To consumers, Huawei is a brand that’s fast on the rise. Ever since it crafted Google’s very well-received Nexus 6P in 2015, the Chinese telecommunications giant has released a slew of handsets that set new sales records for the company and garnering strong reviews. The company’s presence outside its home country has also grown stronger across the board, with Huawei billboards filling the streets of Barcelona and Milan during my recent trip, as well as the cross harbor tunnel in Hong Kong.
But the business side has hit a slight snafu. Despite selling 32% more smartphones (139 million) in 2016 than the year before, and bumping up revenue by 32% (to 521.6 billion yuan/US$75.1 billion) Huawei’s net profit grew only 0.4% (to 37.1 billion yuan/US$5.2 billion).
The reason? Increased spending from the company’s Consumer Business Group.
According to Huawei’s rotating-CEO Eric Xu, the company spent $4.9 billion yuan last year on marketing, “strategic partnerships,” and opening brick-and-mortar stores (very important in boosting sales in China). Xu, however, insists that the figure is a one-time move, and the company will “take a more normal approach in 2017,” which means not drop nearly five billion.
Xu also points to Huawei’s 7.1% net margin, which he says is “pretty good for a Fortune 500 company.” But that figure has also dropped from last year’s 9%.
Sabrina Meng, Huawei’s chief financial officer, says that “no matter what our net margins are, we will not change our goal in investing for the future.”
The company spent 14.6% of its 2016 revenue on R&D and will set aside more money on that end to focus on future technology like 5G and artificial intelligence.
More than 56% of Huawei’s revenue came from its telecommunication networks, but the company is keen to keep growing its smartphone and cloud business.
I recently got my hands on Huawei’s “A.I. concept phone,” released under the company’s Honor sub brand, and it is indeed a step towards a smarter, more connected device. I also attended a 5G conference at the Mobile World Congress in Barcelona, in which Huawei was a major player. Needless to say Huawei is still in a very enviable position for Chinese companies despite the stagnant profits. It is still a the world’s third largest phonemaker, and selling more phones — even for less profits — is always a good thing when you’re trying to get your brand awareness on the level of Apple and Samsung.