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Huawei 2005 Revenue

Huawei logoThis week Huawei announced their 2005 bookings were $8.2BB. Most people have misinterpreted this number to be revenue- that figure has yet to be announced. What hasn’t happened is an independent audit of any of these numbers. That’s because Huawei views secrecy, including lack of independent accounting, as a strategic competitive advantage.

Here are the numbers they have claimed. (Source: Huawei)

Huawei Revenue Table

They claim all of the growth in bookings is driven by overseas business. None of this is audited externally. This isn’t an accusation; it’s just a fact that needs to be considered.

Huawei Bookings Breakout

Huawei is a strong company with bright engineers. It’s a pleasure to see such fine people drive the market to a new level of competitiveness. I think it’s great they’ve won at BT. However, until the company lists on an exchange that requires independent auditing and financial controls I’m not going to get excited over their numbers.

Huawei talks about financial controls on their web site.

Financial management: We set up financial services and monitoring systems implemented and unified financial regulations, procedures, codes and monitoring, and fulfilled financial monitoring and management worldwide ….. We have established partnerships with over 20 banks to meet the capital requirement for business development of the company. The company has accomplished an independent audit system, and is now constructing a 3-level monitoring from external audit to internal control and business audit to minimize its finance risks and operation risks.

Notice the lack of the word ‘independence’, and the ‘now constructing’ reference.

When I saw Huawei’s VP of Global Marketing spoke at a Lehman conference in June there weren’t consistencies in the numbers he provided during the duration of his 20 minute speech…. revenue was X then 5 minutes later revenue was Y. Could have been my misinterpretation, but at the very least, their ability to clearly present financial data was not where it needs to be.

Operating secrecy still shrouds the company. From The Economist:

Take Huawei, a telecoms firm that is the most global of any Chinese company, and also among the least transparent. Although technically private, its shares are probably owned by local state telecoms customers. It also has a $10 billion credit line from China Development Bank, famed for its loans to support state policy. Its founder, Ren Zhengfei, was a former People’s Liberation Army officer. But the fact that no one knows who runs Huawei could weaken it. It has grown fast in a booming market, but its unclear ownership means it cannot easily get a stockmarket listing, nor reward staff with stock options.

UTSI LogoI sat in the lobby of UT Starcom (UTSI) nearly 2 years ago- they have a big Starbucks there – while waiting for an appt. There were lots of youngish Americans, well dressed, but clearly not the engineering type. I struck up a conversation and discovered they were all accountants (don’t recall the firm) charged with dragging the NASDAQ company kicking and screaming into SOX compliance. They looked very tired.

UT Starcom has a very public and checkered accounting history, but they are one of the few Chinese companies whose NASDAQ listing forces them to meet US accounting standards (or at least try hard). This is a management distraction, their financial disclosures provide transparency to competitors, and certain financial activities common in China (but not by US accounting standards) become difficult, if not impossible. Huawei can avoid these problems so long as it is a non-public entity.

Regardless of people’s opinions of UT Starcom and their future, the first Chinese companies that confront the challenges of moving to western based accounting are going to have compelling competitive advantages for obtaining capital in the free market. Sooner or later Huawei will need to make the jump, but I have yet to run into the same group of accountants at Huawei. I suspect when it is in their best interests the same Americans will be invited over.

Commend Huawei’s technical and market performance, but let’s hold our applause for their financial figures until some independent auditing takes place.


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