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2HuaweiTechnologiesAnnualReport2004Contents5FinancialHighlights6TheYear9MessagefromtheCompany11OurVision,MissionandStrategy12FiveDrivingForcesofFastGrowth24OurPerformanceinBusiness33TheFuture34CorporateCitizenship35FinancialReport3=HuaweiTechnologiesAnnualReport2004AboutHuaweiTechnologiesEstablishedin1988andheadquarteredinShenzhen,China,HuaweiTechnologiesspecializesintheresearchanddevelopment,productionandmarketingoftelecomequipment,providingcustomizednetworksolutionsindifferenttelecomfields.HuaweiisnowthelargesttelecomvendorinChinaandisquicklybecomingaleadingglobalplayer.Ithasprovidedtelecomproductsandsolutionsforover300operatorsworldwideand22oftheworld’stop50operatorsareusingitsproductsandsolutions.Huaweifocusesonsuchareasas3G,NGN,xDSL,opticalnetworkanddatacommunications.Ithas24,000employees,48%ofwhichareengagedinR&D.In2004,Huawei’scontractsalesreachedUSD5.58billion.4HuaweiTechnologiesAnnualReport20044HuaweiTechnologiesAnnualReport2004Everyday,nearly1billionpeopleallovertheworldarecommunicatingthroughHuawei’sproductsandsolutions.5=HuaweiTechnologiesAnnualReport2004FinancialHighlights5=HuaweiTechnologiesAnnualReport2004Note:(*)Excludingdiscontinuingoperations.USDinmillionsYearEndedDecember312004200320022001(*)2000Revenue3,8272,6942,1282,2901,933NetIncome624384108258345CashFlowFromOperations396385311204255OperatingProfitMargin18%19%10%17%24%ReturnonNetAssets31%23%7%20%47%HUAWEITECHNOLOGIESCORPORATIONandSubsidiaryCompanies6HuaweiTechnologiesAnnualReport2004TheYearFebHuaweiestablishedajointventurewithSiemenstoofterTD-SCDMABothpartiessetupajointventurespecializinginthedevelopment,salesandservicesofTD-SCDMAtechnologiesandproductstoboostTD-SCDMAcommercialization.OverUSD100millionwasinvestedinthejointventure,51%ofwhichwascontributedbySiemensand49%byHuawei.AprForthefirsttime,Chinadomestichigh-endroutersbegintoservethenationalbackbonenetworksofChinaTelecomonalargescaleHuawei’sIPcorerouterseriesNE5000andNE80wereappliedonalargescale.TheTerabitcorerouterNE5000claimeda100%marketshareinbuildingtwosupernationalbackbonenodesforGuangzhou,China.AndtheNE80claimeda75%marketshareinthenewconstructionproject.BoththeNE5000andNE80alsoareservingasintegralpartsoftheChinaNetnationalbackbonenetworkandhavebecomedominantdatacommunicationproductsinthenetworkofChinaTelecom.JunChinaMobileSelectedHuaweitoexclusivelycontractitssoftswitch-basedprivateIPnetworkTelecomserviceoverIPnetworkisanimportantconceptchangeforglobaltelecomoperatorstoprepareforthecomingNGNand3Gera.ThisIPnetworkiscurrentlytheworldlargestmobilesoftswitchbearernetworkintheworld.Successfulcompletionofphase-1UMTSnetworkprojectforEtisalatOn31May2004,thephase-13G/UMTSnetworkofEtisalatinUAEwascompleted,andthewholesetofUMTSequipment,includingwirelessaccessnetwork,circuit-switchedandpacket-switcheddomaincorenetworkandmultimediacolorringbacktoneplatform,wasbuiltintothenetwork.JulCiscoclaimagainstHuaweiresolved28July2004,Huawei,Ciscoand3COMsubmitteda“requestforterminatinglawsuit”totheEastTexasCourtofAmerica.Accordingly,thecourtissuedadecreetoterminatethelawsuitagainstHuawei,endinginafinalsettlementinthedisputeonintellectualpropertyrights.Eachpartyundertooktheirownlegalfee,lawsuitexpensesandotherrelatedexpenses.ThisdecreestatedthatCiscoshallnotinstituteanyfuturelawsuitsregardingthisorequivalentcases.Mr.Chambers,CEOofCisco,expressedtothemedia“Huaweiisanexcellentcompanyandgoodcompetitor.”AugHuaweilaunchedtheworld’sfirstlarge-capacitylong-haulG.653-basedopticalwavelengthdivisiontrunkHuaweilaunchedthefirstG.653-basedlarge-capacitylong-haulopticalwavelengthdivisiontrunkintoserviceforTelemar–thetopfixednetworkoperatorinLatinAmerica.Asaresult,Huaweibecamethesoleopticalnetworkequipmentsuppliertoownandcommerciallyapplysuchtechnology.ThisG.653-basedopticnetworkextends1,000km,andspansmanyofthemajorcitiesinBrazil,itisnowthemaintransmissiontrunkthatcanmeettheservicedispatchingrequirementsofTelemarinthecomingyears.Huaweiaccomplishedasingle-bandrateof10GattheCband,and16-wavelengthDWDMtransmission.Thisprojectsettherecordofthesingle-bandrateof10Gfortransmittingacapacityof160GontheG.653fiberfor1,000km.SepTelekomMalaysiaawardedHuaweiUMTScontractOn28September,2004,HuaweiwontheUMTSbiddingprojecttohelpTelekomMalaysiabuilditsUMTSnetwork.Huawei’sprojectobtainedanenormousexportloanfromaforeignbankforthefirsttimeAlgeriaTelecomCompany(borrower)enteredintoaloanagreementwiththeParisBankofFrance(lender)forcreditofthebuyertotallingUSD28million.ThisprojectisunderthefinancialguaranteeoftheAlgeriaNationalBank,andthe6HuaweiTechnologiesAnnualReport20047=HuaweiTechnologiesAnnualReport2004telecomequipmentisexportedbyHuaweitotheAlgeriaTelecomCompany–Algeria’sstateownedoperator.ThebusinesscontractsignedbetweenHuaweiandAlgeriaTelecomCompanyisfinanced85%bythiscredit.Asanexporter,Huaweiprovides,installsandoperatesCDMAdevicesfor80,000usersfortheborrower–AlgeriaTelecom.ChinaCreditInsuranceCompanysecuresaninsurancepolicytoinsurethebuyer’scredit.OctEMTELcooperatedwithHuaweitodebutthefirstcommercialUMTScommercialnetworkinAfricaOn16