The long-awaited 3G-capex boom in China is like a warm fire on a cold night for mobile network vendors,many of which are struggling with a variety of issues, including slack sales, falling margins and lingering integration problems.Network-vendor first-quarter results and subsequent announcements show that China's three mobile operators are starting to make good on their plans to spend a whopping US$29 billion this year to roll out 3G services across many parts of the country. But it is also clear that China's mobile operators are taking advantage of their strong bargaining position in a down mobile-network market, leading some vendors to take a hit on margins for the initial 3G rollouts in China, in the hope that margins will increase with network expansions and upgrades.China's network vendors are particularly happy, of course, given that they're already growing faster than their rivals and look set to take the majority of China's 3G business. For example, ZTE recently declared itself the top 3G vendor in China, claiming it had won a 34% share of the TD-SCDMA projects awarded by China Mobile, 28% of CDMA2000 deals from China Telecom and 21% of WCDMA business from China Unicom.Much of the 47% revenue increase in its carrier-networks business was "driven by 3G construction projects in China,  "ZTE says. The results also show the importance of its domestic market, with China accounting for 39% of 2008 revenues.Huawei says that in 2008 it - ranked No. 1 in shipments in China's 3G market, - having helped upgrade China Telecom's 1xRTT network to support 1xEV-DO in 52 cities, including eight of the 10 largest cities, such as Beijing and Tianjin. China Telecom launched the first commercial 3G services in China in April 2009.But China is only part of the story for Huawei,which says the domestic market accounted for less than 25% of its sales in 2008. Notable network achievements for the vendor outside China include landing arguably the first commercial LTE/SAE-network contract, alongside Ericsson, though it is for a relatively modest deployment planned by TeliaSonera.In addition, like ZTE and unlike most Western network vendors, Huawei reported strong 2008 results, with net income up 20%, to US$1.2 billion, on sales that were up 43%, to US$18.3 billion. However, the much stronger increase in sales compared with net income suggests that Huawei was still using low prices to gain market share. Most major western vendors have also landed key contracts in China and say the deals are already generating significant revenues. Ericsson says that in 1Q09 its networks operating margin increased one percentage point, to 10%, on sales that were up 12%, to SEK33.5 billion (US$4.5 billion), with "especially strong performance in China, India and the US." However, its gross margin excluding restructuring charges declined to 36.3% in 1Q09, compared  with 38.6% in 1Q08, with the drop - mainly due to large initial rollouts of 3G in China, higher sales in India, higher proportion of services sales and the transfer of Ericsson Mobile Platforms.

In March, China Unicom awarded Ericsson a contract to deploy WCDMA servicesin 15 provinces.Asia Pacific was the vendor's top region in the first quarter, seeing sales increase 26% yearon-year, to SEK16.3 billion. Its second-largest region was Central and Eastern Europe, the Middle East and Africa, which saw sales increase 12%, to SEK12.5 billion. In Western Europe, the vendor saw sales decline 4%, to SEK11.2 billion, largely because of the divestiture of Ericsson Mobile Platforms and a PBX business.For Nokia Siemens Networks (NSN), China was one of the few bright spots in 1Q09, with sales in the region up 6%, to £284 million (US$402.6 million), compared with £269 million in 1Q08. In 1Q09, NSN won a WCDMA deal with China Unicom that will see the vendor deployservices in 11 provinces, and it also won a TD-SCDMA and GSM contract with China Mobile in the quarter. NSN says the deals with the two operators could be worth about £880 million.NSN's sales may have been up in China in 1Q09, but they were down in all other regions, leading global sales to decline 12% year-on-year in 1Q09, to £3 billion, from £3.4 billion in 1Q08. The drop was the main reason NSN's operating loss jumped to £361 million in 1Q09 compared with a loss of £74 million in 1Q08, the vendor says. To make matters worse, it says it now expects the global telecoms-network market, including mobile and fixed networks and related services, to decline about 10% in 2009 in euro terms, compared with its previous view that the market would decline 5% or more. But at least NSN says it expects its market share to remain steady in 2009.In late April, Alcatel-Lucent (A-L) unveiled two framework agreements, with China Mobile and China Telecom,worth a total of US$1.7 billion in 2009. A-L also recently signed a deal with China Unicom to deploy WCDMA networks in 14 Chinese provinces. The three deals make A-Lthe only Western vendor to have 3G contracts with all three of China's major mobile operators and could make it the top Western 3G vendor in China, though it would still trail far behind ZTE and Huawei.A-L says its contract with China Mobile is worth nearly US$1 billion and will see it provide radio equipment for TD-SCDMA and GSM/EDGE networks. Its framework agreement with China Telecom is worth US$700 million and covers CDMA and EV-DO radio equipment, application platforms, optical and IP transmission platforms, IP routers and network-maintenance services.Among other network vendors, Motorola recently announced a deal to deploy WCDMA networks for China Unicom in 1H09, but it is not clear whether the deal had a significant impact on its gloomy 1Q09 network results. Motorola says operating earnings in its Home and Networks Mobility unit dropped 25%, to US$115 million, in 1Q09, compared with US$153 million in 1Q08, on sales that fell 16%, to US$2 billion, in 1Q09 compared with US$2.4 billion in 1Q08.Both Motorola and Nortel have CDMA deals with China Telecom, but neither has announced EV-DO deals with the operator. Nortel's filing for bankruptcy protection might have taken it out of the running for China's 3G contracts, with rumors swirling that the only way forward for the vendor is to sell its business units to rivals.

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