China’s Huawei profit jumps on smartphones

China's Huawei Technologies is starting to see success in its consumer electronics business, though the key US market remains elusive.

Huawei became the world’s third-biggest smartphone manufacturer last year, mainly due to a fast-growing Chinese market. That is helping to cushion the impact of a global slowdown in network equipment spending, which caused the company to miss its revenue growth target last year.

Consumer devices will also help Huawei buy some time before 4G network upgrades in China lead to more orders for telecom equipment.

While Huawei has made some headway in the European smartphone market, it is far from being a success story globally.

Its name is virtually unknown - and unpronounceable - in the United States, the second-biggest smartphone market, where lawmakers have flagged Chinese telecommunications equipment as potential security risks.

Consumer devices accounted for 23 per cent of Huawei’s overall revenue last year, up from 22 per cent in 2012. That helped lift total unaudited revenue to 238 billion yuan to 240 billion yuan (€29.1 billion), chief financial officer Cathy Meng told a press briefing today.

Unaudited revenue grew 8 per cent, compared with a target of 10 per cent annual growth for the next five years, starting in 2013.

Unaudited operating profit rose to 28.6 billion yuan to 29.4 billion yuan, the company said. That compared with an audited 2012 operating profit of 19.96 billion yuan - an increase of 43.3 per cent.

The company put the leap in operating profit down to changes in internal management and reducing operating costs.

Huawei will release audited results in March or April, including net profit which should not be largely different from operating profit, the company said.

Huawei had a 5.1 per cent share of the global smartphone market in October-December, a distant third behind Samsung with 35.2 per cent and Apple Inc with 13.4 per cent, according to Strategy Analytics.

Huawei aspires to challenge Samsung and Apple and in the United States but it has virtually no brand recognition there beyond its association with espionage, and has only a smattering of low-key tie-ups with US carriers through which most consumers buy their phones.

The Shenzhen-based maker has sought to change that by splashing out on a prime location at this year’s Consumer Electronics Show in Las Vegas.

It has no such issues in its home market which contributed around 50 per cent of growth last year in its consumer devices business, a company spokesman said.

Sales are also strong in Europe, according to the company, where the European Commission is poised to launch an investigation into anti-competitive behaviour by Chinese producers of telecoms equipment.

Its consumer electronics business grew 13.2 per cent year-on-year based on Reuters calculations.

“The handset business is quite profitable and operating above expectations,” said Huang Leping, a Hong Kong-based technology analyst with Nomura.

Huawei is the world’s second-biggest telecom equipment maker after Sweden’s Ericsson, and is known for aggressively gaining sales by edging out rivals such as Cisco Systems, Alcatel-Lucent SA, Nokia Siemens Networks.

Its carrier network business booked 70 per cent of unaudited revenue for 2013 but only grew 4.1 per cent according to Reuters calculations, despite China and a slew of other countries contracting Huawei to help build fourth-generation mobile networks.

The company has also suffered by being excluded from building networks in the US and Australia because of fears it is linked to the Chinese government - allegations it denies. The company has come under scrutiny in Britain over cyber security issues. (Reuters)