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Huawei: The journey to becoming China’s pride

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As at 1980, China’s telephone penetration rate was 0.22 percent, one of the lowest rates in the world, according to a World Bank report. In this period, telephone lines were restricted only to senior government officials.

The country was plagued with internal conflicts, wars, and decrepit infrastructure, as the poverty rate was 88 percent, while numbers of registered vehicles were 365, 000.

In 1981, China’s government realized that the underdeveloped telecommunication industry was a quagmire to economic growth and development as they carried a series of reforms.

Government increased investment in telecommunications to 4.2 billion RMB; they allowed the MPT to keep 90 percent of the profits earned and encouraged these profits to be invested in building infrastructure. They changed the rules for MPT salaries such that regional directors could only increase their pay by adding more customers. Also, they lowered tariffs and removed import restrictions on foreign telecommunication equipment and adjusted the accounting rules to encourage investments in telecommunications projects.

These reforms yielded fruit as 78.40 percent of China’s population now have access to phone while mobile subscribers surged to 529 million in 2007, from 234 million in 2003, 120 million in 2001, 40 million in 1999, and 1.07 million in 1994.

During the economic and political transformation, China birthed a baby named Huawei, with Shenzhen and the telecom industry in China both growing at a swift pace.

When Ren Zhengfi founded Huawei in 1987 with just $3,500, little did he know the company would take the world by storm. The company’s original business was reselling Mitel PBX equipment, imported from Hong Kong.

The years between 1994 and ’96 marked a new era for Huawei; the end of its life as a trading company, and the beginning of a fresh life as telecom vendor.

However, the company faced some challenges that include quality of products and delivery time. But when such happened, Huawei apologised and got the problem fixed.

Because Huawei took criticisms constructively, it began to develop better quality products that penetrated the global market.

The success of the company can be attributed to copious investment in research and development as Ren recognized that competition could kill the company by blocking their access to the equipment they re-sold.

In 1991, the team was manned by 50 research and development engineers, virtually all recent university graduates. By 1993, Huawei had grown to 400 employees.

In July 1994, Huawei launched the C&C08, their first digital switch with a 2,000 line capacity but architecture that can supports up to 400,000 lines allow us to grow capacity quickly.

The company kept spending copiously on research and development, a strategy that yielded fruit as it expanded into both Optical Networking and into Mobile Networks.

In 1997, Huawei launched fixed network solutions, and shortly afterwards a GSM mobile solution.

By this stage, the quality of Huawei’s products had improved enough that is was able to compete with foreign competitors in China’s big cities, expanding internationally as well. In 1998, it won the first contract in an urban city in China.

Offices were opened in Bangalore 1999 and Stockholm 2000. In 2004, Huawei developed the first mobile phone.

From 2008 to 2018, the company spent $75 billion on research and development, with 12-15 percent of its annual revenue invested in it. The vision is to invest $2 billion software engineering process within the next 5 years.

An era of explosive growth driven by smartphones

In 2009, Huawei launched the world’s first LTE network with TeliaSonera in Norway. In 2011, it expanded into the enterprise space with the establishment of the Enterprise Business Group.

In 2015, the company deployed over 400 LTE (4G) networks covering 140 of the world’s capitals. That same year, its smartphone shipments hit 100 million worldwide.

Consistent growth in earnings validates smartphone penetration

Huawei’s revenue grew at a compound annual growth rate (CAGR) of 26 percent in the last five years to touch down at $108.50 billion (721.10 billion Yuan) as it won customers for its smartphones and networking gear.

A breakdown of the sales figure shows revenue from its consumer business, which includes smartphones, jumped 45 percent to 348.9 billion yuan while sales in the carrier unit were slightly changed at 294 billion yuan.

The company’s net profit has been growing at a CAGR of 21 percent since 2014 to 59.30 billion yuan ($8.8 billion), while year on year (yoy) was up 25 percent.

Cash flow from operating activities have been growing at the CAGR of 16 percent between 2014 and 2018 to 74.70 billion yuan ($11.18 billion), which means the company has enough money to settle its debt, pay dividend, and fund future expansion plans.

Huawei make up 34 percent (29.90 million) of the total 88 million shipments of smartphones in China. This compares with Apple’s 7.40 percent (6.50 million).

Analysts say Huawei could have displaced Apple as the number two smartphone producer, but for the trade war between China and the United States of America.

 

BALA  AUGIE

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