The global smartphone market is not growing at the rates at which it once used to. Signs of stagnation and even decline are present in several once-prolific markets, forcing smartphone makers to look for new avenues to make profits and keep themselves afloat.
Even in such periods of stagnation, China’s Huawei recorded a nearly 30% growth in global smartphone shipments. However, this silver lining has a dark cloud: dropped profits.
According to a report from The Information, Huawei’s impressive growth rate was shadowed by the company’s inability to translate this increase into larger profits. Huawei generated $2 Billion in Operating Profits from its consumer business group in 2016. When compared to 2015, Huawei’s consumer business group made $2.2 Billion in Operating Profit, indicating a decline in profits on account of a heavy increase in expenditure. The profits achieved also fell short of the unit’s internal target of $2.5 Billion.
Despite the steep decline in profits, when you take into account the 30% growth in total units shipped, Huawei’s profit margin is still deemed better than many other Android OEMs. Most Android OEMs inside, as well as outside, of China struggle to make profits or achieve low profit margins, while only a few manage profits that can be considered substantial. The average profit for Android OEMs goes down on account of the losses that a few OEMs face, so it comes as no surprise that Apple accounts for most of the profits generated in the smartphone market.
The decline in Huawei’s profit margin comes through a combination of factors such as rising supply chain expenses due to higher-than-expected purchasing prices of components, as well as an increase in marketing expenses. Top tier executives are exploring the idea of being more selective with the company’s spending, especially in areas like marketing and retail sales channels. This, however, is a double-edged sword as these factors usually have a direct influence in the total shipments of the product!
All eyes will be set on how Huawei’s smartphone division performs this year. Particularly in China, purchasers are looking forward to Samsung’s comeback with the Galaxy S8 and the 10th anniversary iPhone from Apple. In the USA, Huawei struggles in the premium smartphone category due to the non-existence of any collaboration with top wireless carriers in marketing its phones. Will profits for Huawei then rise if it chooses to selectively spend on marketing?
Source: The Information
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