Huawei: IPO possible, sales may top Ericsson's
Huawei would consider an IPO, said a company executive in announcing the company's 2012 results, which included a 33 percent increase in net profit and sales that could exceed those of long-time market leader Ericsson (NASDAQ:ERIC).
Huawei is open to conducting an IPO if it is in shareholder interests, said Cathy Meng, Huawei CFO and daughter of company founder Ren Zhengfei, at a Jan. 21 briefing to announce the company's 2012 financial results. She said the Chinese vendor has no immediate need to raise funds, however.
Nonetheless, Huawei could use the transparency that going public would generate. An IPO could help Huawei reduce security concerns, thus boosting its prospects in a number of overseas markets, said Pierre Ferragu, a Sanford C. Bernstein & Co. analyst who was quoted by Bloomberg.
"A listing would be a strong help, but I doubt the company is ready for this given the implications on the governance and management model," said Ferragu.
In October 2012, it was rumored that Huawei had reached out to investment banks to explore the possibility of an IPO.
Huawei announced its 2012 global sales revenues are expected to total $35.38 billion, an 8 percent year-on-year increase, with a net profit of $2.47 billion, a 33 percent increase from the previous year.
The fully audited 2012 results will not be published until the company issues its annual report in April. Analysts have suggested Huawei's 2012 figures could make it the world's largest vendor of telecommunications equipment, ahead of long-time market leader Ericsson, which will report its annual results on Jan. 31.
Ericsson will likely report 2012 sales of $34.8 billion, based on the average of 17 analyst estimates compiled by Bloomberg.
Meng forecast Huawei will see growth of 10-12 percent for the coming year.
According to Bloomberg, Huawei reported $4.5 billion of working capital at the end of 2012 on cash flow of $12 billion. The vendor has credit lines totaling $33 billion, 77 percent of which comes from banks outside of China.
Two-thirds of Huawei's overall revenue was generated outside China during 2012. Huawei's carrier network business group, responsible for network switching gear, generates 70 percent of Huawei's revenue and registered sales to 45 of the world's top 50 telecommunications operators during 2012. Huawei said its consumer business group, which sells mobile devices, is seeing strong growth in Europe and Japan.
The vendor, which said its 2012 earnings disclosure "is part of Huawei's ongoing commitment as a private employee-owned company to be more open and transparent with stakeholders," has been hampered by allegations that it is actually controlled by China's government. Ren, Huawei's founder, is a former Chinese military engineer.
At the news conference, which marked a first for Huawei, Meng charged the U.S. government with using security complaints as a cover for protectionism, reported the Associated Press. She suggested impediments to competition cause Americans to pay about twice what Europeans do for third- and fourth-generation mobile phone service.
In October 2012, a U.S. House of Representatives' Intelligence Committee report found that Chinese telecom vendors ZTE and Huawei pose a security risk to the United States because their equipment could be used for espionage. The panel recommended that the U.S. government and U.S. companies avoid using equipment from the two Chinese companies.
"These measures using trade protectionism to interfere with free competition will ultimately harm the benefits of end users and consumers," Meng said.
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