Thank you very much. Now take a break. That was one way of looking at events at Huawei Technologies last week after chief executive Guo Ping reported the company’s best results since 2008. Huawei’s net profit rose by a third to Rmb37 billion ($5.7 billion) and revenues increased 37% to Rmb395 billion last year.
Guo’s six-month tenure as ‘rotating CEO’ finished at the end of March, and the top job will now be taken by Ken Hu until October.
Huawei adopted the rotating leadership system five years ago with Ren Zhengfei, the company’s founder, mentoring three executives to take on the position. He says that it would be foolish to rely on a single figure and that the industry is changing too quickly to have one person in charge. Of course, once the rotational period is over the non-acting bosses stay on as part of the senior decisionmaking team, rather than head for the beach. But the approach is a pointed contrast to the ‘cult of the CEO’ that predominates at other tech firms. It’s not hard to imagine how Steve Jobs would have responded to the request to step back, for instance.
It also makes Ren one of the exceptions in the world of Chinese tycoons, who usually turn to their offspring as heirs apparent. His son and daughter work at Huawei but have been told by their father that they don’t have the “vision, character and ambition” to be in the running for the top jobs (get-togethers must be fun for the Ren family).
But the rotating strategy seems to be working for Huawei. The division selling network equipment to telecom carriers contributed the lion’s share of sales, up 21% to Rmb232 billion, driven by the widespread rollout of 4G networks. Revenue at its consumer division grew faster, helped by the popularity of its smartphones in China. Sales were up 73% to Rmb129 billion, as Huawei became the first Chinese handset vendor to ship more than 100 million smartphones in a year, bucking the wider trend in which mobile phone penetration has shown signs of reaching saturation point in key markets like the US, Europe and the urban parts of China.
Huawei is now number one in annual revenue in the telecoms equipment industry, surpassing Ericsson and Nokia in sales of routers, switches and modems. It is also the world’s third largest smartphone maker, behind Apple and Samsung, but growing its sales at a much faster rate.
Analysts have applauded the shift into consumer devices, in part because Huawei faces political opposition to sales of networking kit in some Western markets, particularly the United States.
Network sales could also lose momentum – especially in China, still Huawei’s largest market – as the 4G rollout reaches its conclusion this year, although Guo has said that he expects further growth as operators begin carrying out 4.5G upgrades.
One of the few blemishes in the latest results was that gross margins declined, which Huawei linked to the growth in its consumer devices business. This seems counter-intuitive as the average selling price of its smartphones actually increased last year, according to Bryan Ma from industry research outfit IDC. While Samsung and Apple have been trying to broaden sales by moving towards mid-price phones (Apple has just launched the smaller and lower-priced iPhone SE in a bid to win share in emerging markets), Huawei is focusing on selling more of its higher-end phones, fuelled by the early success of its premium Mate 7 and P7 models.
So why the margin drop? IDC’s Ma says that it was probably due to the incentives being paid to Chinese retailers, who were consequently “very excited about carrying Huawei’s products because they felt they could make the most money off them”. In the meantime Huawei says there’s more growth to come as it pursues greater sales in countries outside China and puts more investment into handset R&D and global marketing.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.