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Huawei Profits Soar Despite Forex Hit

Robert Clark
News Analysis
Robert Clark
4/1/2016
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Huawei has posted another hefty profit, defying the slowing world economy to boost full-year earnings by a third in 2015.

The result, which reflected strong demand for Huawei's smartphones and 4G gear, more than offset an embarrassing 4.36 billion yuan (US$670 million) foreign exchange loss.

Smartphone sales spiked 73%, to RMB129.1 billion ($19.9 billion), propelling Huawei Technologies Co. Ltd. into the ranks of the world's top three handset brands and making it number one in China. Last year, it shipped 108 million devices globally.

The privately held vendor announced Friday a net profit of RMB36.9 billion ($5.7 billion), 32% higher than in 2014. Total revenues of RMB395 billion ($60.8 billion), up 37% compared with 2014, were driven by bumper sales in the domestic market, with China accounting for 42% of revenues.

Huawei deputy chairman and rotating CEO Guo Ping described the performance of the consumer division as "pretty good," attributing it to sales of high-end smartphones such as the Mate 7 and the P8.

He also indicated that Huawei aimed to replicate its domestic smartphone dominance in markets outside China, with more investment planned in handset R&D and a further ramp-up of global marketing spend.

The strong handset performance meant the core operator business accounted for 58% of total revenues last year, its lowest proportion ever.

However, sales to carriers still grew by 21%, to RMB232 billion ($35 billion). Guo said this was a result of "a second wave" of 4G rollouts, especially in China. He expects continued growth in 2016 as operators begin carrying out 4.5G upgrades.

The sales to operators, which were nearly a fifth higher than Ericsson AB (Nasdaq: ERIC)'s revenues in 2015, confirm Huawei's status as the telecom industry's biggest supplier of carrier equipment. (See Ericsson Shares Tumble Despite Profit Growth.)


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The one splash of red ink was a foreign exchange loss of RMB4.36 billion ($670 million), a blow-out from a RMB2.1 billion ($325 million) forex loss in 2014. CFO Sabrina Meng said it was a result of "unexpected" events in global forex markets, which caused fluctuations in key currencies.

She acknowledged the company lacked the tools to manage foreign exchange risk and was working with a foreign financial institution "to better equip ourselves" in researching and understanding the global economy.

According to Huawei's 2016 guidance, total sales are expected to rise by 25%, to approximately $75 billion. The vendor expects device sales to increase to between $25 billion and $30 billion and carrier equipment sales to around $40 billion.

Today's numbers show the Chinese vendor spent RMB59.6 billion ($9.2 billion) on R&D, equivalent to 15% of revenue and 46% more than in 2014.

Huawei's gross margin shrank by 2.5 percentage points, to 41.7%, and the company ended the year with net cash of RMB96.2 billion ($14.9 billion), up from RMB77.9 billion ($12.1 billion) a year earlier.

— Robert Clark, contributing editor, special to Light Reading

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iainmorris
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iainmorris,
User Rank: Blogger
4/4/2016 | 9:02:30 AM
Story updated to correct error
This story has been updated since it was first published to say Huawei's carrier revenues were nearly a fifth higher than Ericsson's overall revenues in 2015, not a third higher, as previously indicated. Apologies for the mistake.
steven.m.wood1@gmail.com
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[email protected],
User Rank: Lightning
4/3/2016 | 11:53:42 PM
Re: Congratulation Huawei!
Imagine if they made some profit in Europe.  It is very little at this point.  

Still don't see many Huawei handsets in the US.
R Clark
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R Clark,
User Rank: Blogger
4/3/2016 | 11:48:09 PM
Re: Congratulation Huawei!
I don't think they're going to get into the US with their carrier gear, especially with cybersecurity such an awkwardr US-China issue, but the North America handset market is would be a big focus for them.;
R Clark
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R Clark,
User Rank: Blogger
4/3/2016 | 11:45:49 PM
Re: Congratulation Huawei!
I didn't mention the enterprise group, but they had a good year, 44% growth, 28b yuan ($4.3n) in revenue.
R Clark
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R Clark,
User Rank: Blogger
4/3/2016 | 11:44:01 PM
Re: Congratulation Huawei!
Yes, the Americas is just 10% of total revenue.  

The 2016 guidance is pretty bullish, though. Now the China 4G binge is over will be a challenge to get growth out of the carrier business.
danielcawrey
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danielcawrey,
User Rank: Light Sabre
4/3/2016 | 4:27:34 PM
Re: Congratulation Huawei!
Not staying focused on the Chinese market has really boosted Huawei's profits. I would expect them to continue to put pressure on the US market to use the company's products. 

And I think if they continue to lobby for entry into US markets, they will eventually win. 
steven.m.wood1@gmail.com
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[email protected],
User Rank: Lightning
4/3/2016 | 3:15:51 AM
Re: Congratulation Huawei!
Great work, but what about Enterprise BG, the third Huawei business?
sowen557
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sowen557,
User Rank: Light Sabre
4/1/2016 | 7:10:30 PM
Congratulation Huawei!
Imagine if they had entry into US Market?
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