Despite great recorded revenue, Huawei revealed a trend of stagnant profit.
Huawei Technologies Co Ltd is already denominated as the world’s largest manufacturer of telecommunications equipment, encompassing even Ericsson. The company has finally revealed its 2016 financial reports. The numbers show incredible performance. Even though revenue rose by even 32%, the net profit has only slightly moved upwards, which revealed stagnant profit trend.
The Success of Consumer Business Led to Stagnant Profit
According to Huawei, the net profit for the year of 2016 was a total of 37.1 billion yuan which translates into more than $5 billion. The figure is only 0.4% bigger than the previous year, despite a revenue increase of 32% to 521.6 billion yuan (which is more than $75 billion). The company explains this large gap as the emergence of a big success of its consumer business. The manufacturer had to cover the ships of 139 million smartphones in 2016. This demand shows a boost of 29%.
“As the consumer business grew rapidly and contributed a larger share to total revenue, the company’s gross profit margin dropped by 1.4 percentage points from 2015.”
To support a more conspicuous awareness of its brand, Huawei decided to invest heavily in advertising channels. These operating costs triggered an 11% increase in comparison to the year of 2015. Thus, the gross profit margin collapsed by 1.4% down to 40.3%. At the same time, the operating expenses were up to 162.6 billion yuan. Even though they are bigger than the previous year, they increased by only 11% of the revenue due to large earnings.
Huawei Brand Enjoyed Larger Popularity All over the World
Moreover, the report shows that the company focused more on investments in research and development. The search for innovation cost Huawei 14.6% of its total revenue, which means a total of 76.4 billion yuan. This represented a 28.2% increased budget denominated for this sector only in comparison to the previous year.
The company has also paid large attention to its cash flow system. To preserve a healthy financial situation, Huawei resorted to a series of strategies. For instance, the mobile manufacturer centralized cash management, guarded the integrity of its cash asset structure, and resorted to adequate credit facilities.
The majority of its sales came from China thanks to its 4G services, brand popularity, and empowered business. Nonetheless, its brand was successful enough in the Middle East, Africa, and Europe. The infrastructure projects shouldered a revenue boost for Huawei in Thailand and India. As for the United States, the company enjoyed larger gains here as well due to the development of telecommunications carriers in Mexico.
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