Huawei Firms Up Financials, Renewing IPO Speculation - InformationWeek

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Huawei Firms Up Financials, Renewing IPO Speculation

The company has adjusted to the costs associated with going global, and is doing better than competitors Nokia-Siemens and Ericsson.

After years of rapid growth that catapulted it into the world's number two networking and telecommunications equipment supplier, financial data from China's Huawei Technologies suggests the company is working to stabilize its growth and strengthen its underlying finances.

Huawei is not yet a household name outside China or the telecommunications industry, yet last year it posted sales of $21.8 billion. That's up 19 percent over the previous year -- impressive growth but lower than recent years.

During the past 10 years, Huawei has quickly emerged as a telecom heavyweight -- able to competently produce the complex networking gear at the heart of wired and wireless networks and do so while often beating competitors on price. Its lesser known domestic rival, ZTE Corp., is also rising fast in the world of telecom, providing both infrastructure as well as handsets.

Last year Huawei bumped up its operating profit margin to 14.1 percent, finally surpassing the 14 percent it achieved in 2005, the first time the value of its foreign contracts exceeded those domestically.

Now it not only has adjusted to the higher costs associated with going global, but is also doing better than its competitors. Nokia-Siemens's and Ericsson's operating profit margins tumbled by 76 percent and 64 percent last year, respectively, each winding up at 2.9 percent. At the same time last year, Huawei managed to increase its operating cash flow by 234 percent, as opposed to the previous year, when it was chasing profits but let its cash flow slide.

Huawei's efforts to firm up its finances have led to speculation that it may be preparing for an IPO. But if wants to go public, it will have to increase transparency. Throughout its history Huawei has been dogged by rumors that it is closely connected to the Chinese government and military.

That image stems from the company's early days -- it was founded by a former officer in the People's Liberation Army -- and partially from its tendency over the years to keep its ownership structure a closely guarded secret.

The company insists that Huawei Investment and Holding, which owns Huawei Technologies, is entirely employee-owned. It says its Chinese employees are allocated shares and collect dividends, but they cannot purchase stock.

But competitors and many governments question Huawei's sincerity. In 2008 a U.S. government panel rejected its bid to acquire 3Com, a communications equipment manufacturer that also fulfills contracts for the U.S. military. The sensitive nature of Huawei's industry, building telecom networks, means that unless it become an open, publicly traded company, such suspicions will persist. But for now company insists it is content remaining private.

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