* Operating profit at 28.6 bln to 29.4 bln yuan vs 2012's
audited 19.96 bln yuan
* 2013 revenue 238 bln to 240 bln yuan, up 8 percent,
boosted by smartphones
* Lack of U.S. brand recognition hampers handset growth
* Delay on 4G network construction revenue cuts into growth
By Paul Carsten
BEIJING, Jan 15 China's Huawei Technologies Co
Ltd, known more for its telecom networking prowess than
its razor-thin smartphones, is starting to see success in its
consumer electronics business, though the key U.S. market
Huawei became the world's third-biggest smartphone
manufacturer last year, mainly due to a fast-growing Chinese
market. That is helping cushion the impact of a global slowdown
in network equipment spending, which caused the company to miss
its revenue growth target last year.
Consumer devices will also help Huawei buy some time before
4G network upgrades in China lead to more orders for telecom
Huawei's smartphone ventures, like its domestic rivals ZTE
Corp and Lenovo Group Ltd, have
so far focused on selling low- and mid-priced handsets in
The companies have yet to gain a foothold in the high-end
segment of developed markets - such as the United States - that
offer wider margins.
Huawei's name is virtually unknown - and unpronounceable -
in the U.S., the second-biggest smartphone market, where
lawmakers have flagged Chinese telecommunications equipment as
potential security risks.
"Huawei in an ideal world would love to be in the U.S. but
it's probably better for them to be seen as eyeing up the market
than be seen as begging," said Duncan Clark, chairman of
Beijing-based tech advisory BDA.
"They can probably succeed in the U.S. in this world of
consumer electronics, where consumers, not carriers, can choose
what to buy."
Consumer devices accounted for 23 percent of Huawei's
overall revenue last year, up from 22 percent in 2012. That
helped lift total unaudited revenue to 238 billion yuan to 240
billion yuan ($39.73 billion), Chief Financial Officer Cathy
Meng told a press briefing on Wednesday.
Unaudited revenue grew 8 percent, compared with a target of
10 percent annual growth for the next five years, starting in
Unaudited operating profit rose to 28.6 billion yuan to 29.4
billion yuan, the company said. That compared with an audited
2012 operating profit of 19.96 billion yuan - an increase of
The company put the leap in operating profit down to changes
in internal management and reducing operating costs.
Huawei will release audited results in March or April,
including net profit which should not be largely different from
operating profit, the company said.
Huawei had a 5.1 percent share of the global smartphone
market in October-December, a distant third behind Samsung
Electronics Co Ltd with 35.2 percent and Apple Inc
with 13.4 percent, according to Strategy Analytics.
"Huawei had some ambivalence to smartphones, at one point
thinking of selling off the unit, but they made a conscious
decision to embrace it," said BDA's Clark.
"It's been a lower-margin business than other areas but the
end-to-end vision, it's going to be part of the future."
Huawei aspires to challenge Samsung and Apple and in the
United States but it has virtually no brand recognition there
beyond its association with espionage, and has only a smattering
of low-key tie-ups with U.S. carriers through which most
consumers buy their phones.
The Shenzhen-based maker has sought to change that by
splashing out on a prime location at this year's Consumer
Electronics Show in Las Vegas.
It has no such issues in its home market which contributed
around 50 percent of growth last year in its consumer devices
business, a company spokesman said.
Sales are also strong in Europe, according to the company,
where the European Commission is poised to launch an
investigation into anti-competitive behaviour by Chinese
producers of telecoms equipment.
Its consumer electronics business grew 13.2 percent
year-on-year based on Reuters calculations.
"The handset business is quite profitable and operating
above expectations," said Huang Leping, a Hong Kong-based
technology analyst with Nomura.
Huawei targeted smartphone shipments of 60 million units
last year. The company said actual shipments reached 52 million
units, which Huang called "quite a good result."
Huawei is the world's second-biggest telecom equipment maker
after Sweden's Ericsson, and is known for
aggressively gaining sales by edging out rivals such as Cisco
Systems Inc, Alcatel-Lucent SA, Nokia Siemens
Its carrier network business booked 70 percent of unaudited
revenue for 2013 but only grew 4.1 percent according to Reuters
calculations, despite China and a slew of other countries
contracting Huawei to help build fourth-generation mobile
The company has also suffered by being excluded from
building networks in the U.S. and Australia because of fears it
is linked to the Chinese government - allegations it denies. The
company has come under scrutiny in Britain over cyber security
The carrier business group's growth rate "was not as pretty
as the two other groups, but the base number is very big," Chief
Financial Officer Cathy Meng told a press briefing.
But analysts say 4G deployment in China hasn't been as fast
as expected, so revenue from the network roll-out destined for
Huawei and cross-town competitor ZTE will not be seen until the
first half of this year.
"For 4G, they have a delay on revenue in China," said
"Deployment was slower than expected, so there is revenue
postponed until the first half of this year, particularly some
short-term delays on China Mobile's deployment speed."
The rest of Huawei's revenue, or 7 percent, comes from its
enterprise segment, which makes telecommunications devices for
businesses and institutions, and which is not profitable,
according to Meng.
Addressing the company's woes over cyber-security issues in
the U.S. and elsewhere, Meng said it is "all decided by the
"We have seen no incidents on networks due to security
problems," Meng said. "A lot of reports say Huawei equipment has
more vulnerabilities or is more easily breached. These reports