Huawei's strong results show life inside the Great Wall isn't bad at all. China's high-speed telecoms network roll-out helped the tech group almost double its revenue growth in the first half, even as overseas rivals are braced for gloomy results. While Huawei may not be welcome in the United States, the market heft of the People's Republic makes it an ample consolation prize.
The unlisted but much-scrutinized Shenzhen-based group reported a 19 per cent increase in revenue for the first six months of 2014, compared with a year earlier. The 22 billion yuan ($3.55 billion) in new sales came from both its network equipment business and smartphones. Yet the bulk of the increase was from Chinese telecoms companies buying 4G network equipment like wireless base stations, according to a person familiar with the matter. Sales from the Huawei's network equipment division were about 70 per cent of group revenue for the whole of 2013.
Huawei is also selling more smartphones. It shipped about 13 million worldwide during the three months ending March 2014 compared to 8.7 during the same period last year according to Canalys data. Yet since most manufacturers make little to no profit on such devices, it is high-margin telecom infrastructure sales that boost earnings. Chinese rival ZTE's network equipment division had a gross profit margin of 37 per cent last year. Just six months into 2014, Huawei has already booked over 85 per cent the operating profit it made in the whole of 2013.
Security worries have kept Huawei and ZTE telecom equipment out of the United States. The indictment of five alleged Chinese military hackers in May shows things can get worse before they get better. Yet, what hinders Huawei hasn't seemed to help American companies. Analysts polled by Eikon expect rival Cisco to show a fall of 3.9 per cent in sales over the comparable period when it reports on August 13. Huawei may still hope to compete in the US market, but China's rapid growth seems to more than make up for its absence.
