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Soaring Finance Costs Hurt Huawei Earnings

A fivefold increased in financing charges has held back Huawei's 2008 result, despite soaring sales. The privately-held firm lifted net profit 20% last year to $1.15 billion as revenue rose 43% and operating margin lifted three points to 13%. But in a sign that the fast-growing vendor has been borrowing to fuel its own growth and loaning customers cash to buy equipment, finance costs rose to $971 million, up from $199 million a year earlier. Losses on affiliated subsidiaries also grew four times to $28.4 million. However, it boosted cashflow by $1.17 billion over the year to $3.08 billion. Releasing its 2008 annual report, the much-scrutinized vendor confirmed it notched up $18.3 billion in sales last year, up from $12.84 billion in 2007. It also confirmed it had signed $23.3 billion in contracts and expects to increase that to $30 billion in 2009. Huawei's turbo-charged growth is putting it in touch with the world's biggest vendors. Cisco earned $8.1 billion on $39 billion sales in 2007-08, up from $34.9 billion in 2007. Its Q1 gross operating margin was 20.5%. Ericsson posted $24.4 billion sales in 2007-08, up 11.3%. Net income was $1.36 billion, with an operating margin 8.0% excluding its Sony Ericsson handset business. Huawei said it had shipped more than 25 million mobile broadband terminals, 38 million DSL modems and 20 million CDMA phones. It completed 231 turnkey network deployments, with sales of networks and related services up 111%.

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