It seemed the network equipment giants would have to accept the reduction in their margins and adjust their businesses accordingly. But Huawei’s preliminary results for 2014 indicate that the Chinese firm is bucking the trend, and will report a 17% year-on-year increase in operating profit, while managing to sustain a double-digit margin.
Ericsson has not yet released annual results, but for the first nine months of 2014 it averaged an operating margin of 6.6%, not much more than half of Huawei’s expected 12%. The Chinese company’s unaudited statement says that the firm expects to report 2014 revenues of CNY287bn to $289bn ($46.3bn to $46.6bn), an increase of almost 20% on the year before, with operating profits up 17% to CNY33.9bn to CNY34.3bn.
A major difference between Huawei and its European rivals is that, like compatriot ZTE, it still sells mobile devices as well as infrastructure, and it said a boom in its smartphone sales, as well as carrier investment in 3G and 4G networks, were the chief factors in its strong showing.
The networks division is likely to have been propelled to a 15% sales increase by 4G and 3G expansions, helped, of course, by Huawei’s major role in Chinese LTE roll-outs. That figure is less than the firm’s overall revenue increase – handsets and other businesses enjoyed even higher growth, with consumer devices reporting a 32% sales rise, driven mainly by midrange and high end phones; and the enterprise unit climbing by 27%, propelled by cloud computing and big data deals.
But the carrier networks’ 15% increase is in sharp contrast with Ericsson’s static year-on-year revenue pattern at the nine-month stage, and revenue drop-offs at Alcatel-Lucent and Nokia in the same period.
However, the European firms are likely to look increasingly different, in their revenue and profit patterns, from Huawei and one another. Ericsson spent last year working hard to shift mobile projects from modernisations to higher margin capacity deployments, and to increase its business in new areas like TV platforms. That helped it turn in an operating profit increase of 19.3%, though the most important factor remained cost-cutting programs.
ALU’s growth is increasingly driven by IP infrastructure such as routers, while Nokia is focusing only on mobile broadband. Of course, there are also persistent reports that these two players will merge to revive a full-platform offering and achieve the scale to beat Huawei at its own game.
Huawei’s next priority, according to CFO Meng Wanzhou, is to repeat its smartphone success – especially seen in emerging markets – in the new world of the ‘industrial internet’. “Ubiquitous connectivity and big data will drive a new industrial revolution in intelligent technology, propelling the modernization of traditional industries, and reshaping today’s industries and business landscape,” said Meng. She also predicted full year earnings of CNY33.9bn to CNY34.3bn ($5.46bn to $5.53bn), up 17%. Audited results will be available in March.