Analysis of Huawei 2019 Annual Financial Report

As we all know, 2019 is the toughest year of Huawei in its history, since US government put Huawei into entity list and banned Huawei procure US product from chipset to sofware. As Huawei released 2019 annual report this week, I was curious about four parts from this report:

  1. How was Huawei 2019 financial performance?
  2. Has Huawei moat become wider or not?
  3. How Huawei responded to US sanction?
  4. Why Huawei can be success in the past, and can Huawei still be success in the future?

I will have analysis one by one from my perspectives:

Firstly, Huawei 2019 Financial Performance.

From 2019 Annual Report

From the above graph, we can see that the liability ratio in the past 5 years keeps stable at 65%, and the total borrowings is far less than the cash and short-term investments, so the financial heath is OK for Huawei. 

Another factor is about profitability, we can see the operating margin is 9.1% in 2019, and the ROE is around 20%. Since we know Huawei’s R&D expenditure is totaled CNY131,659 million in 2019, accounting for 15.3% of the company’s total revenue. We can see that Huawei still keep good profitablity even invest hugely in R&D. More importantly, the cash flow from operating activities is much more than net profit each year during the last 5 years, this shows Huawei has wide moat.

Last is about financial growth. The following graph shows Huawei has a good financial growth in the last 5 years.

From 2019 Annual Report

Although Huawei has comprehensive businesses, Huawei stayed focused on ICT infrastructure and smart devices, and continued investing to create value for customers, deliver better experiences to consumers, and improve the quality of operations. This graph shows Huawei whole business structure.

From 2019 Annual Report

In this structure, The Carrier BG and the Enterprise BG manage and support solution marketing, sales, and services that target carrier customers and enterprise/ industry customers respectively. The Consumer BG focuses on serving device consumers and ecosystem partners, and deals with all aspects of the consumer domain. The three BG is the main revenue source of Huawei. 

The Cloud & AI BG  focus on Kunpeng, Ascend, and HUAWEI CLOUD to build ecosystems and cultivate fertile soil, so that Huawei can become a cornerstone of the digital world. The Intelligent Automotive Solution BU is an end-to-end organization responsible for the company’s intelligent automotive business. This BU will help extend Huawei’s strengths in ICT to the intelligent automotive sector by providing incremental ICT components and solutions. The two BG is the new area of Huawei businesses

From 2019 Annual Report

As we know, the Carrier business is the traditional business of Huawei, which keeps small growth as Huawei already take one third market share. The consumer business grows very fast and become the biggest part of Huawei business. Others is a small part, however, the growth rate is 30% year on year.

From 2019 Annual Report

As Huawei was severely influenced by the US sanction, so the oversea market was not good in 2019. However, China is a biggest market. In the Chinese market, 5G networks saw large-scale deployment. Huawei smartphone business maintained steady growth and created more local sales channels. Huawei enterprise business seized the opportunities brought about by digital and intelligent transformation. Thanks to these factors, Huawei earned CNY506,733 million in revenue from the Chinese market, up 36.2% year-on-year. 

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