China’s latest hot smartphone maker, the privately-held Huawei, released a barebones versions of earnings this week. Sales jumped 40% to 246 billion yuan (about $39 billion) in the first half of the year, a healthy increase given worldwide smartphone sales have flatlined compared to last year.
Huawei’s smartphone shipments jumped 25% in the first half of the year to 61 million, compared to the same time last year. Citing IDC data, Huawei said it smoked the competition; global smartphone shipments increased just 3% during the same time.
Smartphones comprise only about a third of Huawei’s total revenues despite being the fastest growing part of its business; the bulk of revenue still comes from networking equipment sold to carriers across the world, with the notable exception of the U.S., where governments still warily eye the company’s equipment as vulnerable to spying from the Chinese government.
Huawei wants to capture a greater portion of revenues from the consumer business and set a goal of 140 million smartphone shipments earlier this year. Last year it delivered 108 million smartphones to place first among Chinese phone makers in market share and third in the world behind Apple and Samsung.
Its rise has come with costs. With lots of expensive storefronts and retail deals, Huawei’s model of selling phones is closer to Samsung than Xiaomi (which until recently was online-only). The number of outlets selling Huawei globally increased by 116% to 35,000 stores as of May this year, the company said.
That likely explains why Huawei’s operating margins plummeted six percentage points to 12% the first half of this year compared to the same period in 2015.
But Huawei wants to be a global brand and it has money to spend. The question is whether it can stay a step ahead of Chinese rivals. Huawei supplanted Xiaomi last year as the hottest Chinese brand. Now it’s at risk of losing the title. In June, two other brands—Oppo and Vivo—captured a third of China’s market share thanks to their growing popularity.
Huawei led market share for the full quarter ending in June. But its lead doesn’t look very safe.