Bloomberg News

Huawei Open to IPO After Probably Surpassing Ericsson in Sales

January 21, 2013

Huawei Sales Jump 8% on Smartphones, Probably Topping Ericsson

The logo of Huawei Technologies Co. is displayed at the Mobile World Congress exhibition in Barcelona on Feb. 26, 2012. Photographer: Chris Ratcliffe/Bloomberg

Huawei Technologies Co., China’s largest maker of telecommunications equipment, said it has an “open mind” about offering shares to the public after posting sales that probably surpassed Ericsson AB. (ERICB)’s.

A decision to hold an initial public offering would depend on shareholders’ interests, as the company has no immediate need to raise funds, Chief Financial Officer Cathy Meng Wanzhou said today at a briefing in Beijing. The company expects sales to rise as much as 12 percent this year following an 8 percent increase last year, she said.

An IPO may help closely held Huawei expand overseas by boosting transparency and reducing security concerns, said Pierre Ferragu, a Sanford C. Bernstein & Co. analyst. The U.S. House Intelligence Committee in October recommended that local companies avoid equipment made by Huawei, whose founder served in the Chinese military, citing concerns the communist nation could install malicious hardware or software in U.S. networks.

“Perception is a major issue here,” said London-based Ferragu. “A listing would be a strong help, but I doubt the company is ready for this given the implications on the governance and management model.”

It may take about a decade for Huawei to be perceived as “a normal company” worldwide, he said. The House Intelligence Committee also said U.S. companies should steer clear of another Chinese maker of telecommunications equipment, ZTE Corp. (000063)

Profit Surge

Huawei’s sales last year rose to 220 billion yuan ($35.4 billion), helping boost net income 33 percent to 15.4 billion yuan, Meng said. The event was the first media briefing for the 40-year-old CFO, who is the daughter of Huawei founder Ren Zhengfei.

The equipment-maker had $4.5 billion of working capital at the end of last year, on record cash flow of $12 billion, Meng said. It also has credit lines totaling $33 billion, 77 percent of which comes from banks outside of China.

“As to whether or not we will go public, in Huawei we have kept an open mind toward this issue,” she said. “No matter whether we go public or not, we will always honor our commitment to openness and transparency. We will refer to the standards of listed companies to improve ourselves.”

Huawei is employee-owned, with about 65,000 staff members holding shares, Meng said. Her father controls about 1.4 percent, she said. Ren, 68, set up Huawei in 1987 after retiring from the Chinese military in 1983.

Surpassing Ericsson

Huawei’s sales have climbed as it adds smartphones, tablets and cloud-computing services, and benefits from investment in mobile-phone equipment in emerging markets, Meng said. Ericsson, the world’s biggest maker of wireless network equipment by revenue, is predicted to report sales that are little changed from a year earlier because of its exit from a mobile-phone venture with Sony Corp. and a Euro zone debt crisis that has damped spending in Europe.

Huawei will probably “grow faster than Ericsson in the next couple of years,” Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, said before the Chinese company released its earnings. “They are entering new markets next to their core competencies and they are addressing new customer segments. That is not the case with Ericsson.”

The Stockholm-based company will report 2012 sales of 226.9 billion kroner ($34.8 billion), based on the average of 17 analyst estimates compiled by Bloomberg. Earnings are due Jan. 31.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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