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Huawei’s pursuit of its global rivals is hotting up and the Shenzhen firm is forecast by most analysts to take top spot in smartphone sales within three years.

But the push into phones is weighing down profits. Revenues were up just under a third to Rmb522 billion ($75.69 billion) in 2016. Earnings were flat, up 0.4% to Rmb37 billion, the smallest growth in five years.

Huawei says the slowdown is due to increases in spending at its consumer division, where it shipped 139 million smartphones last year. Now third in sales after Apple and Samsung, it has been investing in higher-specification models and spending more on marketing and distribution. About 56% of its revenues came from its traditional networking business last year, but the proportion has been declining as sales of smartphones increase. Yet even as it chases down its international rivals, Huawei has come under attack in its home market, losing top position to Oppo (see WiC358).

The declining margins have been prompting tough talk from Ren Zhengfei, Huawei’s hard-charging founder, who penned a memo to staff last month telling them not to slack off or the company would “fall apart”. “Huawei will not pay for those that don’t work hard,” he warned.


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