Can You Invest in China's Huawei? Express News
On Jul. 31, 2018, Huawei (pronounced Wah-Way) surpassed Apple to become the second largest smartphone maker in the world behind Samsung. Although that achievement certainly attracted the attention of investors, they aren’t able to invest to the Chinese smartphone manufacturer. Why is that?
Thirty-one years after its founding, Huawei Technologies Co. remains a private entity fully owned by company employees. That means the company is not traded on any public market and that people other than current employees cannot invest in it. Despite the inability to invest in Huawei, investors may still want to keep an eye on the world’s second-largest smartphone producer. In October 2018, the Chinese manufacturer unveiled smartphones with on-screen fingerprint recognition intended to directly challenge Apple’s iPhone XS and Google’s Pixel 3. The phones, which are called the Mate20 and the Mate20 Pro, became available for purchase on Nov. 1, 2018.
While investors may choose to overlook Huawei, global officials are unlikely to. On Dec. 6, 2018, Canadian officials arrested Meng Wanzhou, the chief financial officer of Huawei and the daughter of the company’s founder, on the request of the U.S. government. Ms. Meng, who joined Huawei in 1993 and also serves as the company’s deputy chairwoman, was “sought for extradition by the United States,” according to Ian McLeod, spokesperson for Canada’s Justice Department. Details about the arrest of Ms. Meng are still emerging.
Where Does Huawei Do Business?
Beyond making smartphones, Huawei builds telecommunications networks and services and provides solutions to enterprise customers. Huawei has more than 180,000 employees in more than 170 countries but conducts the majority of its business in China and EMEA (Europe, the Middle East, Africa, and the Asia-Pacific region).
While it’s helpful to know where Huawei does business, it’s far more telling to know where it doesn’t. Global skepticism about Huawei has grown in recent years, following a 2012 congressional report that highlighted the security risks of using the company’s equipment. Earlier this year, large U.S. mobile companies like AT&T and Verizon stopped using Huawei’s products in their networks; in August, Australia decided not to use the company’s technology as it builds out its country-wide 5G mobile networks; and just last week, New Zealand prevented Spark, one of the country’s biggest telecom companies, from using Huawei products in its 5G network. Despite these governmental roadblocks, Huawei can still conduct business with private companies in each of these countries.
How Does Huawei Make Money?
Huawei operates in the carrier, enterprise, and consumer segments of the market. Because the company is not public and is not traded on any stock market, Huawei is not required to submit filings to the Securities Exchange Commission (SEC). The company still reports its numbers on a regular basis, however. For its fiscal year 2017, Huawei reported that its total revenue was $92.55 million, and its compound annual growth rate was 26%. The company said it shipped 153 million smartphones in 2017, and its global brand awareness rose 86%.
Huawei reported that business in China rose 29%, its business in the Asia Pacific region grew 10.3%, and its business in EMEA rose 4.7% during the year, while its business in the Americas fell 10.9%. The company also reported that its consumer business rose 31.9% during the year, its enterprise business rose 35.1% and its carrier business rose 2.5%. Huawei also noted that it was doing business with 197 Fortune Global 500 companies in 2017, 45 of which are Fortune 100 companies.
Why Can’t You Invest in Huawei?
Huawei is privately held by the company’s China-based employees only, but anyone working for the company outside of China cannot buy into the company. The company’s shareholders admit, however, that they don’t understand the company’s structure, are not provided updated information on their holdings, and have no voting power. Thirty-three union members elect nine candidates to attend the annual shareholder meeting. Shareholders receive dividend payments, and they have the potential to earn bonuses based on performance. Their salaries also are reviewed on an annual basis.
In 2014, upper management at Huawei was asked if it would consider a stock market listing, but the idea was immediately rejected. Huawei’s debut on the public market can’t be completely ruled out in the future, though, especially if the company is in need of additional capital in the future. It’s not likely that Huawei could list in the United States, partly because of its poor relationship with the country and the company’s growing reputation for using technology to spy on users.
As far as investing in Huawei goes, right now there’s only one potential solution — but it’s far-fetched. In order to received dividends, you would have to become an employee of the company in Shenzhen, China, and you would have to make management believe you aren’t a spy. Good luck.