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||$2.1 billion||78%|
Its reported 2007 revenues put it well ahead of Nortel Networks Ltd. to claim fifth spot in our updated global table of telecom equipment vendors (see Table 2).
Table 2: How Huawei Stacks Up Against Major Rivals
|2007 revenues in US$*||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*|
|Cash flows from operations||843||743||708||396||385||204||255|
|Operating profit margin||7%||7%||14%||18%||19%||17%||24%|
|*Excluding discontinued operations|
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:
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