Along with rising component prices and development and maintenance fees on sales channels, huge research and development (R&D) expenditures eroded Huawei's margin and profits last year, according to a Sohu article, citing insiders from the Chinese technology firm.
Huawei sold 30 percent more handsets year-over-year but profits from its consumer business group, which includes the smartphones segment, was down 10 percent from the year prior to $2 billion, according to an earlier report by The Information. The company also failed to reach its $2.5 billion target.
The Information suggested two reasons for the profit loss: The increasing component prices as more features are added to Huawei phones, and other costs like marketing expenses due to Huawei becoming a bigger business.
Earlier releases showed that Huawei's R&D expenditure in 2014 and 2015 was 40.8 billion yuan ($5.9 billion) and 59.6 billion yuan ($ 8.7 billion), respectively. Between 2006 and 2015, Huawei's overall R&D exceeded 240 billion yuan, outstripping that of the US tech giant Apple, according to Sohu.
In the latest IDC report released this month, Huawei shipped a total of 76.6 million handsets in 2016, accounting for 16.4 percent of the overall smartphone sales in the Chinese market for the year.
Huawei's smartphone sales in 2016 saw 21.8 percent growth over the 62.9 million handsets shipped a year earlier, according to IDC. Its market leader position in China was also lost to fellow Chinese brand Oppo, whose handset shipments reached 78.4 million in 2016, up 122.2 percent over the previous year, the report added.