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.