July 24, 2012 / 10:08 AM / 8 years ago

Huawei says H1 operating profit down by a fifth

HONG KONG, July 24 (Reuters) - Huawei Technologies Co Ltd , the world’s No.2 telecommunications gear maker, posted on Tuesday a 22 percent fall in first-half 2012 operating profit, citing the “significant challenge” of the global economy and the telecoms equipment market.

The results follow a fall in quarterly profit reported by rival Ericsson and profit warnings from competitors Alcatel-Lucent and ZTE Corp , largely reflecting sluggish telecom spending during the global economic downturn.

The unlisted Shenzhen-based company provides few figures about its corporate performance.

Huawei, also the world’s sixth-biggest handset maker, recorded an operating profit of 8.79 billion yuan ($1.4 billion) for January to June, down from a year earlier, but up 20.3 percent compared with the second half of 2011.

Revenues rose 5.1 percent from a year earlier to 102.7 billion yuan, it said in a seven-paragraph statement.

Earlier this year, a senior executive told analysts that the company had expected to post 15-20 percent growth in full-year 2012 revenues.

Company spokesman Scott Sykes said the firm was still confident of achieving the target.

For the first half, Huawei did not provide net profit or a gross profit margin.

“In 2012, Huawei outlined our new pipe strategy and we will focus even further on this approach moving forward to ensure more effective growth and greater efficiency to drive continued improvements in operating performance,” the company’s chief financial officer, Meng Wanzhou, said in the statement.

Global telecom equipment makers have been hit by slower telecom spending, largely due to the slump in the European economy and a slowdown in growth in China.

Earlier in July, shares in cross town rival ZTE slumped more than 16 percent in a single day after the company warned first-half net profit could slump as much as 80 percent. The slump came alongside news that the firm was under investigation by the U.S. FBI over the sale of computer equipment to Iran.

Huawei, founded by CEO Ren Zhengfei in 1987 after he was made redundant by China’s military, has diversified into consumer devices and enterprise networking equipment as growth in its core telecoms gear market has stalled.

The firm is close to taking over market leader Ericsson as the No.1 telecom equipment vendor globally, w ith analysts saying that it could be tough if it fails to gain any business with U.S. telecom carriers.

The U.S. government has been suspicious of Chinese companies such as Huawei and ZTE selling telecom gear to its carriers on concerns over possible cyber security.

However, both companies have had considerable success in selling mobile phones globally, including to the U.S. market, where their prices are cheaper compared with larger rivals such as Apple Inc and Samsung Electronics Co Ltd .

Analysts said the global economic downturn had also impacted Huawei’s handsets business.

Jefferies said in a client report that Huawei’s executives told the brokerage that Europe and North America were seeing a slowdown in smartphone demand, lower subsidies and a longer replacement cycle.

“In China, there is also slowing demand across the board including tier 2 and 3 cities. China’s total telco handset subsidies are expected to remain stable, however, subsidies/handset may decline as prices of smartphones decline,” Jefferies said.

With demand weakening in some markets, Jefferies said Huawei’s full-year 2012 smartphone shipments might be in the range of 35-40 million, lower than the initial company target of 60 million. (Reporting by Lee Chyen Yee; Editing by Neil Fullick)

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