Huawei suffers from flat profit

Chinese technology firm Huawei’s net profit grew flat with a 0.4% gain. This is their smallest profit growth in five years. The main reason for the tiny profit growth was because they spent more on research and marketing. However, sales for 2016 were solid as it booked a 32% increase compared to 2015 sales. Its net margin, however, dropped to 7.1% in 2016 compared to 9.3% in 2015.

Huawei CEO Eric Xu, said, “We’re paying more attention to efficiency and scaling back on investments that cannot bring value.” The company reported that 14.6% of its 2016 revenues were devoted to research and development. Currently, Huawei is expanding their research to include artificial intelligence, cloud computing, and wireless technology.

Analysts believe that Huawei’s investment in developing their 5G networks would prove to be financially rewarding down the road and help Huawei become the leader in industry standards.
Last December, Xu pledged to make sure the bottom line is watched closely and to cut down on extravagant marketing initiatives.

CFO Sabina Meng maintained Huawei’s commitment to innovation. Meng said, “Products are the most basic building block. We will make the necessary investments on the resource side.”

Huawei was founded 30 years ago by former army engineer Ren Zhengfei and rapidly grew to grab market share from Apple and Samsung to be the third major player in the market.

For 2017, Huawei aims to generate sales of $33 billion for its consumer electronics division. However, intense competition will make that path difficult. Last year, it lost its top position in China in the smartphone market to Oppo Electronics. Vivo was third in China’s market according to IDC figures.

Nicole Peng, China director of tech research firm Canalys, said that Samsung’s new flagship Galaxy S8 phone would increase market competition. Peng said, “2017 is going to be less easy, and more challenging.”

Huawei relies heavily on its Chinese home market as revenues from it formed 45% of its revenues in 2016. China contributed 42% of Huawei’s revenues in 2015. Analysts note that the U.S. market is critical for Huawei to continue growing but research data from Canalys show they only have 1% of the U.S. market for smartphones and lags badly behind Apple.

Globally, Huawei has a 10.6% share behind Apple at 18.3% and Samsung at 18.1%. Research firm IDC notes that smartphone shipments in 2016 grew by 38.6% to 45.4 million units.

Lucio Chen of market research group said, “Huawei is on the right track to overtake Apple and Samsung.” Chen estimates that it would take around two more years for Huawei to be number 1 regarding market share. Jensen Oii, an analyst at IDC research firm, said, “Huawei has come a long way from its old days and broken through the notion when ‘Made in China’ made people cringe.”
sHuawei is a private company owned by its employees and has its headquarters in Shenzhen.

Despite Brexit, Huawei intends to spend more than its original planned investment of 1.3 billion pounds into the UK.

Oil prices continue to fall even with OPEC deal to cut down supply

Last year oil prices came crashing down due to the oversupply in the market. The Organization of Petroleum Exporting Countries (OPEC) invited the members to focus on reducing the saturation in the market. Leading petroleum exporters such including Saudi Arabia have agreed to cut down the production honoring the OPEC deal. Even the non-members of OPEC such as Russia have agreed to reduce the oil production. Since 2014, inventory surplus of crude oil has not allowed the price to increase. The OPEC deal was announced by November 2016 to trim the global oil stockpiles.

Despite the OPEC deal, the oil prices experience a loss mainly because the US production has increased. This resulted in an increase in the oil inventory all over the USA. As a result, the crude oil missed out on the gains after the OPEC deal. The US crude fell below $50 per barrel for the first time this year. The market is in an indeterminate state now and experts are worried how long this trend could continue.

The oil market was ready for restructuring after the OPEC deal. The oil prices were meant to be maintained at a premium level so that the OPEC revenues could increase. However, the trend shows that WTI prices are moving in the backward direction, as against the OPEC hopes. The options futures market is also bearish which is again not good for the oil prices. The difference between bearish and bullish bets indicate that the market is favoring lowering oil prices. On Wednesday, the Nymex WTI contract showed that the volume of traded options futures reached an oil time high. The investors are want to be protected against the lowering oil prices. This was not what OPEC hoped for when it created a deal to reduce the oil supply.

OPEC’s hope for higher prices is further crushed as the short sellers want to take advantage of the reduced oil prices. New bets are placed on the falling oil prices and this has increased the number of outstanding WTI contracts. Both the WTI and Brent reached a value lower than the 50-day and 100-day price averages respectively. $50 per barrel provides a good support for Brent. Experts suggest that $45 per barrel could be the figure in the future, but the market has to be adjusted to make this a possibility.

There is still hope for the oil prices to increase if the countries stick to the OPEC deal. Analysts predict that oil prices could reach $60 by the end of 2017 if the current cut in production is sustained. The WTI could go down reaching the mid-40s but continuous effort to reduce the supply could enable rebalancing.

Even though the US oil stock piles increased by 8.2 million barrels in the last week, the reduction in oil prices is triggered suddenly as the Saudi Energy Minister commented that OPEC deal won’t be rolled over to the second half of 2017. The energy minister said that the oil producers are not happy that OPEC deal hasn’t resulted in price hikes.

Trump’s $1 trillion infrastructure plan will take time

President Donald Trump’s $1 trillion infrastructure spending plan was generally welcomed by the Democrats. It is one of the pro-growth plans that enabled the stock market to ride high in the past few weeks. His plan is likely to bring about millions of infrastructure jobs, boosting the job market as well. However, all these desirable changes are not going to happen any time soon.

Trump’s infrastructure program started out with numerous meetings with corporate leaders, but there are no firm decisions made on the prospect. Experts believe that the White House is understaffed to take up this massive infrastructure improvement. Trump has to overcome innumerable political hurdles to make this plan a reality. Furthermore, there are not sufficient funds with the government to pay for the huge project.

During the speech to congress, Trump said that the proposal for infrastructure rebuilding plan will commence soon, but no deadlines were given for this program. This means that the program could start only in 2018. The infrastructure spending plan was one of the iconic promises made by Trump during his presidential campaigns. The infrastructure team of the White House is assigned with the task of finding infrastructure projects throughout the country that could boost growth. They must also identify the sources that can be used to fund the program.

Trump has met with Elon Musk, William ford, Richard Trumka and various other officials to discuss the project funding options. Gary Cohn, National Economic Council Director of the White House met with 15 federal departments and agencies to instruct them to contribute to the infrastructure plan.

While the democrats were in favor of infrastructure spending, Trump has to face resistance from his own house. The Republicans are always wary of spending money on anything other than the military. Republicans feel that the new administration has to do a lot of work to get approval from Capitol Hill. The White House administration hopes that the new plan is a methodical process that can gain the support it needs and deserves.

The housing, energy and transportation agencies have participated in many meetings, but there is no deadline defined by the White House. Experts agree that the process could take a long time and the Trump’s team wants to take a comprehensive approach. While the $1 trillion project is exciting, funding the project is a headache that the new White House has to manage. The Republicans are not happy with the increasing federal debts. There is simply not sufficient money with the government to dedicate $1 trillion for infrastructure spending.

Trump has come up with a plan to encourage public-private partnership which will benefit the developers and provide value to the taxpayers’ money. It is unclear whether the entire infrastructure funding will follow the same plan or a different plan would be proposed according to the projects. To complicate the matters further, Trump has proposed that the infrastructure funding plan should be revenue-neutral and it should not add to the existing federal debt. Trump’s team is not interested in hurrying up the project as they want to take their time in making the right decisions.