Huawei’s growth due to increased smartphone sales (but not in U.S.); China to lead world in 5G handsets

In an annual business report meeting with journalists in late March at the company’s Shenzhen, China headquarters, Huawei reported that its total revenue grew 15.7%, to $92.5 billion, in 2017. More impressive, net profit grew 28.1%, to $7.3 billion, a huge improvement over 2016’s 0.4% rate.   Privately owned Huawei gets most of its revenue now from selling telecom/network equipment, which generated roughly $47 billion over the past year.  While that was only a 3% growth rate, the Chinese company enjoyed a 35.1% growth in its enterprise business unit, which includes cloud computing and big data, though the overall revenue of $8.7 billion is relatively small.

Until 2020 (or later), when”5G” is deployed by carriers using Huawei base stations, the company’s fastest growing and most visibly prominent area is and will be its smartphones.

Huawei’s Deputy Chairwoman and Chief Financial Officer Sabrina Meng, along with CEO Ken Hu, recently told reporters how the company managed to increase net profits and net profit margins at a rate higher than total revenue growth.   The company became more efficient at growing smartphone sales. “In 2016, one of the biggest areas that dragged consumer business group profits down were the high cost of components,” said Meng. “So we developed a better supply management chain and improved our working relationships with vendors.”  Hu added that whether it’s brand image with consumers or phone units sold, Huawei made significant improvements in 2017. According to data released to the media, Huawei and sub-brand Honor combined to sell 153 million handsets in 2017, generating $37.85 billion in sales.  The smartphone market is arguably the most competitive industry in all of consumer business with many players jockeying for a small market share behind kingpins Samsung and Apple.

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Ben Sin of Forbes recently wrote, “the Huawei P20 Pro is the new low light photography king (of smartphones), and it’s not even close right now.”  It’s even  better than the Samsung Galaxy S9+ which received excellent reviews from journalists that tested it.    The Huawei P20 Pro.  Photo courtesy of Forbes.com:

The Huawei P20 Pro has a 6.1-inch display with an 18.7:9 aspect ratio. The screen’s unusually tall aspect ratio makes the phone very easy to hold and reach across, and the panel is an OLED from Samsung, so it’s very good. The resolution here is just 1080p so technically it isn’t as crisp as the Quad HD found on other Android flagships, but frankly it doesn’t matter. What does matter is that the OLED panel on the P20 Pro just doesn’t get as bright as the panel on the Galaxy S9. I suspect Huawei’s Samsung OLED panel is a generation behind the ones used on the S9. The back of the handset is crafted out of glass, and it attracts fingerprints just as much as Samsung or LG phones. The P20 Pro ships in colors that are a bit different from the norm, including an eye-catching Twilight color with a gradient finish. The phone also comes in black or this pinkish gold color.

The triple camera set-up includes: a 40-megapixel RGB lens, 20-megapixel monochrome lens, and an 8-megapixel telephoto lens. Huawei has used the RGB+monochrome combo for its phones since 2016, so the new addition here is the telephoto lens, which offer lossless optical zoom. The optical lens is a 3X zoom compared to the Apple iPhone X’s 2X zoom.

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U.S. Market Difficult to Enter for Huawei, ZTE and other China based Companies:

As the U.S. government, and more recently AT&T and Verizon, have taken numerous steps over the years to prevent Huawei from entering its market.  Xiang Ligang, a telecom veteran and CEO of the industry website Cctime, said it has become increasingly challenging for Chinese telecom companies to do business in the U.S. amid heightened concerns over national security.

“The U.S. is a market Chinese companies must conquer if they want to become global players. But now politics rather than technology or products is playing a bigger role in their business prospects in the U.S.,” Xiang said.  He also opined that China’s handset producers have an edge in developing 5G terminal devices compared with their U.S. competitors.  “In terms of the research and innovation ability, the global top four telecom equipment suppliers are Huawei, Ericsson, ZTE and Nokia… two out of the four are Chinese technology giants and we could barely name a U.S. company,” he said. “Without 5G-capable terminal devices, you cannot access a 5G network.”   Xiang believes this year will be a watershed for China’s 5G technology development.  He thinks the final testing of “basic 5G” technologies will be completed (this author disagrees and things that won’t be before 2021), paving the way for the next phase of development – 5G products such as terminal devices (e.g. smartphones, other handsets, IoT devices, etc).

In addition to compatible terminal devices, China’s investment in 5G infrastructure also bodes well for its position in the intensifying global competition.  Under the guidelines of the National Development and Reform Commission, the country’s three State-owned network operators – China Mobile, China Unicom and China Telecom – have each announced plans to begin building 5G networks this year in at least five cities. China Mobile said in February that it may be able to offer a full 5G service by the end of 2019, a year ahead of the 2020 goal, thanks to a technology known as “slicing packet networks,” which help operators to manage network architectures, bandwidth, traffic, latency and time synchronization, said another Xinhua report.

Huawei, failed to get its smartphones sold in the local carrier retailing channel, which accounts for a majority of smartphone sales in the US. Verizon Communications Inc has dropped all plans to sell Huawei’ s phones, while AT&T Inc also walked away from a similar deal at the last minute under pressure from the U.S. government, according to a Bloomberg report.

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Sidebar:   Top Smartphone Makers

Currently, Chinese companies account for 7 of the world’s top 10 smartphone vendors (see top 10 below), but in the U.S., only one Chinese brand stood out – ZTE Corp grabbing a market share of 12 percent. “Such contrast is a result of multiple factors, and political concern is certainly one of them,” Xiang said.  As a result, Huawei will likely focus on increasing smartphone sales in Asia, Europe and Latin America.

According to marketing91, the top 10 smart phone makers in 2017 were:  1) Samsung 2) Apple 3) Huawei 4) Lenovo 5) Xiaomi 6) LG 7) ZTE 8) Oppo 9) Alcatel 10) Vivo

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Looking for Future Growth:

This year marks Huawei‘s 30th birthday.  Following the general Chinese idea that age 30 is when a boy truly becomes a man, the company is looking for new growth opportunities.

“As we look to 2018, emerging technologies like the Internet of Things, cloud computing, artificial intelligence and 5G will soon see large-scale application,” said Hu. “Throughout this process, Huawei will . . . pay special attention to the practical challenges that our customers face as they go digital. Our job is to help them overcome these challenges and achieve business success. Ultimately, we aim to bring digital to every person, home and organization for a fully connected, intelligent world.”

5 thoughts on “Huawei’s growth due to increased smartphone sales (but not in U.S.); China to lead world in 5G handsets

  1. U.S. intelligence agencies are still warning against buying Huawei and ZTE phones:
    Over half a dozen top members of intelligence agencies, including the FBI, CIA and NSA reaffirmed surveillance concerns about Huawei and fellow Chinese smartphone maker ZTE.

    All of this is nothing new, of course. The companies’ troubles date back at least as far back as 2012, when a House Intelligence Committee cited both as a potential security risks over close ties to the Chinese government. The following year, they were both barred from selling product to the U.S. government.

    FBI director Chris Wray echoed those concerns during a hearing Tuesday, stating, “We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”

    Huawei has since issued a response, accusing the government of “inhibiting [its] business in the U.S. market” and adding, “Huawei is trusted by governments and customers in 170 countries worldwide and poses no greater cybersecurity risk than any ICT vendor, sharing as we do common global supply chains and production capabilities.”

    https://techcrunch.com/2018/02/14/u-s-intelligence-agencies-are-still-warning-against-buying-huawei-and-zte-phones/

  2. Commerce Department bars U.S. companies from selling to China’s ZTE:
    The United States has banned American companies from selling telecommunications equipment to China’s ZTE Corp after the Chinese company illegally shipped telecom equipment to Iran and North Korea, the Commerce Department said on Monday.
    “ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” Secretary of Commerce Wilbur Ross said in a statement
    https://www.reuters.com/article/us-usa-china-zte-commerce/commerce-department-bars-u-s-companies-from-selling-to-chinas-zte-idUSKBN1HN1R0

    U.S. companies banned from selling components to ZTE:
    This time last year, Chinese electronics giant ZTE pled guilty to violating sanctions on Iran and North Korea. This morning, the U.S. Department of Commerce announced a seven-year export restriction for the company, resulting in a ban on U.S. component makers selling to ZTE.
    The penalty is steep, given that U.S. companies are believed to provide more than a quarter of the components used in ZTE telecom equipment and mobile devices. The list includes names like San Diego-based Qualcomm, which provides Snapdragon processors for the company’s flagship devices.

    The news arrives amid fears of a looming trade war between the U.S. and China. ZTE has also been repeatedly name-checked by U.S. intelligence officials over spying concerns, along with fellow Chinese smartphone maker Huawei — though ZTE has managed to make more inroads with U.S. carriers over the years, regularly showing up around fourth place in market share.
    https://techcrunch.com/2018/04/16/u-s-companies-banned-from-selling-components-to-zte/

  3. WSJ story that both the US and the UK are prohibiting telcos in those countries from selling ZTE telecom and networking equipment: U.S., Britain Issue Warnings Over Chinese Telecom Equipment Maker ZTE

    British cyber-security officials warned U.K. phone carriers to stay clear of ZTE’s equipment and services, citing concern about the potential that Beijing could force the company to help it infiltrate or sabotage telecoms infrastructure. The U.S. Commerce Department, separately, banned American companies from selling products to ZTE, saying the company violated the terms of a deal last year settling allegations of sanctions busting involving North Korea and Iran.

    https://www.wsj.com/articles/u-s-britain-issue-warnings-over-chinese-telecom-equipment-maker-zte-1523898318

  4. As doors close in the US, China’s Huawei shifts to Europe

    As trade disputes simmer, Chinese telecommunications giant Huawei, the No. 3 smartphone brand, is shifting its growth efforts toward Europe and Asia in the face of mounting obstacles in the U.S. market.

    Shenzhen-based Huawei, the world’s largest maker of telecoms equipment, has long coveted access to the U.S. but recently laid off key American employees at its Washington D.C. office.

    The U.S. has regularly stymied Huawei’s efforts to enter the America, citing national security concerns. Huawei has failed to find a U.S. carrier to partner with for its smartphones, and the Federal Communications Commission on Tuesday approved a draft order that could damage Huawei’s existing business in network gear. The order cited Huawei and its Chinese rival ZTE by name.
    Huawei’s struggles in the United States are in contrast to its booming business in developing countries and growing presence in Europe, where it has been working on next-generation, or “5G,” wireless standards. The company’s profits rose 28.1 percent in 2017, boosted by strong enterprise and consumer sales and booming business overseas.

    The recent setbacks have left Huawei’s future in the U.S. uncertain. Huawei recently let go of several American employees in their Washington D.C. office, including William Plummer, who spearheaded efforts to convince the U.S. to allow Huawei in for nearly a decade. Though Huawei declined to comment on the layoffs, the news was first reported by the New York Times and independently confirmed by the Associated Press.

    https://pilotonline.com/business/consumer/article_2f5b0cfe-5f70-50d1-a249-3777479cab57.html

  5. ZTE calls US export ban “unacceptable”

    ZTE has objected to the imposition of a seven-year ban on importing any US components as part of the ongoing fallout over allegations that the company violated US sanctions by selling equipment with US components to Iran and North Korea.

    In a statement, ZTE said it is “unacceptable” that the US Department of Commerce’s Bureau of Industry and Security has imposed the most severe penalty on the company even before the completion of the investigation of facts.

    “The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies,” ZTE said.

    “In any case, ZTE will not give up its efforts to resolve the issue through communication, and we are also determined, if necessary, to take judicial measures to protect the legal rights and interests of our company, our employees and our shareholders, and to fulfill obligations and take responsibilities to our global customers, end-users, partners and suppliers.”

    At the Huawei Analysts Summit in Shenzhen last week, Huawei rotating chariman Eric Xu appeared to acknowledge that the company has been largely locked out of the US market.

    ”For Huawei, we still focus on doing our own things well. No matter what difficulties we encounter, we can only survive and thrive by doing our own business well and serving our customers better,” he said.

    “There are things we cannot change its course, and it’s better not to put it on top of your mind. In this way, we have more energy and time to serve our customers, and to build better products to meet the needs of our customers. In some cases, just let it go and we’ll feel at ease.”

    The timing of the two decisions have spurred speculation that Huawei and ZTE may have been casualties in the ongoing trade war between the US and China, which has also led to the imposition of tariffs on the importation of multiple categories of products.
    https://www.telecomasia.net/content/zte-calls-us-export-ban-unacceptable

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