Huawei profit margin sinks on heavy R&D spend

Huawei's profitability contracted further in the first quarter, while revenue was flat, the company announced Friday.

The Shenzhen-based vendor reported a net margin of 2.3% for Q1, down from 4.3% for the same period last year and less than half the full-year margin of 5.5%, which it said was its lowest ever.

Revenue for the quarter was 132.1 billion Chinese yuan (US$19.1 billion), just 0.8% higher than a year ago.

Figure 1: Huawei's margins shrank as it pumped additional funds into R&D.
(Source: Karlis Dambrans on Flickr, CC 2.0)

The privately held company did not disclose any other figures, but said the smaller profit margin was largely due to its increased R&D spending.

"Overall business results were in line with forecast," it said in an emailed statement.

But while revenue grew for the first time in Q1 since 2020, the numbers also show a retreat from the improved performance in the second half of last year, when the growth rate hit 7.5% after dropping 6% in the first half.

Back to business as usual

The modest result also contrasts with the bullish remarks by leaders at its results briefing a month ago.

CFO Sabrina Meng said the company had "pulled itself out of crisis mode" and was back to business as usual.

In response to strict US sanctions and restrictions that have cut off access to advanced chip technologies and crippled its handset business, Huawei has begun reinventing itself as an integrated enterprise and telecom solutions provider, with burgeoning cloud and auto businesses.

It is also betting that it can innovate its way back to growth through heavy R&D investment. Last year it increased R&D spending by 13% and added another 12,000 research staff, who now account for 55% of its workforce.

"Huawei has yet again increased investment in R&D to keep innovating for the future, create new value for its customers, partners, and the communities worldwide, and promote quality development," it said today.

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— Robert Clark, contributing editor, special to Light Reading