Huawei's profit squeezed as it seeks new growth

Huawei's earnings plummeted two-thirds last year as its efforts to find growth have sharply squeezed profitability.

The Chinese firm announced a net profit Friday of 35.6 billion Chinese yuan (US$5.1 billion) on flat revenue of 642.3 billion yuan. The net margin of 5.5% was its lowest in its history, CFO Sabrina Meng told an earnings briefing in Shenzhen.

While the previous year's earnings had been inflated because of the sale of the Honor handset division, the 2022 numbers show some of the stresses of the business: cashflow from operations slumped 70%, expenses rose 10% - well ahead of revenue - while total borrowings have increased nearly threefold over the last five years.

Huawei reports its lowest net margin in history.
 (Source: Russell Hart / Alamy Stock Photo)
Huawei reports its lowest net margin in history.
(Source: Russell Hart / Alamy Stock Photo)

But Meng and current rotating chairman Eric Xu said Huawei believed it had put the worst of the impact of the US sanctions behind it and had returned to business as usual.

They cited the stabilization of revenue after several years of plunging sales. Huawei grew its topline 7.5% in the second half, a turnaround from the 6% drop in the first six months and the 29% fall in full-year sales in 2021.

The aggressive expansion of the R&D budget was another factor in the lower profit, Meng said. R&D spending grew 13% to 161.5 billion yuan, around a quarter of total revenue.

Enterprise grows 30%

The other major positive was the spike in enterprise sales. It grew 30% to 133 billion yuan, with stronger cloud revenues and heavy demand from Chinese verticals such as ports and mines.

For the first time, Huawei broke out some of its enterprise segment figures. The cloud business reported 45 billion yuan in sales, digital power 51 billion yuan and the new auto business 2.1 billion yuan.

Huawei's two other big business units reported mediocre numbers. The carrier equipment business was flat at 284 billion yuan and the consumer business posted yet another decline, with sales down 12% to 214.5 billion yuan.

In terms of geographies, the main source of growth was EMEA, up 13.5%, with the China market declining by 2.3% while still accounting for 63% of all revenue. "In 2022, a challenging external environment and non-market factors continued to take a toll on Huawei's operations," Xu said.

The company had gone to great lengths to generate a steady stream of revenue and lay the groundwork for future growth, he said.

Xu noted that "2023 will continue to be very challenging for Huawei. We will continue to keep racing ahead to miss the storm."

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— Robert Clark, Contributing Editor, special to Light Reading

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