Light Reading

Huawei's Operating Profit Soars

Robert Clark
News Analysis
Robert Clark
1/15/2014
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Huawei boosted its operating profit by almost half in 2013, according to preliminary and unaudited full-year guidance numbers issued Wednesday. (See Huawei Unveils 2013 Preliminary Results.)

The Chinese vendor expects operating income of between 28.6-29.4 billion Yuan Renminbi (US$4.73-$4.86 billion), up by as much as 47% on its CNY19.96 billion operating profit in 2012.

Total revenue is expected to be CNY238-240 billion ($39.3-$39.6 billion), an increase of approximately 8% and, in dollar terms, likely to make it the largest telecom equipment vendor by sales for 2013.

The increase in annual revenues is similar to last year's topline growth, which was the lowest Huawei has ever reported, and suggests that the effects of China's 4G rollout are not yet being seen.

However, the operating margin of around 12% is Huawei's highest for three years.

By comparison, Ericsson reported an 8.1% operating margin in Q3, and a 9.7% margin for the 2012 financial year. (See Ericsson Suffers Sales Pressure.)

The company did not give any further details but said the higher operating profit was a result of improvements in internal management and operational efficiencies as well as higher customer spending.

"Cash flow from operating activities and the company's asset to liability ratio remained stable," it said in a statement.

Huawei said all three of its divisions -- carrier network, enterprise, and consumer (mobile devices) -- reported sales growth, but did not disclose numbers.

According to the company, more than three-quarters of its carrier network sales came from the world's top 50 operators, while the proportion of carrier network revenues from services and software increased to 37% from 34% in 2012.

But the standout improvement appears to have come from its handset division. The Huawei consumer business group improved topline sales 18% last year to top CNY54 billion ($9 billion), according to figures published by Chinese telecom news site C114. The company shipped 5 million smartphones in 2013, making it the world's third-biggest supplier.

The company invested CNY33 billion ($5.4 billion) on R&D, or about 14% of sales.

Huawei will announce its audited full-year results during the second quarter.

Table 1: Huawei Growth 2010-2013

Year Revenues (billions of Yuan) YoY change Operating profit (billions of Yuan) YoY change Operating margin
2013 (est) 238-240 8.1%-8.3% 28.6-29.4 43%-47% 11.9%-12.3%
2012 220.2 8.0% 19.96 7.3% 9.1%
2011 203.9 11.7% 18.6 -39.4% 9.1%
2010 182.6 24.6% 30.7 38.3% 16.8%
Source: Huawei

— Robert Clark, contributing editor, special to Light Reading

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R Clark
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R Clark,
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1/15/2014 | 10:50:14 AM
Re: China 4G to come....
Ericsson and Huawei were close last year on gross sales but only 70% of Huawei revenue came from carrier networks, so on that score it's still well behind.

The handset business could become the tail that wags the dog. It's now about 22% of revenue and has a shot of building a global brand.
Ray@LR
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Ray@LR,
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1/15/2014 | 7:54:01 AM
China 4G to come....
IMagine what the numbers will be like for 2014, with the addition of the 4G rollouts in China!

No doubt that Huawei will be the biggest telecom vendor by sales this year, but with greater size come operational issues (normally). And its smartphone sales are growing but is that sustainable? I know that some models are pretty ropey in terms of voice quality.

 

And... Just imagine if Huawei also had a clear run at the US market....
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