Huawei profit stagnant despite revenue jump to 522b yuan

Despite revenue growing by 32 percent to 521.6 billion yuan, net profit rose by just 0.4 percent to 37 billion yuan, with Huawei simply saying that it is a victim of its own consumer business success.
Written by Corinne Reichert, Contributor

Chinese networking giant Huawei has announced its financial results for 2016, reporting a full-year net profit of 37.1 billion yuan, up by just 0.4 percent year on year despite a rise in revenue of 32 percent to 521.6 billion yuan.

According to Huawei, a rise in net profit did not accompany its rise in revenue due to the increasing success of its consumer business, which shipped 139 million smartphones during the year, a rise of 29 percent for a global smartphone share of 9.5 percent in Q4.

"As the consumer business grew rapidly and contributed a larger share to total revenue, the company's gross profit margin dropped by 1.4 percentage points from 2015," Huawei said in its results report [PDF].

"As the company increased investment in building its consumer brand and consumer sales channels, total operating expenses as a percentage of revenue rose by 1.1 percentage points relative to 2015."

The company's gross profit margin fell by 1.4 percent, down to 40.3 percent, while total operating expenses for the year were up by 36.8 percent to 162.6 billion yuan -- though the latter rose by just 1.1 percent as a percentage of revenue.

In terms of its expenses during the year, Huawei spent 76.4 billion yuan on R&D, or 14.6 percent of its total revenue. This was 28.2 percent more money than it spent in the year previous -- but was down by 0.5 percentage points as a measure of its total revenue, which it said was "a result of rapid growth in revenue and increased efficiency".

Selling and administrative expenses were up by 38.8 percent, to 86.4 billion yuan, while its foreign exchange loss was up by almost 20 percent, to 5.2 billion yuan.

Cash flow from operating activities was down by 5.9 percent, to 49.2 billion yuan, with short-term and long-term borrowings more than doubling from 29 billion yuan to 44.8 billion yuan in an effort to meet its "liquidity needs".

"Huawei has continuously refined its cash flow planning, budgeting, and forecasting system to better assess its short-term and mid-to long-term liquidity needs," Huawei said.

"The group has implemented various prudent financial measures to meet its overall liquidity needs, including centralising cash management, maintaining an adequate level of funds and proper structure of cash assets, and gaining access to adequate and committed credit facilities."

In terms of revenue, Huawei's consumer business rose by 43.6 percent over the year, to 179.8 billion yuan, as the enterprise business grew by 47.3 percent to 40.7 billion yuan and the carrier business by 23.6 percent to 290.6 billion yuan.

Huawei again made the most revenue in China, up 41 percent to 236.5 billion yuan, which it attributed to the 4G network rollout, success in smartphone sales, and growing business in its enterprise and industry solutions.

In Europe, the Middle East, and Africa, Huawei made 156.5 billion yuan, up 22.5 percent thanks to the success of its smartphones; it made 67.5 billion yuan, up 36.6 percent, in the Asia-Pacific region due to infrastructure builds in India and Thailand as well as improved tablet market share in Japan; and made 44.1 billion yuan in the Americas, up 13.3 percent due to Mexican telecommunications carriers upping their network investments.

"In 2016, Huawei maintained its strategic focus and achieved solid growth," Huawei rotating CEO Eric Xu said.

"As humanity continues to explore and make new breakthroughs in the digital world, digitisation and increasing intelligence present huge business opportunities for all industries, and are also paving the road for new growth for the ICT industry."

Xu added that Huawei's goal is to remain "customer centric", as well as enabling industries to transform digitally.

Huawei noted in its yearly highlights that as of the end of 2016, it had delivered more than 2 million virtual machines and 420 cloud datacentres for government, utilities, telecommunications, energy, and finance companies; worked with 3GPP on 5G standardisation, including the development of Polar Code; and teamed up with some of the biggest auto companies in the world to work on connected cars.

Huawei also said its smart city solution is now used in over 100 cities across more than 40 countries; its public safety solution now serves over 800 million people in more than 200 cities and 80 countries; its financial cloud and big data infrastructure is now used by more than 300 financial companies globally; its energy solution is serving more than 170 power companies across 65 different countries; and that overall, it has worked with more than 500 partners on cloud computing solutions in more than 130 countries and regions.

Huawei in July reported half-year sales revenue of 245.5 billion yuan, up 40 percent year on year.

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