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Huawei Profits Soar on 4G, Smartphone Sales

Robert Clark
News Analysis
Robert Clark
3/31/2015

Huawei has powered to yet another sturdy profit on the back of China 4G rollouts and strong demand for its smartphones.

The Chinese vendor today announced that net profit had risen by 33%, to 27.9 billion yuan renminbi (US$4.5 billion), with sales rising by 21%, to RMB288.2 billion ($46.5 billion). It also predicted that revenues would increase at a compound annual growth rate of 10% for the "next three to five years". (See Huawei Puts Its Rivals to Shame.)

However, it is experiencing some growth pains, with a 35% hike in operating expenses far outstripping the increase in revenues. Costs accounted for 32.4% of topline sales, up from 28.8% a year ago, mostly due to higher marketing and R&D spending. Huawei's operating margin shrank from 12.2% to 11.9%.

Acting CEO Ken Hu said the company had "maintained focus" on its ICT pipe strategy and streamlined management in 2014.

In its annual report released today, Huawei Technologies Co. Ltd. attributed the higher earnings to growth in scale, lower forex losses and more efficient use of funds. Although the company is privately held, it issues its full financial statements each year audited by KPMG.

In its home market, Huawei increased revenues by a third thanks to thanks to China Mobile Ltd. (NYSE: CHL)'s TDD network rollout and higher smartphone sales. China accounted for 38% of Huawei's overall revenue in 2014, up from 35% in 2013.

Growth was strong across all business units. Revenues from the carrier networks division grew by 16%, increasing their share of total sales from 67% to 69%, while the consumer group lifted sales by 33% to more than $10 billion for the first time ever. At its enterprise division, Huawei flagged revenue growth of 27%. (See Huawei Reports Consumer Business Group Financials.)

The company shipped 75 million smartphones worldwide, 45% more than in 2013, with 52% of these sold outside China. Offshore markets are to be the focus for the smartphone business in 2015, said Huawei.


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The report reveals one area of clear advantage over rival telecom vendors, and that is Huawei's cash hoard of more than RMB78 billion ($12.6 billion), up from RMB59 billion ($9.5 billion) a year ago.

That pales beside Apple Inc. (Nasdaq: AAPL)'s $178 billion stockpile and Cisco Systems Inc. (Nasdaq: CSCO)'s $46 billion stash, but it puts Huawei well ahead of Ericsson AB (Nasdaq: ERIC) (with $3.2 billion) and Nokia Corp. (NYSE: NOK) (with $5.4 billion).

Another notable shift for the Chinese company is on debt financing. Despite the hefty credit lines available from Chinese state banks, last year just 22% of Huawei's debt was provided by Chinese financial institutions. As recently as 2010, Chinese banks were responsible for 52% of its borrowings.

Looking ahead, Huawei said it would continue building "broader, smarter and more reliable pipes" in 2015 and beyond.

Acting CEO Hu also vowed to protect customers' data and privacy.

"No matter what the challenges might be, we must adopt every possible means to provide higher levels of assurance to ensure the secure and stable operations of customer networks," he said.

Additionally, he said the company aimed to improve flexibility and response time by delegating responsibility to field units.

— Robert Clark, contributing editor, special to Light Reading

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thebulk
thebulk
3/31/2015 | 9:59:10 PM
Re: Growth expected from enterprise and devices I wonder?
@nasimson, I cant speak from the network perspective here, I know many deploy the equipment but I am not sure of how much. I know the handsets strugle here in Thailand. Apple and Samsung have a rather tight grip on the markets.
nasimson
nasimson
3/31/2015 | 9:54:35 PM
Re: Growth expected from enterprise and devices I wonder?

@TheBulk:


Thanks for sharing insights from Myanmar and Thailand. From another South Asian country Pakistan ... Huawei's networks are doing way better than Huawei's terminal devices. Some or the other form of network elememts are deployed by all telecoms. Dongles and Wingles are predominantly Huawei's. Hansdets on the other hand are struggling. Largest operator Mobilink has been launching Huawei's smart phones (Ascend being the recent most one), but its yet to make an impact.
R Clark
R Clark
3/31/2015 | 9:50:49 PM
Re: Growth expected from enterprise and devices I wonder?
For sure, the carrier network share of revenue will go down. Eric Xu, one of the acting CEOs, says it could be as low as 50%.  But that points up how well Huawei has done in diversifying. In four year it's gone from white label handset-maker to top 5 smartphone firm, and the enterprise division has gone from zero to $3b.
thebulk
thebulk
3/31/2015 | 3:53:26 PM
Re: Growth expected from enterprise and devices I wonder?
Here in Thailand I see a few Huawei phones from time to time when i troll around the tech malls in Bangkok, but in Myanmar (Burma) it seems to be the dominate smartphone, almost everyone has one. 
danielcawrey
danielcawrey
3/31/2015 | 2:47:02 PM
Re: Growth expected from enterprise and devices I wonder?
Huawei is really becoming a player in networking despite its negative standing in the US. A lot of people argue that the company is propped up by the Chinese government.

It's hard to tell whether or not that's valid, but the reality is that in emerging markets Huawei is dominating – which is really good for their long term outlook. 
Ray@LR
[email protected]
3/31/2015 | 10:04:55 AM
Growth expected from enterprise and devices I wonder?
China's 4G rollout is clearly helping the carrier division but that won't last forevere - I wonder if the 10% annual growth is largelye xpected to come from enterprise and devices?

Huawei has made great strides in its enterprise offering the past two years, according to people I have sopken with (who do not work for Huawei). IT had an impressive array of products on show atthe recent CeBIT event in Germany and there are plenty of companies that like what Huawei is doing in that space. 

Diversity is key for everyone, methinks.
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