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Huawei’s Sales Jump But Profits Go Nowhere

Another year, another record sales haul for China telecom and smartphone giant Huawei. Revenue jumped 32% to $75.1 billion in 2016.

But unlike in previous years, profits didn’t join in the boom. In fact, while Huawei had found smartphone success expanding across Europe and Scandinavia as well as China (thanks in part to special carrier deals, as detailed in a recent Fortune story), the expansion is dragging on the bottom line. Net income budged up just 0.4% to $5.3 billion during the year, as net profit margin slipped more than two percentage points to 7.1%.

Huawei released its audited annual earnings today, despite no need to. Huawei’s a privately owned company. But it’s also an ambitious striver with growing businesses across Europe, Scandinavia, and Africa. These markets are demanding transparency, and Huawei has followed with a years-long push toward greater exposure. The company already generated a string of headlines at the end of last year when it teased the annual sales growth figure.

Despite overseas growth, it is China, where Huawei generates 45% of sales, that remains its biggest market and among its fastest growing, with 41% sales growth last year.

China generated a greater portion of total sales last year as Huawei won, and then lost, the top market share position for smartphone sales there in a heated competition with ascendant local brands Oppo and Vivo.

In China, Huawei now finds its arm being twisted. At the beginning of last year, it was selling more smartphones than anyone until Oppo and Vivo’s heavily marketed, lower-priced phones started appearing in tens of thousands of small stores scattered across China’s countryside.

Oppo and Vivo’s small shops were part of part of billionaire owner Dong Yong Ping’s strategy to win the countryside. In an interview late last year, Huawei’s consumer business chief Richard Yu told Fortune his company was rushing to open stores across small cities to catch up. These openings are likely the culprit of the earnings drag. Or what Huawei called additional investments in ‘long-term brand and channel building.’

Huawei is the world’s No. 3 smartphone seller in market share, but no one said dominance would come easily.