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Huawei Pumps Up Its Profits to $3.5B

Robert Clark
News Analysis
Robert Clark
3/31/2014
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Huawei has posted its biggest net profit in three years, buoyed by sales in its home market and demand for smartphones.

Despite a relatively modest contribution from its core carrier business, Huawei Technologies Co. Ltd. recorded a healthy 34.4% rise in full-year earnings to 21.0 billion Yuan Renminbi (US$3.47 billion) for 2013.

That's in stark contrast to its Chinese vendor rival ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which reported a 10.6% decline in revenues for 2013. (See Sales Slump Takes Shine Off ZTE's Profits .)

According to its annual report, published Monday, the vendor improved its revenues by 8.5% to RMB239.0 billion ($39.5 billion) and boosted operating margin by 3.2 percentage points to 12.2%.

The numbers are in line with the preliminary results reported in January. (See Huawei's Operating Profit Soars.)

Strong performances by the handset and enterprise groups offset the low growth in network sales and suggest the vendor's diversification strategy is well on track.

This appears especially true in Huawei's domestic market, where the consumer and enterprise groups combined increased revenue by 35%. However, due to weaker network business, total sales in China rose by just 14%.

Globally, Huawei, now the world's third-largest smartphone vendor, shipped 52 million smartphones and boosted device sales by 17.8%, while the small enterprise group grew by a third. Sales to operators grew by just 4%. (See Huawei's Handsets Man Has Been Here Before.)

Table 1: Huawei's 2013 Revenues by Business Line

Revenues by business line in RMB 2013 Revenues 2012 Revenues Change
Carrier Networks 166.5 billion 160.1 billion 4.0%
-- of which Wireless Networks 52.5 billion
-- of which Fixed Networks 45.1 billion
-- of which Global Services 52.0 billion
-- of which Carrier Software & Core Networks 16.9 billion
Enterprise 15.3 billion 11.5 billion 32.4%
Consumer devices 57.0 billion 48.4 billion 17.8%
Others 0.26 billion 0.2 billion 32.5%
Total revenues 239 billion 220.2 billion 8.5%
Source: Huawei Annual Report 2013

Handsets and other consumer devices now account for 24% of Huawei's revenues, up from 22% last year, while the network group's share has fallen to just below 70%, down three percentage points.

The annual numbers offer up one milestone -- it is the first time Huawei has overtaken Ericsson in terms of total revenues. (See Ericsson Flatlines in 2013, Trails Huawei.)

However, with just $27.5 billion in network infrastructure and services sales to operators, Huawei remains the second-largest telecom sector vendor behind the Swedish firm, which clocked up SEK227 billion ($34.9 billion) in revenues last year.

Acting CEO Eric Xu attributed the performance to "the improved global macro economy, a better business environment, and the effective execution of our corporate strategy."

Xu, who hands over the acting CEO badge to Guo Ping from April 1, promised to increase compensation for staff and to make long-term incentives available "for a larger number of high-performing" employees.

And in a move apparently aimed at heading off claims that it has benefited from subsidized land, Huawei has published details of its real estate portfolio in China.

The company said that up to the end of 2013, it had invested RMB3.13 billion ($503m) on land use rights in 10 Chinese cities. This included RMB601 million for the purchase of rights to its 1.6 million sq meter headquarter campus in Longgang, Shenzhen. After amortization, the carrying value of its Shenzhen land, buildings, and fittings is RMB3.24 billion.

All land in China belongs to the state, and only land use rights are bought or sold.

Privately held Huawei has issued an annual report, prepared by accountants KPMG, for the past half dozen years in response to complaints about its lack of transparency and alleged military and security links.

— Robert Clark, contributing editor, special to Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/8/2014 | 6:43:29 PM
Re: US market
R Clark - "The only place where Huawei's revenue dipped was, believe it or not, the Americas - down 1.3%. "

Not suprising, given the US government seems to have targed Huawei as a high-profile enemy.
pcharles09
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pcharles09,
User Rank: Light Beer
3/31/2014 | 10:11:38 PM
Re: US market
Makes sense. Too much competition here. They'd be fighting for the low-hanging fruit. It's much more profitble elsewhere.
R Clark
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R Clark,
User Rank: Blogger
3/31/2014 | 7:56:37 PM
Re: US market
The only place where Huawei's revenue dipped was, believe it or not, the Americas - down 1.3%. They say they're doing well in Brazil.
smkinoshita
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smkinoshita,
User Rank: Light Sabre
3/31/2014 | 7:54:22 PM
Re: US market
I THOUGHT it was the same Huawei that ran afoul of the NSA...

I didn't think 'hilarious' but for a brief moment thought 'conspiracy'... before I realized that in general people just aren't organized enough to pull conspiracies off.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
3/31/2014 | 7:16:08 PM
Re: US market
Spoiler warning on Huawei's presence in US: It's kind of hilarious.
Sarah Thomas
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Sarah Thomas,
User Rank: Blogger
3/31/2014 | 6:33:26 PM
Re: third-largest smartphone vendor
It's in shipments, but it's actually held that slot behind Apple and Samsung for a few quarters now. Nokia isn't even top five.
brookseven
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brookseven,
User Rank: Light Sabre
3/31/2014 | 1:57:52 PM
Re: third-largest smartphone vendor
Uhhh...Nokia sold its smartphone business to Microsoft.

seven
nasimson
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nasimson,
User Rank: Light Sabre
3/31/2014 | 12:48:38 PM
third-largest smartphone vendor
> Globally, Huawei, now the world's third-largest smartphone vendor.

I am actually quite surprised to see this. I thought #3 to be Nokia after Samsung & Apple. Is it by revenue or by units sold?
Ray@LR
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50%
Ray@LR,
User Rank: Blogger
3/31/2014 | 11:04:13 AM
Re: US market
Watch out for an update on Huawei in the US market -- we have something 'coming down the pipe' on that topic....

But you're right - the rest of the world (minus a few other places that aren't so keen on Chinese networking gear) is a large market.
DOShea
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DOShea,
User Rank: Blogger
3/31/2014 | 10:56:57 AM
US market
Huawei's present and future status in the US market might be unclear, but that doesn't seem to matter much right now.
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