Spotlight: Huawei Technology

The Chinese telecommunication company Huawei Technology (SHE:002502) has attracted lots of attention recent years. This may not be surprising as Huawei is currently the largest telecom company in the world. Which brings us to the question: is Huawei stock still attractive?
One of the first dangers of this stock is of course the Chinese bubble. Moreover, the volatility of Huawei stock has increased heavily the past year. Huawei was trading at 34 Yuan ($5.35) in June, only to drop to 15.80 Yuan ($2.48) early July and eventually rebounded to 31 Yuan ($4.88) mid-July. What's striking is that at first Huawei seemed to suffer big time in the Chinese crisis, but quickly rebounded between a band-with of 25-30 yuan ($3.90-$4.72). So Huawei has experienced heavy stock price fluctuations, but seems to be able to cope with the crisis to a certain level. The problem for Huawei could be its domestic market. If the disposable income of the Chinese working man also declines then Huawei will have to drastically revise its growth expectations. However, the Chinese bubble may be more of a crisis in the financial world and may have less social-economic impacts.
          There are of course also opportunities for Huawei as they sold about 40% of their produced units overseas. With a growing demand in Europe and the US in value smartphones (smartphones of good quality for a lower price), Huawei still has more market share to capture in the Western countries. But Huawei has to be aware of its image. Chinese safety standards are simply not as high as in the Western countries, which raises some questions about how easily Huawei phones can be hacked. Some even go as far as stating that Huawei shares its technology with the Chinese government so they can spy on anyone with a Huawei phone. Of course Huawei denies these allegations, but it puts a strain on the willingness of some Western consumers to buy Chinese phones.
What may be key as to why Huawei is an interesting investment is the vast amount they are spending on research and development. In 2014 they've spent a total of $6.6 billion on R&D, which is more than IBM, Facebook or Apple did. Even with this expenditure on R&D, they still managed to be highly profitable ($4.49 billion in 2014). Compare this with a company such as Amazon.com which also spends a lot on R&D, but fails to be profitable. Hence, Huawei is a company with lots of potential (in overseas markets), it may produce new innovative products that can conquer a market, while they already make a solid profit. The Chinese market may cause some trouble, but if you handle a long-term investment strategy, Huawei is definitely a stock you want to have in your portfolio.