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Huawei woos the skeptics with a 'U-turn on attitude'
HUAWEI Technologies, a poster-boy of Chinese high-tech companies, raised questions aplenty when it announced two weeks ago that net profit plunged by half in 2011.
Is it an end for Huawei's rapid growth? Is it a turning point after the company hit hurdles last year trying to sell network equipment to the United States and Australia?
Huawei is a company dogged by attention, both in China and abroad. It has been held up as a successful example of privately owned enterprise in China because of its rapid business growth and aggressive overseas expansion. Within about a decade, the one-time Shenzhen start-up has become the world's No. 2 telecommunications equipment vendor and the top player in China's industry.
Huawei made headlines in the overseas media after several attempts to penetrate overseas market segments or acquire foreign firms were thwarted because of foreign suspicions that the company still retains close ties to the Chinese military, though such a relationship has never been proven.
In 2011, Huawei's profit fell to 11.6 billion yuan (US$1.8 billion) from 24.7 billion yuan a year earlier. Huawei attributed the decline to increased investment in research and development, and to the costs of expanding into the smart-phone sector and business computer systems.
Revenue last year rose 11 percent to 203.9 billion yuan, slowing from revenue growth of 30 percent or even 50 percent in recent years.
On a conference call with analysts after its annual figures were released, Huawei officials said they expect revenue to increase between 15 percent and 20 percent this year, as telecom services and smart phone business sectors expand.
There are several plusses that recommend Huawei.
The first is transparency. As a private firm, the company is not required to post earnings or chat with analysts. That Huawei chose to make public less than flattering results for 2011 is interesting. "We were allowed to take pictures, for the first time, in Huawei's product demo center this year," Kevin Wang, an iSuppli analyst, wrote on his Weibo page during Huawei's analyst conference. "It's a nice beginning."
Indeed, Huawei's top officials now seem willing, even eager, to talk about the company and its industry development. Almost all top officials have opened Weibo accounts since last year to better communicate with the public.
Yu Chengdong, head of Huawei's mobile device division, now has more than 276,000 followers on Weibo.
He often posts the latest news about Huawei's smart phones and answers questions directly online.
From my experience as a technology reporter, I can say it's a U-turn attitude. I can clearly remember when Huawei's officials were secretive and reluctant to talk with the media.
"The best thing is not to be mentioned in the media, whether positively or negatively," a Huawei marketing official once told me privately.
The about-face was further obvious when Huawei published information about its share structure along with its annual results. Normally, private companies are loathe to reveal any details about corporate ownership.
The report showed that Ren Zhengfei, Huawei's founder and chairman, holds 1.4 percent of the company, and 65,596 employees - or about 70 percent of the workforce - hold the remainder.
No one can deny the fact that Huawei is still blocked or banned from entering certain segments in markets like the United States and Australia for "security reasons."
It's true that Ren used to be in the Chinese military, but he retired a long time ago. I don't want to argue the merits of supposed military ties, but I strongly believe that the situation will improve as Huawei continues to pursue more transparent policies.
After all, no country will refuse to buy products of reliable quality and competitive price forever.
In the past several years, Huawei's products have made headway in Europe, particularly in the UK, Norway and Spain. The latest news is that Huawei will invest US$1.5 billion to establish a European logistics center in Hungary.
We must remember that Huawei is not alone in suffering the adverse effects of global markets. In 2011, telcos have driven down spending and procurement costs globally. That may explain why profit levels at vendors such as Ericsson and Huawei haven't been high, analysts said.
But the telecom industry is cyclical. The industry was in a slump last year, but a rebound may follow in the next two years, thanks to 4G network construction or smart phone popularity.
That brings up another bright spot in Huawei's prospects: its diversification from carrier-network business into smart phone and mobile devices.
During the analyst conference, Huawei said it expects to sell more than 100 million mobile phones, 60 percent of them smart phones this year, double last year's level.
In the next five years, Huawei is aiming to become the world's third-biggest Android handset manufacturer, just behind Samsung and HTC. That would mean surpassing overseas giants such as Sony and Motorola.
According to Gartner analyst Sandy Shen, Huawei has advantages to draw on. It has a network equipment business, carrier clients in both domestic and overseas markets such as China Unicom and Vodafone, and a strong telecommunications technology background.
In the smart phone era, those advantages are noteworthy because carriers have a big influence on which phones consumers choose.
Then, too, Huawei has a secret weapon: chip design.
Hisilicon, Huawei's semiconductor division, has taken a leading position among domestic players for several years. After a decade's development, its technology is close to global standards. Now its quad-core chip products are used in Huawei-brand smart phones and tablet computers.
The chip is the "heart" or "brain" in the IT industry and is critical to the whole industry chain.
With advanced technologies like quad-core chip and the coming eight-core chip, I strongly believe Huawei will gain market share in the smart phone segment more rapidly in the short term and increase profit in the long term.
Everyone is wondering who will be the "Apple of China." I nominate Huawei as a top candidate. Of course, that's still a long way in the future.