John UM
On March 29, 2 019, dozens of reporters from around the world gathered in an exhibition hall of Huawei’s Shenzhen headquarters. Huawei’s rotating chairman Guo Ping announced Huawei’s 2018 financial report. Although it is not a listed company, Huawei has maintained its tradition of disclosing financial statements
According to Huawei’s 2018 financial report, Huawei’s annual revenue was 721.2 billion yuan (about 1 05.2 billion US dollars), the first time in history broke through 100 billion US dollars, an increase of 19.5%; net profit was 59.3 billion yuan, year-on-year The increase was 25.1%
This is an unusual financial report. For a one-and-a-half-hour question and answer session, the media’s multiple issues are not about business and performance, but about security and credibility. Foreign media is focusing on the relationship between Huawei and the US government. Guo Ping has no grievances on such questions. He pointed out that the US government’s approach to Huawei is a matter of mentality, saying that it is a series of issues for Huawei. The behavior is ugly, “I regret the so-called gentleman.”
However, Huawei’s earnings report and interpretation of the future are relatively emboldened. There have been many “firsts” in Huawei’s financial report. For example, for the first time, the consumer business surpassed the long-established carrier business and became the “small” of Huawei’s revenue growth; Huawei’s business revenue exceeded US$10 billion for the first time; Huawei’s R&D investment exceeded 100 billion yuan for the first time. , accounting for 14.1% of sales revenue. According to data released by the World Intellectual Property Organization, Huawei submitted 5,405 patent applications in 2018, surpassing Qualcomm and Intel, ranking first in the world for the first time
As a whole, Huawei does not seem to be affected by the US containment, and is still growing at a normal rate. But carefully analyzing the data of the past years, compared with the international giants, Huawei also has many challenges to go beyond
01
Where does the revenue growth come from.
Huawei has been through 31 years of development. For a long time, Huawei is a complete toB company. However, since the establishment of Huawei’s consumer business in 2011, Huawei has grown into a giant with both to B business and capabilities, as well as toC business and capabilities
2018 is the first time that the consumer business has surpassed the carrier business and has become a veritable revenue growth locomotive of Huawei
Yu Chengdong once said in 2016 that “three years to catch up with Apple, five years to catch up with Samsung.” From the results, Huawei has become the second-largest smartphone brand in the world in the first three quarters of 2018, second only to Samsung. However, according to the final data released at the end of the year, Huawei ranked third after Samsung and Apple in the number of less than 3 million units. However, from the perspective of growth momentum, Huawei will soon surpass Apple in sales in 2019, but there is still a big gap from Samsung. At present, the gap is nearly 100 million
In contrast to the booming consumer business, the operator’s business has experienced negative growth for the first time in the last decade, down 1.3% year-on-year. This kind of sign has already begun to emerge in 2017, when the operator’s business grew by only 2.5% and entered a period of low growth. Of course, this is affected by the cyclical nature of the entire industry. ZTE’s revenue from the carrier business in 2018 was 57 billion yuan, down 10.5% year-on-year
The large-scale construction of the 4G communication market has been completed, and the commercial scale of 5G has not yet arrived. Although Huawei announced that it has obtained more than 30 5G commercial contracts, large-scale commercial and shipping will occur this year. Guo Ping revealed that in the first two months of 2019, Huawei’s revenue grew by more than 30%, and the three drivers of operators, consumers and corporate businesses all had double-digit growth. It is not difficult to imagine that with the arrival of operators’ 5G investment drivers, the carrier business will have a good performance in 2019
Huawei’s corporate business also exceeded $10 billion in FY18, which is a milestone for the business. However, Guo Ping also admitted that Huawei still has great differences. For example, in the field of data communication, the main competitor is 13 times that of Huawei. Huawei needs to work harder
02
Huawei VS International Giant
In the past six years, Huawei’s operating profit margin has come out with a smile curve. The profit margins in 2014 and 2015 were 11.9% and 11.6%, respectively, and fell to 9.1% in 2016, entering a trough, rebounding to 9.3% in 2017, and returning to double digits in 2018, operating profit. It reached 10.2%
Profit has always been a topic of great concern to Huawei and an important indicator for measuring the competitiveness of a company
Yu Chengdong told the media in early 2017 that Ren Zhengfei criticized the lack of profitability of the consumer business and the profit growth was too slow. Ren Zhengfei said internally that Apple pushed two or three mobile phones every year and earned hundreds of billions of dollars in profits. Although Huawei has surpassed Apple in terms of mobile phone sales, its profit is far less than that of Apple. Huawei’s internal small business goal is to meet the three-year service level to catch up with Apple, profit margins to catch up with OV
The worry of Ren Zhengfei is not without reason. Although revenue has exceeded the $100 billion mark, Huawei still has a gap in profit from some international high-tech companies
From the perspective of gross profit margin: Huawei’s average gross profit margin for the past five years is 40.86%, which is very close to South Korea’s Samsung. Samsung’s average sales gross margin for the past 10 years is 40.42%. However, Huawei still has gaps with high-tech companies such as Cisco, Microsoft and Apple. According to AI Finance, the average gross profit margins of Cisco, Microsoft and Apple in the past five years were 61.4%, 65.1% and 38.7% respectively
From the perspective of net profit: Huawei’s average net profit margin for the past five years is 8.4%, while Microsoft and Apple’s average net profit margin for the past five years are 20% and 22.1% respectively. However, Huawei’s net profit margin is much higher than Ericsson’s 2.17% level, which is closer to South Korea’s Samsung 9.87%
Although this comparison is very rough, the business of each company is different, “light company” and “heavy company” are completely different in cost, but we can still see the gap
03
Huawei’s compensation competitiveness.
From today’s financial report, Huawei’s total expenditure on employee expenses in 2018 reached 146.5 billion yuan, while Huawei’s total number of employees was 188,000, and the average annual salary was close to 780,000 yuan. This is a very attractive number in domestic technology companies
Compared with Tencent, the Internet company in Shenzhen, Huawei’s salary is also very advantageous. In 2018, Tencent had 54,309 employees, and the total salary cost was 42.153 billion yuan, equivalent to an annual salary of 776,000 yuan
But Huawei, as an industrial company with a factory, has a lower per capita output value than a “light company”. Tencent employees of Tencent contributed 312.6 billion yuan in revenue, while Huawei’s 180,000 employees contributed 721.2 billion yuan in revenue. According to simple calculations, Tencent’s per capita output value is 6.25 million yuan, and Huawei’s per capita output value is 4 million yuan
If you broaden your horizons to international giants, Apple’s total revenue in fiscal year 2018 is $265.6 billion (about 1820.9 billion yuan). Apple’s total workforce is 132,000, and the per capita output is 13.79 million yuan. In fiscal year 2018, revenues were 110.3 billion U.S. dollars (about 756.2 billion yuan), and the total number of employees exceeded 120,000. The per capita output was 6.3 million yuan. The per capita output value of the above two giants is higher than that of Huawei
Huawei employees who came out of the R&D center.
This aspect shows that Huawei has room for further tapping potential in terms of scientific and technological strength and personnel efficiency. On the other hand, it also shows that Huawei is still working hard. This is why Huawei has always emphasized the culture of “fighting people”. From the product development and sales of the consumer business to the project delivery and landing of the operator’s business, it relies on the pay of the 180,000 Huawei people
This is also determined by industry characteristics. The communications’ industry is a mature market with heavy assets and low gross profit. American companies such as Qualcomm stand at the top of the food chain and earn ultra-high profits by selling chips and collecting patent fees. Although Huawei has developed its own chips and achieved quite good results, Huawei’s foundation is still in the production of telecom equipment and the delivery of projects, which has returned to the hard work. Of course, the work itself is very meaningful, just as everyone is on the Internet, there must be someone to build the infrastructure
04
Financial efficiency challenge
It can also be seen from the financial report that Huawei’s capital use efficiency is decreasing. In 2018, Huawei’s accounts receivable turnover days were 70 days, an increase of 7 days from 63 days in 2017, while inventory turnover days were 77 days, an increase of 6 days from 71 days in 2017. These data mean that Huawei’s capital turnover efficiency is decreasing, it needs to take up more funds, resulting in tight cash flow
One side can confirm this. Huawei has increased its borrowing projects. The long-term and short-term loans at the end of 2018 totaled 69.9 billion yuan, an increase of 75.2% from the 39.9 billion yuan at the end of 2017. It is mainly used to protect 5G, cloud, Increased investment in artificial intelligence and smart terminals, as well as future-oriented research and innovation, branding and channel building
Have to admit that Huawei is still an outstanding management company. In 2018, Huawei generated sales and management expenses of 105.2 billion yuan, accounting for 37.8% of sales gross margin, down from 38.92% in 2017 and 41.14% in 2016. This is the performance of the company in management and efficiency, which explains why Huawei has been regarded as a standard in other management companies for many years
05
Challenges and opportunities coexist 2019.
From the financial report today, Huawei in 2019 is a blessing and a blessing
Last year, the US pressure on Huawei has raised concerns about Huawei’s prospects. Ren Zhengfei also gave a performance warning when interviewed by the media. “2019 may be the most difficult year for Huawei, and it may face challenges and difficulties in the international market.” He set Huawei’s 2019 revenue target at 1250. With a million dollars, the growth rate will be less than 20%
This is a conservative estimate by Ren Zhengfei, which reflects that the US pressure has caused a lot of pressure on Huawei
However, the misfortunes and the mutual dependence, the United States repeatedly attacked Huawei has begun to have a positive effect. Not long ago, Ren Zhengfei said in an interview with the BBC reporter: “Huawei Company is originally a small company, and it is not very famous. But so many high-ranking officials in the United States are lobbying around the world to tell the world that ‘Huawei is very important. It has problems. ‘The result is that people around the world pay attention to Huawei.”
Guo Ping revealed at the earnings conference that Huawei’s revenue growth rate in January and February 2019 exceeded 30%. “Thanks to the US government for advertising us everywhere.” No one expected that Huawei not only did not repeat the mistakes of ZTE, but the business was further developed
In the earnings report, Guo Ping, the rotating chairman, mentioned that “the fortress is easily broken from the inside and the fortress is the easiest to strengthen from the outside”. After 30 years of rapid development, there has been a large company illness within Huawei, and there has been a situation of inefficiency. “To thank the external pressure, the internal inertia unites because of external pressure.”
The ups and downs of the past year have given the company more “invisible” changes. In the 2018 earnings report, there are many references to compliance, cybersecurity and privacy protection. As mentioned in the financial report, Huawei has increased its investment in security and compliance. At the end of 2018, Huawei’s board of directors made a resolution to initially invest a special budget of US$2 billion to transform software engineering capabilities across the company and reconstruct all historical code with future-oriented standards. Huawei hopes that through this huge project, it will be credible from the previous results to the credibility of the process
There are two pages in the Huawei earnings report dedicated to compliance initiatives. This includes appointing the Chief Compliance Officer to manage the company’s external compliance, reporting directly to the Board of Directors, setting up compliance officers in each business unit, global subsidiaries, and establishing compliance organizations to be responsible for compliance in this area; In key areas such as network security and user privacy protection, and anti-commercial bribery, Huawei has also set up a special compliance management organization to implement systemized management across regions and business areas
Another issue worthy of attention is that Huawei’s revenue share in China has been steadily increasing in recent years. The huge domestic market has provided Huawei with a strong backing for stable growth, which is a unique advantage for Chinese companies. But Huawei, as a truly global company, needs more diversified income. Huawei is working hard to communicate with customers from all over the world and find more breakthroughs in overseas markets
In summary, it is not easy for Huawei to maintain rapid growth under such a complex macro background. With the large-scale commercialization of 5G, Huawei’s carrier business will pick up and the consumer business will continue to grow. However, Huawei is also faced with the challenges of improving its technical strength, improving its profit margins, and responding to uncertainties in the international market