Yesterday, Huawei launched the P40 series in China. Huawei Consumer Business Group CEO Richard Yu gave an online interview to the press earlier today. In that, he mentioned the company is barely making a profit from its high-end premium smartphones.

Huawei dethroned Apple to become the world’s second-largest smartphone brand in terms of shipments in 2019. But yet, it’s profit margin is less than that of the Cupertino-based tech giant. This is because the brand’s premium products feature high-end tech, which costs more but still the company sells the final product at a lesser price than its prime competitors.

Mr. Richard Yu said the camera components in the Huawei P40 series alone cost more than $100. He also revealed that the company has so far lost around $60 – $70 million dollars in selling the Mate Xs foldable smartphone, even though it is priced at 16,999 Yuan (~$2267). He further added that the company cannot make a profit unless the price of folding panels goes down. Till then, the retail price of the foldables will remain high.

Mr. Yu also revealed that Huawei’s investment in R&D will likely be the second-largest this year. He also added that some of the competitors merely spend a billion Yuan in R&D, however, his company is investing $20 billion. 

He believes innovation and products should go hand in hand to retain customers and maintain sales. This is why Huawei has been focusing more on research and development. In 2019, the company invested about $18.5 billion in R&D (third-largest), which accounted for 15.3% of its total revenue of 467.3 billion Yuan with 34% YoY growth.

Huawei holds 85,000 patents worldwide, out of which 90% are invention patents. Last year, Huawei was the top patent applier in the European Union with a total count of 3,524.

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Huawei Technologies Co Ltd is but one of the many brands that have suffered due to the recent Coronavirus outbreak. Although the situation may finally be stabilizing soon as workers have returned and operations have resumed, the CEO of the company is still expecting a financial hit. Despite this, the company is working around the clock and is also expanding its research and development budget.

For those unaware, China was recently hit with the viral pandemic which had led the local government to shut down production lines, offices, and factories. This had affected various industries, especially the smartphone market which had most of its assembly lines in China. Huawei was one such brand and had complied with the government order as well. Now, the company is working around the clock, with thousands of employees running overtime hours.

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According to Ren Zhengfei, CEO and Founder, Huawei is planning on boosting its research and development despite the slump in finances in early 2020. The plans will surge the R&D budget of the Chinese tech giant by $5.8 billion to more than $20 billion. Huwaei is also one of the largest telecom equipment providers and has been motivated to further develop new technology, not only for profit but to combat the current crisis.

Ren stated that “Over 20,000 scientists, experts, and engineers worked overtime during the Lunar New Year holiday because we’re racing to develop new [technologies].” In other words, while the sudden halt in a production put a pause on many OEMs, Huawei plans to work through the financial hit and improve upon its offerings. The company had initially resumed operations back in 3rd February 2020, earlier than most other brands after being labeled critical by the Chinese government. This has offered it a front foot over its competitors and lowered its downtime overall.

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Huawei‘s founder Ren Zhengfei has been quoted to have hinted that the company is planning to move its R&D centre from the US to Canada. The company’s US R&D arm is known as Futurewei. At the start of the US sanctions, the US arm had tried to extricate itself from the parent company but that did little to help it gain the trust of the US government.

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The move will also see the Chinese tech giant manufacture some of its mobile network equipment outside China. The move is no doubt to free itself from the prying eyes of the US authorities. We recall cases of parcels being re-routed and packages getting opened while in transit from China to the US centre. The move may also be to get the Canadian government to release Huawei’s Chief financial officer and founder’s daughter Meng Wanzhou, who has been under house arrest in Canada awaiting a court decision whether she should be extradited to the US or not.

Huawei rise to fame is heavily hinged on the firm’s investment in R&D. The company invested $15.3 billion in R&D last year, making it one of the top 5 companies to invest in R&D alongside Alphabet and Samsung. Huawei’s director and dean of the Strategic Research Institute Xu Wenwei had earlier revealed that the firm currently has more than 80,000 R&D personnel worldwide, accounting for about 45% of the total workforce.

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Huawei in early 2017 promised to invest between $10 billion to $20 billion annually on R&D. At the end of last year, the Chinese manufacturing giant revealed it spent $13.23 billion(CNY 89.7 billion) in R&D which accounted for 14.9 percent of its total revenue. Due to its quest to be a global leader in 5G technology, the Chinese company has pledged to increase its investment in research and development (R&D) to between $15 billion and $20 billion.

US companies Amazon and Alphabet (Google) are the two biggest spenders when it comes to R&D, and the reports from financial data company show that both companies spent $22.6 billion and $16.6 billion, respectively On R&D. Huawei has been one of the top spenders, and with this recent release is getting close to being very close to the number one position. The company also published on Thursday, stating that 20-30 percent of that amount would be dedicated to basic science research which is higher than the previous expectation of 10 percent.

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The United States, Australia, and Britain have been pushing back against Huawei’s network communications technology on the bases of security grounds. It is believed that this scenario prompted Huawei to increase its spending on R&D. Last week, a UK government report said technical and supply-chain issues with Huawei’s network equipment exposed Britain’s telecom networks to security risks, reversing a previous endorsement. When it comes to 5G worldwide network, Chinese companies led by Huawei are estimated to own about 10 percent of the essential patents. This is on the high side if compared to their share in the 4G and 3G eras. But that underscores the company’s drive and investment in research and development. With an increase n its R&D spending, we expect to see more leading technologies from the Chinese giant.

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The smartphone industry has never been this competitive and most of the competition could be attributed to the increase in innovations among OEMs. Phone manufacturers are investing massively in R&D and daily, new patents applications keep hitting patent offices around the globe. china is presently a hotbed for new patents and it is no wonder, Chinese companies are almost dominating the industry except for Samsung and Apple who have kept their strong grip on the top 2 spots. Huawei is one company that has invested massively in R&D and the results are becoming visible. The Chinese giant recently revealed that it spent close to $14 billion USD in its Research and Development efforts last year and that it will spend even more this year.

That promise seems to be in action as a recent data of the top 10 patent filings before the Chinese Intelectual Property office shows that Huawei had the most patents granted in the HO4 segment (electrical equipment technology). The top 10 companies in this segment are mostly smartphone manufacturers and aside from Huawei which had a total of 243 approved patents, OPPO was also in second place with a massive 169 patent approvals in  May 2018. Embattled tech company ZTE Corporation came in third place with 164 new approved patents. At the fourth spot, is U.S chipmaker Qualcomm Corp while Samsung had 82 approved patents to occupy the fifth spot.

The rest of the list is dominated by electronics manufacturers with concerns outside smartphones. The sixth spot is occupied by the Shanghai Feixun Data Communication Technology Co. Ltd (73 patents). Others are Huashan Technology  (51) at number 7, Tencent (46 new patents) at the eight spot,  Canon Corporation (45) at number 9 and finally, Japanese firm Sony Corporation (43 approved patents) at the tenth spot.

Read More: Huawei Patents A Foldable Phone Which Can Turn Into A Tablet

This data of approved patents sure indicates that we may be looking at more innovative products from OEMs this year as they try to outwit their rivals in the world’s second-largest smartphone market and of course globally.

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Huawei, Friday, released its financial report for 2017 showing a net profit of 47.5 billion Yuan ($7.3 billion) for 2017. The net profit represents a 28.1 percent increase year-on-year. The company also recorded a gross revenue of 603.6 billion Yuan ($92.5 billion) which is a 15.7 percent increase over 2016’s gross revenue.

The financial report also revealed that Huawei’s annual investment in research and development (R&D) reached 89.7 billion Yuan ($13.8 billion) which represents a 17.4 percent increase over the company’s R&D spending for 2016. With this figure, Huawei’sR&D spending over the past decade has so far exceeded 394 billion Yuan ($60.4 billion).

In a recent statement, Ken Hu, Huawei’s Rotating Chairman noted that the Shenzhen-based company is on a new journey. He hinted that the company plans to continue increasing its investment in technological innovation, investing more than $10 billion into R&D every year. He also disclosed that Huawei will actively pursue open collaboration, attract and cultivate top talent, and step up efforts in exploratory research. The efforts are yielding the desired results, we must note. Huawei last year launched its Kirin 970 chip, the world’s first mobile processor with a dedicated Neural processing unit  (NPU) for AI. Just this month, the company also released the Huawei P20 Pro with a triple camera setup which another first in the industry. Huawei’s smartphone lineup, from flagships to midrange models have received positive reviews.

In addition, the Chinese giant is also presently eyeing Cloud computing, Internet-of-Things (IoT) and 5G markets and have invested in such emerging technologies. To this end, Hu also predicted that in 2018, emerging technologies like IoT, cloud computing, Artificial Intelligence (AI) and 5G will see a large-scale application.

Read More: Huawei Patents A Foldable Phone Which Can Turn Into A Tablet

Other aspects of Huawei businesses also saw an increase in revenue in 2017. Huawei’s enterprise business generated 54.9 billion yuan ($8.4 billion) in revenue, an increase of 35.1 percent compared with 2016. Huawei’s Carrier business group generated 297.8 billion yuan ($45.7 billion) in revenue, an increase of 2.5 percent year-on-year. Huawei also set up a Cloud Business Unit in 2017, which launched 99 cloud services across 14 major categories, and over 50 solutions. The company also unveiled the Enterprise Intelligence (EI) platform and developed over 2,000 cloud service partners.

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In this competitive world, R&D forms the backbone of any tech company. In order to stay ahead of the competition, companies have to incorporate cutting edge technology in their products in order to differentiate them from the masses.

We know that major tech companies spend billions of dollars every year on R&D and today, we have some idea about what each of the top tech companies spends in this department.

According to a recent report from Bloomberg Businessweek, Apple spends just about 3.5% of its revenue on R&D which is a pretty small figure as compared to other tech companies. For example, Google spends about 15% of its revenue in this department, while Facebook and Qualcomm spend around 22% and 21% respectively.

When it comes to Chinese tech giant, Huawei, it’s around the same figure as Google. The company reportedly spends around 14.2% of its revenue in R&D.

However, this is the percentage of revenue spent. When it comes to the total amount spent, Apple, even with its meagre 3.5% manages to spend about $8.15 billion in R&D, greater than Huawei, Facebook or Qualcomm.

In terms of total amount of money spent, Huawei spends around $6.5 billion in this department. This is greater than both Facebook and Qualcomm’s figures of $2.6 and $5.56 billion respectively. In comparison, Google spends about $9.9 billion.

Huawei’s CEO Yu Chengdong had said that the company’s smartphones will surpass Samsung next year and if that has to happen, the company will need to spend a lot of R&D this year. So, this figure could increase significantly in 2015.

So, do you think Huawei can surpass Samsung in the next couple of years?

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