks, in December to win a contract for so-called Long-Term Evolution wireless technology from Tele2 AB and Telenor ASA in Sweden.

“We are a canary in a coal mine,” Callewaert said. “Everyone is waking up and they look to this case because it’s an important one. It’s one of the first cases in the high-tech arena for Europe.”

Huawei’s dominance in the European modem market is based on accurate forecasting, innovation, manufacturing flexibility and economies of scale, Watkins said at a briefing in Brussels on Sept. 28. He forecast the global market for those modems, including built-in devices, will triple to 60 million units in 2012 from about 20 million last year.

‘Reasonable’ Earnings

Employee-owned Huawei has no link to the Chinese government and the company earns “reasonable” profits on sales of those devices, Watkins said. Huawei also disputes the validity of Option’s complaints, saying the Belgian company is no longer a European producer after farming out manufacturing to China.

Option says it has shifted basic hardware assembly to China from the EU while keeping development, control, testing and final processing of the wireless modems at European sites including Leuven and Cork, Ireland. As a result, Option says it remains an EU producer of the devices.