Huawei Puts Its Rivals to Shame

China's Huawei appears still to be flourishing in the global communications technology market, having announced in an unaudited results statement published today that its operating profit is expected to have grown by 17% year-on-year in 2014.

That's in stark contrast to the recent performance of some of its main rivals.

Huawei Technologies Co. Ltd. is anticipating 2014 revenues of 287289 billion Chinese Yuan (US$46.3-46.6 billion), nearly 20% more than it generated in 2013, and operating profits of CNY33.9-34.3 billion, up about 17% from a year earlier. (See Huawei Boosts Operating Income by 17%.)

Operator spending on high-speed 3G and 4G networks, as well as soaring consumer interest in smartphones, look chiefly responsible for Huawei's sales growth last year.

Indeed, the company's networks division reckons sales grew by 15% in 2014 thanks mainly to a steady increase in 3G investment and a "jump" in 4G spending globally, though there's no doubt that the massive investments in LTE rollouts in China will have given Huawei's top line a significant boost. (See Forget 3G: China Mobile Is a 4G King.)

Want to know more about 4G LTE? Check out our dedicated 4G LTE content channel here on Light Reading.

Sweden's Ericsson AB (Nasdaq: ERIC), Huawei's chief rival in the mobile networks market, is not due to report 2014 results until January 27, but its sales during the first nine months of the year were unchanged from the year-earlier period, at 160 billion Swedish kronor ($20 billion), although its operating profit was up 19.3%, to SEK10.5 billion. (See Global Reach Helps Ericsson Grow in Q3.)

Even so, Ericsson's operating profit margin came in at just 6.6% during the first nine months of 2014, while Huawei managed a relatively impressive 12% for the whole year -- about the same as in 2013.

Huawei's other big networking competitors include Alcatel-Lucent (NYSE: ALU) and Nokia Corp. (NYSE: NOK). Due to report 2014 earnings on February 6, the former saw revenues drop by 5.1% during the first nine months of the year, to 9.5 billion ($11.2 billion), but swung to an operating profit of 339 million from a loss of 21 million in the first nine months of 2013.

Nokia, whose full-year results announcement is scheduled for January 29, reported a 3% drop in revenues during the first nine months of 2014, to 8.9 billion, and registered an operating loss of 283 million, having made a profit of 244 million in the first nine months of 2013.

Table 1: Equipment Makers' Recent Financial Performance

Revenues YoY change Operating profit/loss YoY change Operating profit margin
Huawei (full year) $46.3-46.6 billion c. 20% $5.5 billion 17% 12%
Ericsson (9 months) $20 billion 0% $1.3 billion 19.3% 6.6%
Alcatel-Lucent (9 months) $11.2 billion -0.1 $400 million N/A 3.6%
Nokia (9 months) $10.5 billion -3% -$334 million N/A N/A
Notes: Huawei's figures based on unaudited full year 2014 results; others based on results for first nine months of 2014.

Huawei's performance in the devices market also appeared to contrast sharply with that of South Korean tech giant Samsung Electronics Co. Ltd. (Korea: SEC), which in preliminary earnings guidance published last week warned that earnings in the October-December quarter fell by 37%, compared with the same period of 2013. (See Samsung Profits Hit by Low-Cost Phone Rivals.)

Samsung looks to have come under particular pressure in China, where it faces competition from low-cost device makers like Xiaomi as well as high-end manufacturers such as Apple.

By contrast, Huawei claims that its devices business enjoyed "particularly strong growth in emerging markets" in 2014.

The company is now positioning itself to be a major player in what it calls the "industrial Internet" market, referring to the use of communications technologies in machines and industrial settings.

"Ubiquitous connectivity and big data will drive a new industrial revolution in intelligent technology, propelling the modernization of traditional industries, and reshaping today's industries and business landscape," said Huawei CFO Meng Wanzhou.

Huawei also reported a dramatic increase in R&D investments last year, spending a total of CNY39.5-40.5 billion, about 28% more than in 2013.

A decent chunk of the company's R&D spending over the next three years is likely to go on research into 5G technology -- in 2013, Huawei unveiled plans to spend as much as $600 million in this area by the end of 2017.

Iain Morris, News Editor, Light Reading

iainmorris 1/13/2015 | 12:19:35 PM
Rivals Will be interesting to see what progress Ericsson, Alcatel-Lucent and Nokia made in the last three months of 2014 when they report their earnings over the next few weeks. Can anyone or anything stop Huawei?  
Liz Greenberg 1/13/2015 | 8:32:51 PM
Just wondering? Huawei's results are impressive but this is unaudited data.  Do you believe that the numbers will stay as impressive after auditing?  Also, do you believe that they have overcome perceived worldwide biases to sustain this growth?  Just wondering
sowen557 1/14/2015 | 11:07:00 AM
Re: Just wondering? For a company that normally wins on cheapest pricing model, impressive they do make money with this approach.
Liz Greenberg 1/14/2015 | 12:59:22 PM
Re: Just wondering? Exactly...that and, as far as I know, there are still some serious trust issues.  Another question is will they be able to support everything using the cheapest pricing model as well?  Telecom customers typically are not the most patient when things are not right - broken, incomplete or whatever.  This takes some serious monetary commitment.
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