China-based Huawei Technologies posted earnings growth that was its slowest in the past five years, as the biggest telecommunications gear maker in China invested in research and a blitz in marketing to narrow the gap between it, Samsung and Apple in smartphones.
Huawei, which was founded by Ren Zhengfei a former engineer in the army, has become one of the most recognizable brands in China. The new entrant into the world of mobile handsets has rapidly gained market share from Samsung and Apple with phones that are premium.
It now is ranked No. 3 in the world. However, with expansion there is a cost, as the company increases spending to maintain pace.
Huawei’s main business is networking equipment has also slowed down as phone carriers pullback network rollouts while preparing for the faster standards that 5G will propose.
In addition, smartphone competition in China from the likes of companies such as Oppo is increasing and becoming fiercer.
Huawei’s net income was up just 0.4% to end 2016 with 37.1 billion yuan or $5.4 billion, said the company on Friday.
Net margins were down ending the period at 7.1% from the previous mark of 9.3%. Moving forward, that profitability level is appropriate, Eric Xu the current CEO said.
On Friday, Huawei said it had spent more than 14.6% of its revenue in 2016 for research and development and is setting aside between $10 billion and $20 billion annually for that as it increases its research in things from wireless technology to artificial intelligence and cloud computing.
However, it has also started to keep a closer eye on its bottom line. In December the CEO pledged to cut the extravagant events related to marketing and warned against using blind rhetoric and optimism.
He added to his staff in a memo that growing expenses would hurt profitability and efficiency.
Xu, who in the current CEO in rotation will cede the helm today, said the company was paying attention more to scaling back investment and gaining more efficiency.
Huawei blamed the quickly expanding consumer part of its business for weighing on its margins. Revenue was up 32% to over 521.5 billion yuan. The company remains private and only discloses basic finances.
Revenue ended slightly ahead of its expectations but the company’s consumer division surpassed that pace growing revenue over 44% ending at 179.7 billion yuan and shipping more than 139 million handsets during 2016.