Huawei holds firm as the world’s third-largest smartphone maker, but the company is starting to feel a pinch. Both profit and sales are no longer rising as quickly as before, and analysts say increased spending on R&D and marketing are beginning to thin out margins — indeed, net profit margins sat at 7.1 percent for 2016 versus 9.3 percent the previous year.
“Fast revenue growth doesn’t mean direct contributions to profit,” Nicole Peng, China director at tech research firm Canalys, said in an interview before Huawei’s numbers were released. Overall, “2017 is going to be less easy, and more challenging.”
Huawei was able to capitalize on Samsung’s recent smartphone woes, but the hot release of the Korean company’s new flagship Galaxy S8 phone will mean increased competition on the market again, Peng said.
Challenges aside, the Shenzhen-based company remains highly ambitious. Last year, Huawei continued to spend massively on R&D, shelling out 76.4 billion yuan ($11 billion) to further its business areas. The firm has also before said it’s targeting global revenue of $150 billion by around 2020.
Analysts say Huawei’s investment in R&D, particularly in developing the 5G networks, put the company on track to lead the way in setting overall industry standards — a move that could turn quite positive for the firm’s financials.
It’s also developing in line with a larger China initiative, dubbed “Made in China 2025,” which aims to grow ten key high-tech sectors and support growth.
Analysts say the U.S. remains an important market for Huawei as the company continues to seek growth. But that as well remains an uphill battle — the company holds only 1 percent of overall market share when it comes to smartphones, lagging far behind leaders like Apple.