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Huawei Reports a Net Profit Jump in 2017, While Core Business Enters an “Ice Age”

Apr 11, 2018 by Yun Nie
Huawei Reports a Net Profit Jump in 2017, While Core Business Enters an “Ice Age”

China's Huawei Technology Ltd, the world's third-largest smartphone maker behind Samsung Electronics Ltd. and Apple Inc, recently posted a satisfying “grade report”: in 2017, total sales revenue grew 15.7% to CNY 603.6 billion and cash flow from operating activities rose to CNY 96.3 billion.

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Cited from http://36kr.com

Compared to 2016, when profit increased less than 0.5 percent, Huawei saw a marked improvement in 2017 when net profit increased 28.1% to CNY 47.5 billion.

The rise, according to 36kr.com, was partially the result of Huawei’s “profits first” tactics, including expanding the business scope, enhancing operating efficiency and minimizing foreign exchange losses.

Huawei’s financial statements suggested that gross profit margin increased to 39.5% in 2017, dropping slightly (around 0.8%) from 40.3% in 2016.

Slow Growing Pace of Core Business Revenue

Among Huawei’s several businesses, enterprise products and services boasted the fastest growth in the last three years. However, the company’s core carrier business, which usually accounted for nearly half of the group's total revenue, encountered a “winter freeze ”.

According to Huawei’s financial reports, sales of cloud, data centre, and other enterprise products and services rose 35.1% to CNY 54.9 billion.

Huawei’s consumer business, including the Honor smartphone brand, shipped 153 million handsets in 2017 with a total sales revenue of CNY 237.2 billion, a slow 31.9% growth, whereas, the segment had risen 43.6% a year earlier.

The company’s core business saw an even bleaker reality when revenue from the carrier business grew only 2.5% to CNY 297.8 billion, in sharp contrast to a 23.6% increase in 2016, 21.4% in 2015, and 16.4% in 2014.

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Cited from http://36kr.com

According to Huawei, the carrier business remains healthy but has been influenced by cyclical variations in the investment market. Differing from Huawei, a report in The New York Times revealed that the modest growth pace might have resulted from the telecom operators’ preparation to roll out next-generation 5G wireless networks.

Another article that seems to support this viewpoint stated that Huawei has been investing heavily in research on 5G wireless networks and patenting key technologies.

According to statistics, the corporation’s research and development spending increased 17.5% over 2016 to CNY 89.7 billion, known as “the highest R&D spending of any Chinese company.”

Big Challenges in North American Market

While Huawei launched its most expensive flagship smartphone to date in Europe a few weeks ago aiming at expanding in the global market, the company has been excluded from the U.S., the world's most profitable market for phone sellers.

As a consequence, revenue from the Americas has steeply dropped 11% to CNY 39 billion, though the company reported a 29% growth in the domestic market, a 10.3% increase in Asia, and a 4.7% rise in Europe, Middle East, and Africa.

Huawei stated that the sheer revenue decline in the Americas was the outcome of cyclical variation in the American market.

To Huawei, the North American market will be the biggest challenge in the future as Best Buy, the largest U.S. consumer electronics retailer, cuts ties with the Chinese telecommunications giant. AT&T, the world's largest telecommunications company also cancelled the distribution agreement it had with Huawei, without explanation.

Organizational Shifts in Management Team

In addition to its wavering financial status, there have also been changes in Huawei’s management team.

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Cited from http://36kr.com

Yafang Sun, who is honoured as “the queen of Huawei” will be removed from the list and depart from being Chairman of the board, after being replaced by Hua Liang. Wanzhou Meng (or Cathy Meng) will succeed her father Zhengfei Ren, the founder of Huawei, as the vice-chairman and CFO.

Furthermore, the rotation of collaborative presidency created by Huawei would be alternated by the rotation of individual presidency, which means that the three vice-chairmen Ping Guo, Zhijun Xu, and Houkun Hu would become the supreme leader in turns every 6 months.

Experts have analyzed that this shift means a significant change of role for Cathy Meng as she stands to be the successor to the company, indicating her primary role in its management.

“Ms Meng’s role as a spiritual leader and major manager is unshakable. Her leadership does not mean the management of the company in general. In addition, she will significantly influence Huawei’s cultural institutions and future path to success.”

Huawei’s now finds itself in a transition stage for both management structure and market expansion.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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