It was no April Fools’ Day joke—Huawei Technologies Co. Ltd. reported that day it generated revenues of CNY395 billion ($60.8 billion), up by 37% year-on-year on the back of its business units’ strong performance in 2015, and its strongest in even years. Huawei noted that Chinese yuan amounts in its latest annual report were converted into US dollar using the closing rate on December 31, 2015: $1.00 = CNY6.4927.
Its net profit was also up by 33% year-on-year to CNY36.9 billion ($5.7 billion). Huawei's Deputy Chairman and rotating CEO Guo Ping said during the annual report release that in part, Huawei owes its long-term growth to the sheer size of the ICT (Information and Communication Technology) market—the driving force of digital economies around the world.
And exactly a week after it announced its record earnings, Huawei invited media and blogger delegates from the Philippines (Entrepreneur.com.ph included) to tour its 2-square kilometer campus in Shenzhen, a “Silicon Valley” of sorts in China, an effort to showcase the company’s ambitions.
Robust 7-year growth
The company said it heavily invests on its core businesses. Its carrier business group generated CNY232.3 billion ($35.8 billion) or 21% up year-on-year in annual revenue, a source of about 60% of its revenue, with widespread rollout of 4G networks accounted for a large portion of this growth.
Its enterprise unit, the youngest among its businesses so far, achieved CNY27.6 billion (U$4.3 billion) in annual revenue, up 44% year-on-year, due to rapid growth in the public safety, finance, transportation, and energy sectors.
Huawei's consumer business group hit CNY129.1 billion ($19.9 billion) in annual revenue, a 73% surge year-on-year. As the Shenzhen, Guangdong-based company puts it, Huawei has now a growing influence as a consumer brand.
Huawei has also remained focused on ICT infrastructure over the past 29 years. It is heavily investing in research and development (R&D). In 2015 alone, Huawei invested CNY59.6 billion ($9.2 billion) or 15% (above its 10% guidance) of its annual revenue in R&D, and Huawei's total R&D investment over the past decade exceeds CNY240 billion (approximately $37 billion). Its gross margin fell by 2.5 percentage points to 41.7% due to its increased R&D investment.
As of 2015, it has 50,377 total of granted patents. Huawei also has 16 R&D centers, 36 joint innovation centers, and approximately 79,000 R&D employees, and cooperates with global innovators. Meanwhile, the Huawei Innovation Research Program (HIRP) attracted over 1,000 scholars and sponsored over 100 new research projects in 2015. It also launched a Developer Enablement Plan, and plans to invest $1 billion for this over the next five years to build a developer enablement platform, and jointly innovate with developers.
Over the next three to five years, its rotating CEO said Huawei will concentrate on enhancing connectivity, enabling the development of vertical industries, and redefining network capabilities per its “Better Connected World” guiding principle.
At its Shenzhen R&D center, it showed to select Philippine media and blogger delegates some of Huawei’s business highlights for 2015.
Last year, Huawei released its white paper called Carrier's ICT Network 2020 Transformation, which covers transformation in the areas of network, architecture, operations, and services, as end-users are demanding digital services that deliver ROADS (real-time, on-demand, all-online, DIY, and social) experience as the new norm.
Among its plans also include the MBB (mobile broadband) 2020 Strategy, a blueprint that aims to “connect the unconnected.” Huawei sees that by 2020, it would support 6.7 billion mobile broadband connections at a 1 Gbit/s access rate.
It also forecasts to support 1 billion cellular IoT (Internet of Things). Huawei also said it will upgrade broadband networks from 100 Mbit/s to 1,000 Mbit/s. For coverage, it will strive to cover over 90% of households with broadband networks by 2020.
Huawei also introduced last year its Business-Driven ICT Infrastructure (BDII), its guiding principle to focus on developing ICT infrastructure with open architecture through joint innovation with its partners.
As for smart devices, Huawei claws its way to penetrate the mid-range and high-end market with its flagship, premium phones. The Mate 8, launched in the Philippines in March this year, was said to be a major hit among consumers, while on April 6, it launched its P9 and P9 Plus in London—co-engineered with German photography brand Leica Camera AG, and it is expected to launch in the country by June or July this year. As of 2015, Huawei said it sold more than 100 million smartphones, with some of them becoming market leaders in multiple countries.
Huawei is also proud of the fact that it was the first company to put forward the concept of 4.5G. It has worked with multiple global carriers to deploy pre-commercialized 4.5G networks in Australia, Canada, China, Germany, Japan, Kuwait, Norway, Saudi Arabia, the United Arab Emirates, and Singapore, and said it has achieved positive results so far.
Huawei also said it has become a major player in global 5G organizations like European Union's 5G Infrastructure Public Private Partnership (5G-PPP). It launched the world's first multi-user 5G testing site in Chengdu, China NTT Docomo, Japan's largest mobile communications carrier, as partner.
For its cloud ecosystem strategy by end-2015, the number of Huawei's enterprise cloud partners exceeded 500, providing cloud services to over 2,500 customers in the government and public utility, telecommunications, energy, and finance sectors across 108 countries and regions, deploying more than 1.4 million virtual machines. It has also built 660 data centers worldwide, including 255 cloud data centers.
Huawei has also become more open in officially launching initiatives in cloud and enterprise applications in collaboration with SAP and Accenture, and are actively exploring joint innovation with Infosys, GE, Microsoft, Hexagon, and other partners in the areas of smart stadiums, core banking solutions, industrial Internet, cloud services, and Smart Cities.
Dodging controversies, defying skepticisms
Despite what Huawei has achieved, and how much it tries to prove itself, it is still not spared from controversies and skepticisms.
For one, the company has been isolated from government contracts in some countries, Agence France-Presse reported. For instance, it was barred by Australia last year from bidding to build its national broadband network, citing that security agencies warned the Chinese company posed risks. US officials also view Huawei as a security threat due to perceived close links to the Chinese government, which Huawei denies. Huawei’s founder, Ren Zhengfei, was a former engineer in the People's Liberation Army of China.
“[But] we’re very involved in over 100 countries with their national broadband networks (NBNs). Of course, we’re keen to participate in NBNs. We sometimes invite governments on what their NBN plans should be. And every country is different with their NBNs. The US though, is a difficult market for us [now]. We’ll see about that,” Joe Kelly, Huawei’s vice president for international media affairs told Entrepreneur.com.ph on the sidelines of Friday’s corporate presentation to Philippine media and blogger delegates.
Analysts are also skeptical about Huawei’s growth across its business groups. For one, they said the ICT industry will feel the impact of slowing global growth and economic uncertainties, so Huawei’s carrier division, its core business, will definitely be affected.
“We have global economic uncertainties since 2008. And since 2008, our carrier business has been growing year-on-year. What we find is that as economies get tough, people move toward technology to make things more efficient…,” Kelly said.
He clarified that tough or mixed global economy is good for Huawei but since 2008 the enterprise market also seems to benefit from it since more businesses are asking how to be more efficient, and they realize to use more technology to make their operations cheaper. Kelly added that consumers who lost employment during tough economic times rely on their phones to help them land new jobs—either waiting for a recruiter’s call or searching for vacancies online.
Huawei also aims to overtake Apple as the world’s second largest smartphone player in three years, and to surpass Samsung by 2021. Fortune noted that Huawei’s smartphone average selling price rose by $30 during 2015 to $204, as the company shifted out of low-end devices. Huawei is currently the world’s third-largest smartphone maker by shipment volume after Samsung and Apple, shipping 108 million smartphones or 44% up in 2015.
“There’s no company that would not want to be no. 1. And we’re doing very well. There’s still a gap between our market shares. But we’re closing the gap,” Kelly said.
He added that as a principle, Huawei does not want to spend so much on advertising so consumers would not have to pay extra to pay for their devices. “We have to be smarter on how we [advertise],” Kelly said. Apart from sponsoring sport teams like Chile’s Arsenal, it also sponsored Katy Perry’s Canada tour. P9 has Scarlett Johansson and “Superman” Henry Cavill as celebrity endorsers.
The incentives that Huawei provides retailers in China to sell its phones are among the most generous, analysts noted, and that also likely put a dent on its margins, along with heavily marketing these new phones.
But Kelly said Huawei is growing organically, unlike its competitors that buying out companies and technologies to grow.
The company is also successful because it is not into speculative investment, “we don’t invent something that invent solutions to solve our customers’ problems,” Kelly said.
He added that its shareholders are its employees, with them invested as well in the company’s efforts to provide solutions to businesses and consumers’ problems. They also view to grow their career in the long-term within the company.
“We have smart people. They’re dedicated, working hard to give what the customers’ want. We have to compete with Google, IBM, HP, to attract the best people in the world,” Kelly said. As of end-2015, the company has 175,000 employees (of 160 different nationalities) all over the world. About 50,000 of its employees are non-Chinese nationals.
Although it is a private company, Huawei releases its financial reports for the sake of transparency. “We’re able to manage our investment profile in the interest of our customers. The people who determine our investment strategies are our customers. We don’t need capital at the moment from investors to fuel our next-generation of investments. We can do that ourselves. Our balance sheet is strong. We have easy access to commercial lending companies [if we need to],” Kelly said.