Huawei earns more than Ali Tencent combined, Ren Zhengfei: It still makes more money.

 Huawei earns more than Ali Tencent combined, Ren Zhengfei: It still makes more money.

Author: Angela Yang

Huaweis ranking in this years Fortune 500 continues to rise from 11 to 61. Considering its huge size, it is not easy to improve so much.

In terms of revenue, Huawei earned $109 billion in 2018, which exceeded the sum of Alibaba (182) and Tencent (237), which earned $56.1 billion and $47.27 billion, respectively.

In terms of profits, Huawei earned 8.95 billion US dollars in 2018, Alibaba earned 13.09 billion US dollars, and Tencent earned 11.9 billion US dollars.

But in terms of profit margins, Huawei is only 8%, while Alibaba is 23% and Tencent is 25%. In short, Huaweis profit margin is less than half that of Internet companies.

It is undeniable that the profit margin of hardware manufacturers is far less than that of platform-based Internet companies. Huawei is essentially a hardware company that produces and sells mobile phones or base station products of carriers with fixed costs, while Internet companies are more human resources, bandwidth and other costs.

Even so, Ren Zhengfei, the founder of Huawei, said in an interview with CCTV in May: Huawei makes too much money. At the same time, he believes that Huaweis investment in strategy is insufficient. If we invest more in our strategy, we will have fewer difficulties today.

In general, Huawei has been facing challenges in the past year. Huawei has always been one of the focuses of Sino-US trade frictions. In May, the U.S. Department of Commerce issued a statement that Huawei and its affiliates would be included in the list of regulated entities. Since then, Reuters reported on May 20 that Google has suspended part of its business with Huawei, which also means that Huawei mobile phones will face the risk of not being able to use the full Android operating system. Later, however, it was reported that companies such as Google, Qualcomm, Cisco and Intel had been pushing for the U.S. governments lifting commitment to relax restrictions on the sale of chips and other technologies to Huawei.

In June, Ren predicted that Huawei might face a $30 billion revenue decline in 2019 in the face of American media. But then he added, I see that we are still growing by 20%. Were only predicting a decline, but theres no decline yet. We are not sure what will happen at the end of the year. But the decline of $30 billion is a very small thing for us. Ren emphasized that the performance of Huaweis consumer business in overseas markets has rebounded.

Huawei is also investing in the future to cope with the uncertainty of the environment. Tencent has already invested heavily in R&D in China and even in the world. Huawei is higher than Tencent in terms of absolute value of investment and proportion of R&D and revenue.

Last year, Huaweis total R&D reached 101.5 billion yuan, accounting for 14% of the total annual revenue. According to a report released by PricewaterhouseCoopers last year, Tencents R&D investment in fiscal year 2018 (July 1, 2017 to June 30, 2018) was $2.7 billion (RMB 18.5 billion), accounting for about 7.3% of its total revenue in that fiscal year.

In this years Fortune 500, the top two technology companies are Apple (11) and Samsung Electronics (15). In terms of R&D investment, Huawei is higher than Apple, slightly lower than Samsungs 106 billion yuan.

Huawei said: the company invests more than 10% of its sales revenue in R&D every year. In 2018, Huawei has more than 80,000 R&D personnel, accounting for about 45% of the total number.

According to public information, in 2018, the total amount of global R&D enterprises exceeding 100 billion yuan is Huawei, Samsung, Google and Volkswagen, with R&D investment of 10.15 billion, 10.6 billion, 105.5 billion and 103.5 billion respectively.

This may be the wisdom of Ren Zhengfei: the lower profit margin in exchange for talent and technology reserves to deal with future uncertainties.

Source: Qiao Junyi_NBJ11279, responsible editor of Fortune Chinese Network