Huawei's 2011 profits fell by 50% as costs rose
Increased R&D and smartphone investments, as well as currency changes and price wars, depressed firm's results
Published: 23 April, 2012
Huawei's revenues continue to rise but its profits fell by more than 50% in 2011, because of the global economy and currency fluctuations, but also its rising investment in R&D and other resources to maintain its competitive threat to established players like Ericsson, and to break through in smartphones.
The Chinese vendor has made significant efforts in recent years to shake off its image for competing only on low prices and vendor financing, and has steadily moved into the forefront of new technology development, as seen in its strong showing in early LTE and flexible RAN deals. It is also developing an innovative end-to-end architecture for all-IP systems and is expanding its device business from traditional bases in white label featurephones and dongles, into smartphones.
All this costs money, and as Ken Hu - one of Huawei's three rotating co-CEOs - put it, the firm has "made strategic investments, augmented our R&D capabilities and deployed resources globally, and implemented a future oriented business architecture that puts Huawei in a confident position for sustained growth". R&D spend increased by 34.2% in 2011 to CNY23.7bn and the company added 30,000 new employees last year, taking its global headcount to 140,000.
Those investments, along with "the downward spiral in the global economy", and losses from the rising value of the Chinese currency, sent Huawei's profits spiralling. At a group level, its net profit was CNY11.65bn ($1.85bn), down 52.9% year-on-year, on revenue up 11.7% to CNY203.9bn. Even without currency changes, profit would have fallen by more than 36%, which Huawei claimed would have been in line with expectations.
Huawei is steadily reducing its dependence on its home market. Chinese sales were up 5.5% to CNY65.57bn, but overseas revenues rose at a higher rate of 15%, and totalled more than twice the Chinese figure, at CNY138.36bn.
Revenue from the consumer business was up 44% on 2010, to CNY44.6bn ($7.1bn), with device shipments nearing 150m units, an increase of more than 30%. Within this tally, there were 55m cellphones, and 20m of those were smartphones, an impressive leap though still a long way from Huawei's stated 2012 target of shipping 60m high end handsets. It said in its statement on the results: "Our smartphones are emerging as a new force, while the data card business remains a global leader."
The Wireless Networks unit achieved revenue of CNY45.9bn, up 3.2%, and now claims to supply 500 operators worldwide, though the company continues to struggle to gain tier one US contracts because of security concerns. Like Ericsson and others, it pointed to a slowdown in operator spending on infrastructure because of the recession, indicating: "Telecom carriers controlled their capital expenditure in response to the volatile macroeconomic conditions, which resulted in increased price competition and declining profits."