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.”

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