Huawei’s halfway house hides modest second quarter

Revealing Huawei's second quarter sales number.

Huawei doesn’t publish quarterly results. It often puts out a Q1 press release with a headline (unaudited) overall revenue number. It then sends out a H1 press release with the same sort of general information, but doesn’t explicity state Q2 figures*.

Occasionally it includes a few different metrics, but rarely does it follow through from one quarter to the next. Third quarter results statements are rare to non existent. Its annual report is signed off by KPMG, but it doesn’t break out any quarterly figures.

That makes tracking quarterly and year on year progress rather tricky. This week, for instance, Huawei release its H1 2019 statement, which announced that it had made 23.5% more money in the first half of this year than it had in 2019. But how had the quarter gone? That was harder to discern.

Let’s find an envelope, turn it over and do a few numbers.

As we know, according to Huawei its overall sales were up 23.5% for the first half of 2019 vs H1 2018, reaching CNY401.3 billion. We also know from its Q1 2019 press release that overall revenue for Q1 was CNY179.7 billion. So by extrapolation, the company did a further CNY221.6 in Q2. 

H1 2018 overall sales were CNY325.7 billion. We know that Q1 2019 was up 39% on 2018, so we also know that Q1 sales in 2018 were therefore 129.3 billion. That means that Q2 sales in 2018 must have been 196.4 billion.

So the back of our envelope looks like this (figures in CNY).

Q1 2018: 129.3 billion. 
Q2 2018: 196.4 billion (325.7 billion H1 2018)

Q1 2019: 179.7 billion. 
Q2 2019: 221.6 billion (401.3 billion H1 2019)

Therefore we can say that the Q2 year on year increase, a number not broken out by Huawei itself, was a more modest 12.8%. That is to say, Huawei has had a first quarter that broke the previous year’s sales by 39%, and a second quarter that increased sales by 12.8%. A notable difference, and quite a lot lower than the 23.5% sales increase figure it managed to get repeated all over the press earlier this week. That said, a 12% increase in sales isn’t nothing, especially facing the global headwinds that Huawei is.

We should also note that the second quarter increase was unlikely to have been driven by handset sales, as figures reveal the company shipped 59 million of those in Q1 and the same number in Q2, and we also know that historically Q2 device shipments have been higher than Q1.

What of carrier sales, then? Carrier sales for the full year of 2018 were CNY294,012 billion, slightly down on full years sales of CNY297,838 in 2017.

Huawei doesn’t always give a number for carrier sales in its interim results announcements.  But we do know (because it told us) that Huawei’s carrier business recorded H1 2019 sales revenue of CNY146.5 billion. We don’t know what the sales split between Q1 and Q2 is.

If you double that six month figure, you get to an annualised CNY293 billion, which is roughly equal to the 2018 full year figure. But perhaps Huawei normally does better in carrier sales in Qs 3 and 4, and can make up ground? Or maybe it has had a very good first half and is due to drop below its 2018 number?

Sadly, we don’t know what the equivalent H1 carrier sales figure is for 2018, a number that would give us a historical comparative split on H1 and H2 carrier sales. Nor does Huawei break out quarterly sales performance in its annual report.

Nor does it report Q3 sales figures.

Therefore we are in the dark a bit to know if it is on track to fall below, roughly match or outperform its 2018 numbers in carrier sales. The best we can do is to say that if it matches sales in Q1 and Q2, it should roughly match last year. 

We do have some indication of 5G momentum, however. 

By the end of March 2019, Huawei had signed 40 commercial contracts for 5G, and had shipped more than 70,000 5G base stations.

By the end of June, Huawei had signed ten more commercial 5G contracts, and had shipped more than 150,000 base stations to markets around the world. 

That suggests that at least a few carriers are taking large scale shipments of 5G base stations. 

In terms of carrier 5G contracts. Huawei had 22 5G contracts in November 2018, 40 by the end of March and 50 by the end of June. That makes Q1 a better quarter in terms of new carrier deals for 5G than Q2. However, revenue recognition is always a bit opaque – does Huawei book the revenue at the signing of the contract or on base station shipments – and of course some contracts will be much larger than others. But there is another sign there that Q1 was a good one for Huawei.  

TL:DR – Huawei got some good reporting for its 23.5% sales growth figure, but that number masked a much more modest growth in Q2 than it had seen in Q1. And we will not know how carrier sales have shaken out until later in the year.

* To the best of my knowledge. I have asked Huawei if it can show me any published quarterly numbers.