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Huawei Margins Down; Rising Labor Costs Weigh on

04-25 15:30 Caijing
Huawei’s operating margins shrank by 7.7 percent in 2011, largely because of the costly launches of its smartphones and tablet computers.

Huawei Technologies Co., the world’s second-largest network equipment supplier by sales, has posted shrinking operating margins following costly launches of its new smartphones and tablets.

The company generated 203.9 billion yuan (32.3 billion U.S. dollars) in revenue in 2011, while its operating margin fell 7.7 percentage points to 9.1 percent, yesterday’s results showed.

Analysts said it was mainly dragged down by the expensive launches of its new smartphones and tablets computers, a way the company used to diversify its business and better compete with its rivals like ZTE.

The Shenzhen-based telecom company has seen its success both domestically and aboard in the past years, partly because of the “labor dividend” it received compared with its peers outside China, according to analysts.

The company has 140,000 employees ending 2011, with 44 percent of them engineers. The additional money it paid to employees, which stood at 7.1 billion yuan in 2011, accounts for 60 percent of the 11.6 billion in net profits, the company reported.

If the company increases package for its engineers by some 50 percent in the coming two years—a level that will be still well behind the curve of that in developed countries—the increases in labor cost will rise to 16.3 billion yuan, eroding the company’s earning power.

Additionally, Huawei’s cash flows from operations fell 43.5 percent year-on-year to 17.8 billion yuan in 2011, majorly driven by a fall of 52.9 percent in net profit, the company said.

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