Source: Wall Street Journal by Aaron BackBEIJING -- Chinese telecommunications-equipment provider Huawei Technologies Co. said Wednesday its 2009 net profit more than doubled because of rising sales and exchange-rate gains, and that it expanded from its traditional strongholds in emerging markets into developed markets like North America.
Huawei has steadily gained on global telecom-equipment giants due to its lower prices, even as the quality of its products has closed in on Western rivals, and according to a report by research firm Gartner Inc. it captured the No. 2 market-share position behind L.M. Ericsson Telephone Co. last year.
The closely held company said its net profit for the year rose to 18.27 billion yuan ($2.68 billion) from 7.85 billion yuan in 2008. Revenue rose 19% to 149.06 billion yuan from 125.22 billion yuan.
Huawei did not provide a geographic breakdown of its sales, but a spokeswoman said that the company experienced strong growth in both developed and developing markets. The company's contract sales rose 53% in North America and 43% in Asian markets excluding China, she said.
In its annual report, the company said the surge in net profit was due to cost-control measures,which improved operating margins, and exchange-rate gains.
Huawei's global market share last year rose to 14.2% from 11.5% in 2008, Gartner said.
Gartner analyst Sylvain Fabre said that the pricing gap that has helped Shenzhen-based Huawei and cross-town rival ZTE Corp. gain ground on Western firms is narrowing in mature markets. The Huawei spokeswoman said that the company's main cost advantage is over the total lifetime cost of equipment, rather than the initial selling price.
Mr. Fabre said that the quality of the Chinese vendors' equipment is quite similar to the gear offered by Western rivals.
Norway's Telenor ASA said in November when it selected Huawei for a six-year contract to supply a new wireless network that the Chinese company's technology and services were now in line with European vendors. The network Huawei is building in Norway replaces gear supplied by Ericsson and Nokia Siemens Networks, a joint venture between Finland's Nokia Corp. and Germany's Siemens AG.
Huawei posted a 6.973 billion yuan ($1.02 billion) foreign exchange gain in 2009, and said that without that gain, its 2009 net profit would have increased 26.5%.
The company did not elaborate on what was behind the foreign-exchange gain. In 2008, the company reported a $776 million foreign-exchange loss due to the rise of the yuan against the dollar and other currencies that year. China halted the gradual appreciation of the yuan in July 2008 and has held the exchange rate steady since then as part of its response to the global financial crisis.
With the yuan virtually unchanged against the dollar for all of 2009, Huawei's foreign-exchange gain could be explained by sales in other currencies that rose against the dollar last year, but the Huawei spokeswoman declined to confirm this.
To hedge its foreign-currency risks, the company primarily relies on simple "natural hedging" strategies such as the use of foreign-currency loans, rather than the extensive use of dividends or other more complex strategies, the spokeswoman added.
Huawai says it is majority-owned by employees. The company doesn't disclose all details of its ownership structure or its financial performance.
Huawei said it sees its business momentum continuing in 2010 and expects revenue to grow 20% this year.
"Driven by the development of broadband in 2010, particularly the advancement in mobile broadband, Huawei will continue to maintain a strong and steady momentum across our key business areas," Chief Executive Ren Zhengfei said in the report.
Total revenue growth slowed in 2009 from 33.5% in 2008 due to adverse economic conditions, the company said.
The firm's operating margin rose to 14.1% from 12.9% in 2008 due to cost controls. The company said it sought cost reduction opportunities "in such areas as product development, procurement, manufacturing, delivery and service."
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