Huawei’s first half net profit sank 37% as costs ballooned and research-and-development (R&D) spending rose by a quarter, the company said Monday.
The Chinese vendor reported total revenue of 467.8 billion Chinese yuan (US$69.5 billion), up 9.6% over last year, according to a filing.
But earnings totaled RMB23.4 billion ($3.5 billion), down from RMB37.1 billion ($5.5 billion) last year, mostly due to a sharp hike in costs.
R&D attracted the biggest spending hike, expanding by 25% to RMB121.4 billion ($18.1 billion). It now accounts for just over a quarter of revenue.
Total costs rose by 12%, with admin expenses up 24% to RMB30.1 billion ($4.5 billion), taxes 8% higher at RMB3.2 billion ($480 million) and finance costs almost doubling to RMB5.3 billion ($790 million).
The heavy spending drove its operations cashflow to a deficit of RMB40 billion ($6 billion), a turnaround from a RMB31 billion surplus a year ago ($4.6 billion).
The company did not give the reasons for the sharp cost increases. While it is a privately held company, it makes financial disclosures to its bondholders.
But the skyrocketing R&D costs likely reflect the demands of its ambitious efforts across multiple domains: advanced chips, AI, smart vehicle systems, autonomous driving and green energy, as well as its legacy networking and handset businesses.
Memory cost
Besides the growing research outlays, Huawei, like the rest of the tech sector, is feeling the burden of higher memory costs, in particular in its handset division.
In contrast to Huawei’s continued heavy plunge on R&D, smaller rival ZTE last week reported a 14% cut in research spending. R&D costs as a proportion of revenue contracted by 3.7 points to 14% – a long way short of the Huawei level.
ZTE said net profit had dropped 45%, although revenue had improved 9%.
The core carrier business contracted 9% due to the falloff in operator capex, while the booming enterprise unit grew 44% and device sales grew 8%.
