Huawei orders on track, margins squeezed

By Judy Hua

SHENZHEN, China (Reuters) - Huawei Technologies HWT.UL, China's largest telecoms equipment maker, said it is on track for contract sales to grow by 30 percent annually for this year and next, but competition is squeezing margins and crimping profit growth.

The company also said it aims to build on a recent string of contracts wins from carriers in developed markets including the United States and Japan to further bolster its export business.

Contract sales -- orders that have been booked -- reached $5.2 billion in the first half of 2006, of which 65 percent came from exports, up from 58 percent at the end of last year.

That put it on track to reach its full year target of $10.7 billion, Huawei Vice President Hu Yong said in an interview for the Reuters China Century Summit.

Unlisted Huawei aims to grow contract sales by another 30 percent next year, of which 70 percent would come from exports if the Chinese government does not issue licenses for the country's phone companies to build third-generation cellular networks.

Revenue will exceed $8.0 billion this year, up from $5.98 billion last year.

Huawei generated net income of $681 million in 2005, but profit growth this year will be slower than the increase in contract sales as severe competition squeezes margins, he said.

"As competition is getting more intense and gross margins in the industry are falling, our net income growth will definitely be lower than 30 percent," he said.  Continued...