Huawei Technologies has underlined its position as the word's fifth biggest telecom equipment supplier, posting revenues of US$12.56 (â‚¬7.99 billion) in 2007, up 48 percent from 2006. The four in front of it and others should be scared. Very scared.
As Light Reading Europe points out, the Chinese giant has stated the revenue is actual sales, not signed contracts, which it had included in the past. This time its results were audited by KPMG International and said to be 'in accordance with IFRSs (International Financial Reporting Standards).'
The article adds that while 2007's income was higher than expected, Huawei's gross margin was 33.9% (down from 36.2% in 2006); its operating margin was 7% (unchanged from 2006) for an operating profit of US$879 million (â‚¬559.2 million); and its net income was US$674 million (â‚¬428.8 million), up 32% up from the previous year's profit of US$512 million (â‚¬325.75 million).
Or as Light Reading puts it, "So, while Huawei's revenues and the value of its contract awards are growing at a rapid pace, its operating margin is static (at 7 percent), its gross profit is down, and its net income is increasing at a slower pace than its revenues."
This would seem to give credence to criticism that Huawei is willing to buy market share for long term gain rather than focus on short term profit. It is also widely believed that the company is able to do this because of the backing of the Chinese state, despite Huawei's claims that it is a privately-owned enterprise.
In May, Nokia Siemens Networks' CEO, Simon Beresford-Wylie, hit out at what he called, "Silly pricing,", that is making deals that don't generate profit: in 2007 NSN pulled out of a GSM infrastructure deal with India's Bharat Sanchar Nigam Limited (BNSL) on thosee grounds. He said buying market share is now now proliferating in the fast growing professional services market.
Let's restate the troubling point he made then:
In mature markets, margins are typically at 30 to 35%
In high tech growth areas opex runs at 27 to 33%
Leaving earnings before interest and tax (EBIT) at 0 to 5%
As is so often the case, the industry seems better at outlining problems and challenges than coming up with answers - in this case how to compete by achieving relatively short term profit and a long term sustainable business against an increasingly powerful rival that doesn't have to care about the short term.