China's Huawei continues to leave its Western rivals trailing in the distance, reporting sales growth of 30% for the first six months of the year thanks partly to demand for its network products in China's booming 4G market.
Huawei Technologies Co. Ltd. has flourished even as competitors such as Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) have been struggling to boost revenues amid a slowdown in more established equipment markets.
As China's biggest maker of network equipment, Huawei has reaped the dividends of a recent surge in spending on 4G networks by China's three main mobile operators.
Revenues grew to 175.9 billion Chinese yuan (US$28.3 billion) in the first half of the year, from about RMB135.3 billion ($21.8 billion) in the same period of 2014.
The rate of increase easily outstrips the target of 20% that Huawei set for sales growth in 2015 at the beginning of this year. (See Huawei Expects 2015 Revenues of $56B.)
Huawei also reported an operating margin of 18%, down slightly from 18.3% in the first six months of 2014 but a big improvement on the 11.9% it managed across the whole year, when higher marketing and R&D expenses in the second half were thought to have chewed into profits. (See Huawei Profits Soar on 4G, Smartphone Sales.)
The Chinese company's profitability still looks impressive next to that of other equipment makers: Last week, Ericsson reported an operating margin of 5.9% over the April-to-June period, while Nokia and Alcatel-Lucent achieved margins of 8.3% and 2.5% respectively in the January-to-March quarter. (See Ericsson's Stock Rises on Q2 Margin Improvements, Nokia Slumps on Networks Malaise and Alcatel-Lucent Outperforms Rivals in Q1.)
Those companies have also benefited from a wave of 4G investment in China -- Ericsson saw revenues from northeast Asia increase at a year-on-year rate of 8% in the April-to-June quarter -- but they appear to have missed out on the very biggest contracts. (See AlcaLu Lands 'Top 3' 4G Deal at China Telecom and Nokia Sees Off Non-Chinese Rivals for China Telecom 4G Work.)
Besides serving operators around the world, Huawei also provides network equipment and services to the enterprise sector and maintains a growing devices business.
Alcatel-Lucent, Ericsson and Nokia have all divested former handset divisions to focus on their core infrastructure activities and in the face of competition from low-cost Asian rivals and luxury brands such as Apple Inc. (Nasdaq: AAPL).
Huawei said its performance had improved across all three of its business segments in the recent six-month period.
In a company statement, Meng Wanzhou, Huawei's chief financial officer, said that growth in the enterprise market "began to pick up in the first half of this year" and that consumer products, including the recently released P8 smartphone, had made "solid progress." (See Huawei P8 Launch: Cue Applause!)
She also indicated that Huawei had been able to "maintain steady growth in the carrier business" in the first half of the year.
"Investment continued to pour into 4G network construction in China," said Meng. "In addition, the growth in global data traffic drives investment in network capacity expansion, while carriers' digital transformation pushes up investment in the ICT industry."
While Huawei did not break out details of revenue growth in these separate areas, the enterprise and consumer businesses were the fastest-growing segments in 2014, flagging growth rates of 27.3% and 32.6% respectively.
But the company continues to generate the bulk of its sales from its carrier business, which accounted for two thirds of the total last year.
Revenues from service providers rose from RMB164.9 billion ($26.6 billion) in 2013 to RMB192.1 billion ($30.9 billion) in 2014.
Conditions in this market may grow tougher once Nokia completes a €15.6 billion ($16.9 billion) takeover of Alcatel-Lucent, aimed at creating a company with the scale and product range to challenge both Huawei and Ericsson. (See Nokia Makes €15.6B Bid for Alcatel-Lucent.)
Last week, Nokia chief technology officer Hossein Moiin suggested that Huawei might struggle in the future given lingering concern in Western markets about its close links with the Chinese state.
"Telecom fundamentally is infrastructure comparable to energy and when you think about what it does for society as a whole you want to ensure it is immune from attacks and hacking," he said during an interview with Light Reading. "You want to trust the people that build the infrastructure on your behalf." (See AlcaLu Deal Makes Us 'More Complete' Than Ericsson, Says Nokia CTO.)
— Iain Morris, , News Editor, Light Reading