Huawei reports flat profit as it invests in smartphone marketing, new stores

Net profit rose just 0.4 per cent to 37 billion yuan (US$5.3 billion), despite a 32 per cent surge in revenue

PUBLISHED : Friday, 31 March, 2017, 11:03am
UPDATED : Friday, 31 March, 2017, 10:54pm

Huawei Technologies reported flat profit growth despite a surge in group revenue last year, after the company stepped up investments in smartphone marketing and opening new stores amid intensified competition.

Net profit came in at 37.1 billion yuan (US$5.3 billion) in 2016, an increase of just 0.4 per cent from the 36.9 billion yuan the previous year, the smartphone maker said in an e-mail statement on Friday. Group annual revenue reached 521.6 billion yuan during the year, an increase of 32 per cent from 2015.

Huawei’s key carrier business – providing products and services to telecoms operators – generated income of 290.6 billion yuan in 2016, up 24 per cent and accounting for more than half of the group’s revenue.

Revenue of Huawei’s consumer business segment expanded 44 per cent to 179.8 billion yuan, up from 125.2 billion yuan in 2015.

Net profit margin of the privately held telecoms equipment maker was 7.1 per cent last year, down from 9.3 per cent in 2015, according to the statement. Huawei attributed the decline to higher expenditure on marketing and offline channel expansion – opening physical stores to sell their products – in its mobile handset segment.

The company said it spent an additional 4.9 billion yuan on brand and channel building last year.

Huawei is currently the third largest smartphone brand in the world, having shipped 139.3 million units, or 9.5 per cent of the global total in 2016, according to an IDC report released earlier this year. Samsung and Apple were the leaders, with global market shares of 21.2 per cent and 14.6 per cent, respectively.

“The 4.9 billion yuan in brand and channel building last year was a special investment. There is no special investment planned for this year,” said Eric Xu Zhijun, the company’s rotating CEO, during a press conference on Friday morning.

The 7.1 per cent net profit margin is not bad among Fortune 500 companies as the global economy is sluggish and Huawei’s clients are also facing downward pressure in profit growth, said Xu. The contribution from consumer businesses – the terminal product segment including smartphones and tablets – increased during the year, but its profit margin is lower than that of the carrier business and it has eroded the overall net profit margin.

In its home market, Huawei has been challenged by the rise of brands like Oppo and Vivo. In 2016, Oppo sold 78.4 million handsets in China, up 122.2 per cent from 2015, making it the best-selling brand in the country. Vivo’s 69.2 million shipments in China last year represented 96.9 per cent year-on-year growth.

Huawei missed the top position in domestic smartphone shipments last year by a narrow margin, selling 76.6 million handsets. That’s a 21.8 per cent increase over the 62.9 million units it sold in 2015, according to IDC.

The company said in its statement that 14.6 per cent of its revenue last year, or 76.4 billion yuan, went into research and development, compared with 15 per cent in 2015.

Huawei expects its annual expenditure on research and development to reach US$20 billion as it strives to remain competitive in the segment.