Huawei Reports 2007 Revenues of $12.5B

Huawei Technologies Co. Ltd. has (at last) issued its 2007 annual report, confirming its position as the fifth biggest telecom equipment vendor in the world with revenues of $12.56 billion for last year, up 48 percent from 2006.

And we're talking actual revenues here: The Chinese vendor often uses the value of signed contracts to publicly report its financial growth -- for 2007 it has previously announced "contract sales" of $16 billion -- but in its annual report it discloses its financials as audited by KPMG International "in accordance with IFRSs (International Financial Reporting Standards)."

And those 2007 revenues are higher than expected.

Well, higher than Light Reading expected, anyway.

Earlier this year we took an average ratio of revenues to contract sales from Huawei's previous annual reports -- it came to 73.4 percent -- and, using that ratio, estimated the firm's 2007 revenues would be about $11.7 billion. (See Huawei Sets Bumper Sales Target.)

But Huawei has beaten that average –- its 2007 revenues are equivalent to 78.5 percent of reported contract sales (see Table 1).

Table 1: Huawei's Contract Sales and revenues, 2002-2007

Year	Reported value of contract sales	Reported audited revenues	Audited revenues as % of reported contract sales
2007	$16 billion	$12.6 billion	78.5%
2006	$11 billion	$8.5 billion	77%
2005	$8.2 billion	$6 billion	73%
2004	$5.6 billion	$3.8 billion	68%
2003	$3.8 billion	$2.7 billion	71%
2002	$2.7 billion	$2.1 billion	78%
Source: Huawei

Its reported 2007 revenues put it well ahead of Nortel Networks Ltd. to claim fifth spot in our updated global table of telecom equipment vendors (see Table 2).

Table 2: How Huawei Stacks Up Against Major Rivals

	2007 revenues in US$*	2007 revenues in local currency
Cisco	$34.9 billion**	Not applicable
Ericsson	$31.3 billion	187.8 billion Swedish kroner
Alcatel-Lucent	$27.9 billion	�17.8 billion
Nokia Siemens Networks	$21 billion***	�13.4 billion
Huawei	$12.6 billion	CNY91.7 billion
Nortel	$10.95 billion	Not applicable
* Converted at exchange rates sourced on July 8 2008 ** Fiscal 2007 ending July 28 2007 *** Full year includes three quarters of Nokia Siemens Networks (Q2-Q4) revenues and one quarter (Q1) of Nokia infrastructure revenues only Source: Company reports

For 2007, Huawei's gross margin was 33.9 percent (down from 36.2 percent in 2006); its operating margin was 7 percent (unchanged from 2006) for an operating profit of $879 million; and its net income was $674 million, 32 percent up from 2006's profit of $512 million (see Table 3).

Table 3: Huawei Financial Performance (in US$ millions), 2001-2007

Years ended 31 December	2007	2006	2005	2004	2003	2002	2001*
Revenue	12,560	8,504	5,982	3,827	2,694	2,128	2,290
Net income	674	512	681	624	384	108	258
Cash flows from operations	843	743	708	396	385	204	255
Operating profit margin	7%	7%	14%	18%	19%	17%	24%
*Excluding discontinued operations Source: Huawei

So, while Huawei's revenues and the value of its contract awards are growing at a rapid pace, its operating margin is static (at 7 percent), its gross profit is down, and its net income is increasing at a slower pace than its revenues.

Here are some other statistics of note from Huawei's 2007 report:

Huawei ended 2007 with nearly $1.7 billion in "cash and cash equivalents," up from just more than $1 billion a year earlier.

It counts 35 of the world's Top 50 carriers as its customers.

35,000 Huawei staff are engaged in research and development -- that's 43 percent of the company's total global headcount of more than 81,000. The company says it invested 10 percent of its revenues ($1.26 billion) in R&D, with facilities in China, India, Europe, and the U.S.

By December 2007, Huawei had filed 26,880 patent applications since it began operations.

Huawei has established joint innovation centers with Vodafone Group plc (NYSE: VOD), BT Group plc (NYSE: BT; London: BTA), Telecom Italia (TIM) , Orange (NYSE: FTE), Telefónica SA (NYSE: TEF), and Deutsche Telekom AG (NYSE: DT).

Of its $16 billion of contract sales in 2007, 72 percent came from non-domestic, or international, markets. Huawei claims that its growth (in terms of contract sales) in "developed markets such as Europe, the United States, and Japan" in 2007 was more than 150 percent.

Like other major vendors, Huawei is now aggressively targeting the professional services market. It has seven managed services centers around the world and claims to have signed 34 managed services contracts during 2007, with Vodafone, China Mobile Communications Corp. , Etisalat , MTN Group Ltd. , and Warid Telecom Pvt. Ltd. among those customers. It's a red-hot market, leading some to claim that market share is being gained from "silly pricing." (See Nokia Siemens CEO Slams 'Silly Pricing'.)

Huawei says it has deployed 100,000 "green" mobile base stations that, to date, have saved the equivalent of 170,000 tons of coal in power consumption.

It claims to have won 45 percent of all new UMTS/HSPA mobile infrastructure contracts during 2007, and 44.8 percent of all new CDMA infrastructure deals. (See M1 Upgrades With Huawei, Huawei Touts 3G Deals, Huawei Wins at Reliance, and Tata Deploys Huawei.)

Huawei says its WiMax gear is deployed in 12 networks globally. (See Mobilink Does Mobile WiMax, Huawei Wins WiMax Deal, and STC Deploys Huawei.)

It claims leadership in the MSAN (multiservice access node) market and top spot in the IP DSLAM market in the second half of 2007. (See Huawei Rivals AlcaLu for DSL Crown.)

In 2007, Huawei won 59 commercial or trial IP Multimedia Subsystem (IMS) contracts. (See Huawei Wins IMS Deal.)

Now, of course, the focus is on 2008. Huawei estimates its contract sales total will be as high as $23 billion this year, up nearly 44 percent compared with 2007. And with China set to upgrade its mobile networks to 3G, and other emerging markets turning to the Chinese vendor for goods, services, and support, Huawei looks set for a few more bumper years as well. (See Huawei Pumps Up Its APAC Biz, China to Get 3G – At Last!, and Reliance Borrows $750M for Huawei Gear.)

But while Huawei has some undoubted strengths, and is working hard (though not always successfully) to beef up its presence in hot markets such as telecom software and North America (see Huawei Goes Indie for OSS, Huawei Preps $2B Handset Handshake, and Huawei & Bain Bail on $2.2B 3Com Deal), it still has work to do in some key areas, according to industry analysts. (See Heavy Reading Homes In on Huawei and Huawei Bites at the IP Core.)

— Ray Le Maistre, International News Editor, Light Reading