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Huawei's Hedge Against Supply Disruption Hits 2018 Cash Flow

Robert Clark
News Analysis
Robert Clark
3/29/2019

Huawei has survived a year from hell to pass the $100 billion sales mark for the first time and boost earnings by 25%.

With handset shipments overtaking carrier equipment sales, the Chinese vendor today announced a net profit of 59.3 billion yuan ($8.66 billion), up 25% on 2017 figures, and hailed revenue growth of 19.5%, to RMB721.2 billion ($105.2 billion).

The result suggests 5G bans imposed by the US and its allies, and the controversial arrest of Huawei's CFO on bank fraud charges, are having little impact on the Chinese vendor.

For the first two months of the year, revenues were up as much as 30%, rotating chairman Guo Ping told a briefing in Shenzhen.

However, the effect of the global battle with the US can be seen in the cash flow numbers, as the company has stocked up on raw materials and components.

Operating cash flow is down by 22.5% to RMB74.7 billion ($11.1 billion) and inventory has spiked 28% to RMB375 billion ($55.9 billion), the annual report shows.

Guo said the company had increased inventory "to prepare for uncertainties" -- including a possible ban on US suppliers similar to that slapped on ZTE.

He revealed that Huawei had devised a back-up plan some years ago to prepare for supply chain disruption.

The figures also confirmed the newly dominant role of the handset business.

Established less than a decade ago, the division powered past the carrier unit for the first time, with sales rising 45% to RMB349 billion ($52 billion). Huawei is now the clear number two smartphone brand by units shipped, trailing only Samsung in this market.

By contrast, the core carrier business shrank 1.3%, to RMB294 billion ($43.8 billion), accounting for just 41% of total sales. Huawei said this was part of the carrier investment cycle, with spending due for a 5G-related increase this year.

It is claiming more than 30 commercial 5G customers and says it has shipped more than 40,000 base stations.


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In another milestone, the enterprise division passed the $10 billion mark, recording RMB74 billion in sales, 23% more than in 2017.

Geographically, China remains Huawei's biggest market, accounting for 51% of sales.

Guo took the opportunity in front of the press to take some jabs at Washington, accusing it of adopting "a loser's attitude."

"They want to smear Huawei because they can't compete with Huawei in this particular domain," he said.

He said the external pressure had "inspired" staff but meant the company had to work harder on communicating with stakeholders.

Referring to the number of countries that had rebuffed the US, he said customers were making their "decisions based on their own interests rather than on the interests of the US."

He reiterated claims that Huawei would not accede to any government request to monitor private communications, and that no third party held any shares in the privately held company.

Guo said Huawei was owned by 97,000 current and former employees and had now opened its share register at its Shenzhen HQ to anyone who wanted to inspect it.

— Robert Clark, contributing editor, special to Light Reading

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