The times are not so good for Huawei Technologies of China. The Shenzhen, Guangdong-based telecommunications equipment and services business has declared their latest financial results, according to which, the earnings growth is at its slowest in the last five years. Much of this, though, is because the telecommunications giant has invested a lot of money in research and marketing to narrow the gap with their business rivals, Apple (NASDAQ:AAPL) and Samsung (KRX:005930).
Founded by Ren Zhengfei, who is a former army engineer, Huawei is today one of the most prominent Chinese brands. They are a late entrant into the world of mobile handsets, but their smartphones have gained market share rapidly, at the expense of Apple and Samsung. Such has been the growth that Huawei is now ranked third in the world. They have had to spend a lot of money to reach this position, and there is, of course, a cost to pay for this pace.
The main business of Huawei, networking equipment, has slowed down too because phone carriers are pulling back network rollouts, as they are getting ready for the faster standards that will come with 5G. Plus, there is increasing smartphone competition in China as well, from businesses such as Oppo, which has become a big name already.
According to the latest financial results, the net income of Huawei has gone up by just 0.4%. Last Friday, they disclosed that their 2016 net income stands at $5.4 billion or 37.1 billion Yuan. Net margins are down. It was 7.1%, down from the previous mark of 9.3%. Eric Xu, the CEO says, this profitability level is appropriate.
Huawei also disclosed they have spent more than 14.6% of the revenue in research and development last year. This year, they are setting aside $10-$20 billion for R&D because they want to spend more on research on things like artificial intelligence, wireless technology, and cloud computing.
Huawei is Beginning to Cut Back
While they still want to compete with the big players, Apple and Samsung, and want to spend on R&D, but Huawei is looking at the bottom line too. Last December, the CEO said they will do away with extravagant marketing events. He also issued a warning against blind rhetoric and optimism. In a memo, Ren Zhengfei said growing expenses will hurt the efficiency and profitability of the business.