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2013 Annual Report
Huawei Investment & Holding Co., Ltd.

Table of contents

  • Page 1
    Huawei Investment & Holding Co., Ltd. 2013 Annual Report

  • Page 2
    ... Letter from the Rotating and Acting CEO Business Highlights in 2013 Five-Year Financial Highlights Letter from the Chairwoman 2 10 14 15 16 Core Values Management Discussion and Analysis Industry Trends Independent Auditor's Report Consolidated Financial Statements Summary and Notes 20 21 49 54...

  • Page 3
    ... won the race in the end. Huawei is like a big tortoise. In the past 25 years, we have crawled along, not seeing the flowers on the road. While many people have become rich, riding on the rising economy over the last two decades, we still are on our journey of hard work and dedication. When we...

  • Page 4
    ...words in areas of our strategic business focus. Blind innovation would simply disperse our investment and energy. Businesses that are not on the main route have to learn from successful companies, maintain stable and reliable operations, and keep the management system rational, effective, and simple...

  • Page 5
    ...of hundreds, and companies managing information in the number of thousands. Don't envy the prominence of others; don't get so stirred about the Internet. Employees who have such passion should come down-to-earth and try to use the Internet approach to optimize our internal supply transactions toward...

  • Page 6
    ... of adapting to disruptive technical innovations, as well as the ways of applying sustaining innovations to today's technologies in order to make them future-proof. In the age of Big Data, we must move decisively to seize the high ground and create high-end products that meet customer needs...

  • Page 7
    ... number. The CC3s in our company today are mobilizing the resources they need through prompt and accurate calibration using the corporate platform. And the support to the frontline, be it sales, delivery, services, or finance, is being provided remotely. CC3s are not alone in the field; on project...

  • Page 8
    ... return. Well I'm not a supporter to this idea. Lei Feng is a kind of spirit; it cannot be used as a mechanism. The experiment has to start from profitable representative offices that can afford senior experts and managers. In this way, high-quality resources are channeled to high-quality customers...

  • Page 9
    ... simplify internal accounting and measurement. Huawei's management improvement, as Guo Ping said, has to be built on the improvement in project management. The eight critical roles for project management should be well selected and developed. Mature procedures and a large management team with high...

  • Page 10
    ..., and simple. Internal transactions are to be done electronically over time, built on transparent data. A closed-loop management of planning, budgeting, and accounting will be implemented to ensure sustainable business development. There has to be a balance between making investment and mitigating...

  • Page 11
    ... technologies - Huawei's area of focus for the past 25 years - are changing from a support system that improves work efficiency to a production system that drives value creation. The result is that individuals, businesses, and organizations will become increasingly dependent on new business models...

  • Page 12
    ... year 2013, Huawei achieved CNY239.025 billion in sales revenue, an increase of 8.5% year-on-year, and CNY21.003 billion in net profits. Our strong performance can be attributed to the improved global macro economy, a better business environment, and the effective execution of our corporate strategy...

  • Page 13
    ... development. In the product and technology domains, we will focus our investment on the SoftCOM network architecture in order to build a future-oriented leadership, establish our competitive advantage, and create long-term value for customers. Rapidly adapt to change History has proven that Huawei...

  • Page 14
    ...no choice but to hold onto our core values, focus on our pipe strategy, engage fully in what we do, and continuously evolve and develop at a solid pace. Huawei is still a young company, and the ICT We must unite as many people as possible as we move forward. All outstanding employees, regardless of...

  • Page 15
    ... an annual increase of 110%. Building service value Huawei is committed to increasing service competitiveness. The capabilities of our service solutions and worldwide delivery organizations are continuing to advance, enabling us to deliver uniformly high-quality services on a global scale, tailored...

  • Page 16
    Five-Year Financial Highlights 15 Five-Year Financial Highlights CNY Million Revenue Operating profit Operating margin Net profit Cash flow from operating activities Cash and short-term investments Working capital Total assets Total borrowings Owner's equity Liability ratio * 2013 (USD Million...

  • Page 17
    ..., Big Data analytics, the Internet of Things (IoT), and social ICT is the engine that powers innovation worldwide. We develop innovative technologies that can provide access to those who don't have any, and faster access to those who do. In 2013, we deployed LTE solutions in over 100 countries...

  • Page 18
    ...), Software-Defined Networking (SDN), IoT, multi-service support, and Big Data. In addition, we will increase our investments in innovation and research on basic scientific and engineering technologies to drive the industry forward with leading core technologies. Huawei's products and services have...

  • Page 19
    ... worked at Huawei for over 10 years and possess extensive experience in markets, technologies, and management; their experience and insights will contribute significantly to the development of the company. In 2014, we will gradually restructure our business In 2013, we continued to support stable...

  • Page 20
    ... In 2013, we deployed TD-LTE solutions in Africa, dramatically increasing access speeds and wireless broadband coverage. This, in turn, reduced the cost of wireless broadband access and allowed more people to enjoy high-speed broadband networks. We also actively promoted the development of ICT...

  • Page 21
    ... needs, we passionately pursue customer-centric innovations in an open manner. We believe that business success is the ultimate measure of the value of any technology, product, solution or process improvement. Teamwork We can only succeed through teamwork. By working closely in both good times and...

  • Page 22
    ... network management, and enable Internet-based operations. We continuously innovate new architectures (such as SoftCOM), Single platforms, and new technologies. By delivering products and solutions with leading technologies and smooth evolution, we help customers build highly efficient network...

  • Page 23
    ... efficiently managed. Huawei also provides mobile office solutions that help customers improve work efficiency. Our intelligent data analysis system leverages Big Data technologies to help customers gain insights into business opportunities and make agile business innovations. The next 30 years will...

  • Page 24
    ...2013, Huawei's well-balanced presence Over the next three to five years, the CAGR of Huawei's sales revenue is estimated to stand at approximately 10% worldwide helped the company achieve stable and healthy growth in the carrier network, enterprise, and consumer businesses. Annual sales revenue...

  • Page 25
    ...as our customer-centric product and business & service solution strategies, we are becoming the most trusted business and strategic partner of carriers. In 2013, sales revenue from our carrier network business totaled CNY166,512 million, an increase of 4% year-on-year. Our sound financial experience...

  • Page 26
    ... open network capabilities will continue to drive carrier business innovation and revenue growth. By the end of 2013, Huawei had deployed over 500 wireless networks worldwide, serving over two billion end users. With the vigorous development of the global mobile industry, large-scale LTE deployment...

  • Page 27
    ... cable resources to help carriers quickly provision services and increase ultra-broadband speed based on customer needs. In 2013, our innovative fixed network products and solutions and excellent service gained worldwide customer recognition. Huawei's 400G core router won 49 customers worldwide and...

  • Page 28
    ... increased investment in joint innovation with carriers, and constructed a number of global Centers of Expertise (COEs), such as the Service Operation Center (SOC) in Jakarta, Indonesia; the Big Data COE in Dublin, Ireland; the Global Network Evolution and Experience Center (GNEEC) in Beijing, China...

  • Page 29
    ... collaborative closed-loop management with the Network Operation Center (NOC), helping carriers transform to experience-centric operations. By the end of 2013, the HUAWEI SmartCare ® CEM solution was being widely used in Europe, the Middle East, and Asia Pacific. Through successful project delivery...

  • Page 30
    Management Discussion and Analysis 29 Carrier Software & Core Networks Sales revenue in our carrier software and core network business totaled CNY16,877 million in 2013. markets in Europe and the US by enhancing multiscreen experiences to meet market demands while our digital enterprise services ...

  • Page 31
    ...focus on "customer asset management" and "network asset management"; adhere to the software platform strategy; create an open, cooperative, and winwin digital ecosystem; develop an internetized digital operating system, and help carriers increase revenue, optimize their business models, and improve...

  • Page 32
    ... Africa, and Latin America. In these markets, we also recorded relatively rapid growth and achieved large-scale sales with industry customers and channel partners. As the influence of innovative ICT technologies like cloud computing, Big Data, mobility, and social networking continues to increase...

  • Page 33
    ... Optical Network (ASON) of the Three Gorges Dam across China's Yangtze River, Borussia Dortmund Stadium in Germany, Baidu's Data Center, and APT Satellite Company's Data Center. In 2013, our revenue from data communications products jumped by 44%. Our share in the enterprise router market was ranked...

  • Page 34
    ... image data, reducing its management costs by 20%. Our desktop security solution for the financial services industry helped Shenzhen Stock Exchange and Industrial Bank build secure and controllable business and office platforms. Huawei Enterprise Channel business has developed steadily. Meanwhile...

  • Page 35
    ... resources, and prioritize the build-up of marketing and channel capabilities and teams in the enterprise business. We will use marketing to promote sales, attach equal importance to marketing and sales, develop innovative, differentiated, leading, and easy-tointegrate ICT products and solutions...

  • Page 36
    ... LTE products reached approximately eight million units, an annual increase of 103%. We actively implemented a diversified channel strategy. In 2013, the shipments of our mobile broadband devices through open channels exceeded four million sets and we developed large channel markets outside of China...

  • Page 37
    .... Our goal is to enable customers to better experience unparalleled technologies. In 2013, we made notable achievements in channel development. Our revenue from open channels grew by 98% year-on-year. In open markets where retail accounts for a high proportion of all sales, such as China, Russia...

  • Page 38
    .... The improvement in profitability is mainly attributed to internal continuous management transformations that reduced operational costs. Thanks to the rising proportion of the enterprise business as well as improved profits from the consumer business, gross margin increased by 1.2% year-on-year.

  • Page 39
    ... 2.8% (1.6%) YOY (%) In 2013, the company's total expenses ratio decreased by 1.6% due to internal efforts aimed at continuously improving operational efficiency. Specifically, the selling and administrative expenses ratio declined by 1.3%, the research and development expenses ratio fell 0.7%, and...

  • Page 40
    ... Current assets Total assets Among which: Cash and short-term investments YOY (%) 10.2% 10.3% 10.3% 14.4% 8.7% 12.1% 14.5% 24.3% 5.7% (34.9%) (6.7%) 15.0% 10.3% Cash and short-term investment balance as of December 31, 2013 rose by 14.4% year-on-year to CNY81,944 million. Huawei's days of sales...

  • Page 41
    ...In 2013, Huawei established the Financial Risk Control Center (FRCC) in London and set up a global liquidity risk monitoring team, to further improve its liquidity risk monitoring and management capabilities. As of December 31, 2013, cash and short-term investments increased by 14.4% year-on-year to...

  • Page 42
    ...(140) The VaR model is a statistical tool. Huawei uses this model to estimate the quantitative value of foreign exchange exposures under a certain confidence level within a period of time based on the Group's net assets in foreign currencies, historical exchange rate fluctuations, and the relevancy...

  • Page 43
    ... period. For the floating-rate and non-derivative financial instruments that are held at the end of the reporting period and expose the Group to cash flow change risks due to interest rate fluctuations, the impacts on net profit and owner's equity in the preceding sensitivity analysis are impacts on...

  • Page 44
    ... Development Huawei has set up 16 R&D centers in such countries as Germany, Sweden, the US, India, Russia, Japan, Canada, Turkey, and China. Huawei employs approximately 70,000 product and solution R&D employees, comprising 45% of our total global workforce. We focus investment in key technologies...

  • Page 45
    ...party supplier management, manufacturing, delivery, issue response, traceability, and audits. Huawei employees have adopted improvement measures into their daily work to provide customers with more secure products, solutions, and services. â- In the past year, we continued cyber security awareness...

  • Page 46
    ...all our service delivery activities and stringently manage employees who have access to customer networks, thus ensuring the security of delivered products and services. â- We have greatly strengthened and improved our Cyber Security Technical Competence Center to incorporate security into design...

  • Page 47
    ... policies, and act responsibly in our operations to ensure a secure cyber world for tomorrow. Critical Accounting Estimates The consolidated financial statements, on which this Management Discussion and Analysis was based, have been prepared in compliance with International Financial Reporting...

  • Page 48
    ... the statement of profit or loss were CNY1,231 million and CNY17 million for fiscal years ended December 31, 2013 and December 31, 2012, respectively. Provision for Warranties When recognizing revenue, the company estimates the possible future liabilities that it may incur under its product warranty...

  • Page 49
    48 Management Discussion and Analysis The warranty provisions accrued for fiscal years ended December 31, 2013 and December 31, 2012 were CNY3,491 million and CNY2,844 million, respectively. Increases in warranty claims or higher cost of warranty services will lead to actual warranty expenses ...

  • Page 50
    ... age The history of human society and civilization advancement is also a history of scientific and technological in development. ingenious Numerous Internet ICT technologies over the past half century, culminating various innovations, have shattered the limits of time and space, bringing the human...

  • Page 51
    ...digital management and IT assets" to "digital products and data assets." It is fair to say that ICT has become the core competence and engine that propels an enterprise's business development and enables innovation for enterprises to redefine the market. This is true for any enterprise, be it big or...

  • Page 52
    ... products. Cloud service is a new business model and business mindset. While it differs with enterprises, ranging from products, after-sales services, online information services, online games, to e-commerce, and e-banking services, its core boils down to user and data operation at a higher level...

  • Page 53
    ... customer service and sales; it is reforming all processes to meet customers' on-demand requirements, with the focus shifting from internal management and control to external customer services. is the force of technological innovation. It is with these two wings that the Internet is set to fly high...

  • Page 54
    ... be outside of it. To ride on this trend, enterprises must embrace an Internet mindset and advanced ICT technologies & solutions for digital reforming to build leading advantages into the future. The future belongs not only to Internet companies based on the virtual world, but also to those deeply...

  • Page 55
    ... Financial Reporting Standards (the "audited consolidated financial statements") for the year ended December 31, 2013. We have issued an unqualified audit report dated March 10, 2014 on the audited consolidated financial statements of the Group for the year ended December 31, 2013. Huawei Investment...

  • Page 56
    ... Financial Statements Summary and Notes Consolidated Statement of Profit or Loss 2013 Note CNY million 2012 CNY million Restated (Note 2) Revenue Cost of sales Gross profit 3 239,025 141,005 98,020 220,198 132,512 87,686 Research and development expenses Selling and administrative...

  • Page 57
    ... non-current assets Non-current assets Other investments Inventories Trade and bills receivable Other receivables Cash and cash equivalents Assets held for sale Current assets Total assets Equity Equity attributable to equity holders of the Company Non-controlling interests Total equity Liabilities...

  • Page 58
    ...2013 Note Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Other operating cash flows Net cash from operating activities 293,317 (269,598) (1,165) 22,554 CNY million 2012 CNY million 258,332 (230,991) (2,372) 24,969 Net cash used in investing...

  • Page 59
    ... obtain access to the audited consolidated financial statements for the year ended December 31, 2013 upon consent of the Group's Management through the email address, [email protected]. (b) Functional and presentation currency All financial information in the consolidated financial statements...

  • Page 60
    ...to CNY at the exchange rates ruling at the end of the reporting period. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current year are restated to account for changes in the general purchasing power of the local...

  • Page 61
    ... are considered. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and cash flows and any unrealised profits arising from intra-group transactions are...

  • Page 62
    ...or a joint venture is accounted for in the consolidated financial statements using the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of the acquisition-date fair values of the investee's identifiable net assets over...

  • Page 63
    ... of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over...

  • Page 64
    ...from the date they are available for use and their estimated useful lives are as follows: Software Patents Trademark 3 years 3 to 22 years 10 years Both the period and method of amortisation (j) Intangible assets i) Research and development Research and development costs comprise all costs that are...

  • Page 65
    ... cost or are classified as availablefor-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the...

  • Page 66
    ... future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities are not reversed. For available-for-sale securities, the cumulative loss that has been recognised in the fair value...

  • Page 67
    ... present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group...

  • Page 68
    ...the end of the reporting period are recorded at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the consolidated statement of financial position as "gross amount due from thirdparty customers for contract works" (as an asset...

  • Page 69
    ... the related work is performed are included under "other payables". (o) Financial derivatives Non-derivative financial assets of the Group comprise financial assets at fair value through profit or loss, loans and receivables, cash and cash equivalents and available-for-sale financial assets. Non...

  • Page 70
    .... The Group's customers make payments of the receivables transferred directly to the bank or the financial institution. In such case, trade receivables transferred are derecognised from the consolidated statement of financial position. The excess of the carrying amount of trade receivables over cash...

  • Page 71
    ...for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value. The calculation is performed by management using the projected unit credit method. Service cost...

  • Page 72
    ... Financial Statements Summary 71 obligation at the beginning of the reporting period to the defined benefit obligations. The discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of the Group's obligations...

  • Page 73
    ... recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing...

  • Page 74
    ... the recovery of the consideration due, associated costs or the possible return of goods. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to...

  • Page 75
    ... income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale and heldfor-trading financial assets, and changes in the fair value of held-for-trading financial assets. Interest income is recognised as it accrues using the effective interest...

  • Page 76
    ... segment item reported in the financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical...

  • Page 77
    ... 10, Consolidated financial statements IFRS 11, Joint arrangements IFRS 12, Disclosure of interests in other entities IFRS 13, Fair value measurement Revised IAS 19, Employee benefits Amendments to IFRS 7 - Disclosures - Offsetting financial assets and financial liabilities The Group has not applied...

  • Page 78
    ... joint venture. The investments continue to be accounted for using the equity method and therefore this reclassification does not have any material impact on the financial position and the financial performance of the Group. IFRS 12, Disclosure of interests in other entities IFRS 12 brings together...

  • Page 79
    ... the year ended December 31, 2013, the Group received government grants of CNY686 million (2012: CNY523 million) which were conditional upon completion of certain research and development projects. These grants were initially recognised in the consolidated statement of financial position as deferred...

  • Page 80
    Notes to the Consolidated Financial Statements Summary 79 5. Personnel expenses 2013 CNY million 2012 CNY million Restated (Note 2) Expenses recognised in respect of defined benefit plan Contributions to defined contribution retirement plans Total costs on post-employment plans Salaries, wages and...

  • Page 81
    ... unified communication & collaboration, and delivers these solutions to vertical industries such as governments, public utilities, enterprises, energy, power, transportation and finance. Revenue information in respec t of geographical segments 2013 China Europe, the Middle East and Africa 84...

  • Page 82
    ... to the Consolidated Financial Statements Summary 81 9. Property, plant and equipment Machinery, Freehold land electronic Buildings equipment and other equipment CNY million Cost: At January 1, 2012 Exchange adjustment Additions Transfer from construction in progress Disposals and reclassification...

  • Page 83
    ...CNY149 million). The fair value of investment property as at December 31, 2013 is estimated by management to be CNY252 million (2012: CNY273 million). The fair value of investment property is determined by the Group internally by reference to market conditions and discounted cash flow forecasts. The...

  • Page 84
    ... CNY million Trademark CNY million Total CNY million Accumulated amortisation and impairment losses: The amortisation charge for the year is included in "cost of sales", "research and development expenses", "selling and administrative expenses" in the consolidated statement of profit or loss. The...

  • Page 85
    ...segment or at a level not larger than an operating segment, as follows: 2013 CNY million Sectors under Enterprise business group International Turnkey Systems Technologies W.L.L. ("ITS Bahrain") Beijing Huawei Longshine Information Technology Company Limited ("Beijing Huawei Longshine") Others 3,139...

  • Page 86
    ... value-in-use calculations. The value-in-use calculations apply a discounted cash flow model using cash flow projections based on financial budgets approved by management covering five-year, eight-year and five-year period for sectors under Enterprise business group, ITS Bahrain and Beijing Huawei...

  • Page 87
    ... 2013 49% 2012 49% Research and development, production and sale of TD- SCDMA telecommunication products Development, publication and operation of digital media related services Name of associate TD Tech Holding Limited ("TD Tech") Principal activity Tianwen Digital Media Technology (Beijing...

  • Page 88
    ... ownership interest 2013 51% 2012 51% Construction and operation of submarine fibres Investment, lease of property and machinery, developments of high technology products and provision of related services, sale of telecommunication and electronic products Name of joint venture Huawei Marine Systems...

  • Page 89
    ... CD Investment 2013 CNY million 2012 CNY million Gross amounts of the joint ventures' Current assets Non-current assets Current liabilities Non-current liabilities Equity Included in the above assets and liabilities: Cash and cash equivalents Non-current financial liabilities (excluding trade and...

  • Page 90
    ... the Group's share of those joint ventures' loss 41 2012 CNY million 42 (1) (186) 15. Other investments 2013 CNY million Available-for-sale financial assets: - Unlisted equity securities stated at cost - Listed equity securities stated at fair value - Debt securities - Wealth management products...

  • Page 91
    ... statement of financial position are as follows: 2013 CNY million Accruals and provisions Depreciation of property, plant and equipment Provision for impairment losses Unrealised profit Tax losses Undistributed profits of subsidiaries Fair value adjustments on business combinations Others Total...

  • Page 92
    ... by management that it is not probable that future taxable profits against which the tax losses can be utilised will be available before they expire. 17. Inventories (a) Inventories in the consolidated statement of financial position comprise: 2013 CNY million Raw materials Work in progress Finished...

  • Page 93
    ... (a) Ageing analysis At the end of the reporting period, the ageing analysis of trade receivables due from third parties is as follows: 2013 CNY million Not past due Less than 90 days past due 90 days to 1 year past due 1 year and above past due Less: Allowance for doubtful debts Total 43,903...

  • Page 94
    ... Financial Statements Summary 93 (b) Impairment of trade receivables due from third parties Impairment losses in respect of trade receivables due from third parties are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case...

  • Page 95
    ... and other financial institutions Highly liquid short-term investments Cash and cash equivalents in the consolidated statement of financial position and consolidated statement of cash flows 5 61,794 11,600 73,399 2012 CNY million 15 67,165 - 67,180 As at December 31, 2013, the Group had certain...

  • Page 96
    ... on demand. The Group regularly monitors its compliance with these covenants. As at December 31, 2013, none of the covenants relating to draw down facilities had been breached (2012: nil). Corporate bond On May 11, 2012, Proven Honour Capital Limited, a wholly-owned subsidiary of the Company, issued...

  • Page 97
    ...536 2012 CNY million 24. Other payables 2013 CNY million Interest payable Advances received Accrued expenses - Staff related - Supplies related Other taxes payable Purchase of property, plant and equipment Gross amount due to third-party customers for contract works Others 17,820 11,777 7,824 2,053...

  • Page 98
    ... from historical warranty data associated with similar products and services and anticipated rates of warranty claims for its products. The Group expects to settle the majority of the liability within the next twelve months. (ii) Other provisions Other provisions are mainly for onerous contracts and...

  • Page 99
    ... policies as well as the EC's antitrust law. On January 2, 2013, IDC filed another two complaints with the USITC and the United States District Court for the District of Delaware against Huawei Tech, Futurewei, and Huawei Device USA Inc. ("USA Device"), another wholly-owned subsidiary of the Company...

  • Page 100
    ...Delaware was stayed. On September 30, 2013, the Administrative Law Judge of the USITC issued an initial determination in respect of Flashpoint's complaint with USITC that Huawei Device and USA Device did not infringe the asserted patents. At this stage, the Group is unable to predict the outcome of...

  • Page 101
    ... 58 1,107 The Group leases a number of warehouses, factory facilities, office premises and staff apartments under operating leases. The leases typically run for an initial period of one to five years. None of the leases includes contingent rentals. During the year ended December 31, 2013, CNY2,392...

  • Page 102
    ... for in the consolidated financial statements summary were as follows: 2013 CNY million Establishment of an associate - 2012 CNY million 25 29. Group enterprises (a) Parent and ultimate controlling party The Group's ultimate controlling party is the Union of Huawei Investment & Holding Co., Ltd.

  • Page 103
    ... and related products Installation, technology consultancy service and maintenance of telecommunication equipment and auxiliary products Development, services HiSilicon Technologies Co., Limited Huawei Tech. Investment Co., Ltd ("Huawei Tech Investment") Huawei Device Co., Ltd. Huawei International...

  • Page 104
    ... in turn is a wholly-owned subsidiary of the Company. Huawei Digital HK is a Hong Kong-based joint venture established by Huawei Tech Investment and Symantec Hardware in 2008. Huawei Digital HK is principally engaged in research and development, production and sale of network storage and security...

  • Page 105
    ... a whollyowned subsidiary of the Company. Beijing Huawei Longshine is a China-based company established in 1996. Beijing Huawei Longshine is principally engaged in production and sale of network communication products, computer hardware and software and provision of related services. In the period...

  • Page 106
    ... be deductible for tax purposes. Fastwire The goodwill is attributable mainly to the skills and technical talent of Fastwire's work force, and the synergies expected to be achieved from integrating Fastwire into the Group's existing network business. None of the goodwill recognised is expected to be...

  • Page 107
    ... risks in business plans and execution. Strategic Risks Intense competition: The markets in which Huawei operates are highly competitive in terms of product price, functionality, and service quality, as well as the timing of new product launch. The rapid development of science and technology, and...

  • Page 108
    ... ensure continuous supply or met with product quality issues. To mitigate this risk, we periodically assess and conduct audits on our suppliers, and preemptively initiate component replacements or solution redesign. Rising labor costs: Increasing labor costs in China may offset the company's efforts...

  • Page 109
    ... BP&IT Cyber Security PR&GR Legal Affairs Internal Audit Ethics & Compliance Service BG (SBG) 2012 Laboratories Integrated Business Services (IBS) Manufacturing Huawei University Huawei Internal Services Financial Investment Management Platform Carrier Network BG Enterprise BG Consumer BG...

  • Page 110
    ... body for corporate strategy and management. The BOD guides and oversees the overall business operations and makes decisions on significant strategic issues. The BOD has established the Human Resources Committee, the Finance Committee, the Strategy & Development Committee, and the Audit Committee to...

  • Page 111
    ... the corporate-level HR planning and major HR policies. In 2013, the BOD held 12 meetings. Throughout the year, the BOD reviewed and approved the company's medium-to-long-term business plan, the annual business plan and budget, revisions to the Articles of Association, operations of the committees...

  • Page 112
    ...of key decisions and policies. To help managers at all levels better understand the company's major HR policies issued in recent years, the Human Resources Committee held the 2013 Huawei Annual Management Conference. At the conference, in-depth discussions about corporate vision and major directions...

  • Page 113
    ...the company's medium-to-long-term business plan, annual budgeting plan, operational management, capital operations projects, the capital structure, enterprise risk management, and subsidiary and joint venture management. The Finance Committee discussed and established relevant financial policies and...

  • Page 114
    ...and executes the company's strategic directions. The SDC gains insight into major trends concerning the industry, technologies, and customer needs; and identifies opportunities and paths for the company's development. Through macro -management of industrial investments, technologies, business models...

  • Page 115
    ... policy compliance and application as well as disclosure of financial statements. â- The Audit Committee approves the control KPIs at the beginning of each year, and has the right to summon Global Process Owners (GPOs) and business executives to report their control work. The Audit Committee...

  • Page 116
    ... developed a work plan for the next three years. According to the work plan, the Supervisory Board will strengthen its operations in three aspects: supervision of the responsibility fulfillment of BOD members and senior management, monitoring of the financial performance of the company, and building...

  • Page 117
    .... Li Jin'ge, Mr. Guo Ping, Ms. Meng Wanzhou, Mr. Xu Zhijun, Mr. Ren Zhengfei, Mr. Hu Houkun, Ms. He Tingbo, Mr. Li Jie From the left in the second row: Ms. Chen Lifang, Mr. Wan Biao, Mr. Zhang Ping'an, Ms. Sun Yafang, Mr. Xu Wenwei, Mr. Yu Chengdong, Mr. Ding Yun, Mr. Li Yingtao, Mr. Wang Shengli

  • Page 118
    ... of the Global Sales Dept, Chief Sales & Service Officer, Chief Strategy & Marketing Officer, Chairman of the Corporate Global Cyber Security Committee, Chairman of the BOD of Huawei USA, Deputy Chairman of the Board, Rotating CEO, and Chairman of the Human Resources Committee. Mr. Ren Zhengfei...

  • Page 119
    ... of the International Technical Sales & Marketing Dept, President of the European Area, Chief Strategy & Marketing Officer, Chief Sales & Service Officer, President of the Joint Committee of Regions, CEO of the Enterprise BG, and President of the company's Strategy Marketing Dept. Mr. Li Jie (Jason...

  • Page 120
    ..., and member of the Human Resources Committee. Mr. Wang Shengli (Victor Wang) Mr. Li Yingtao Born in 1969, Mr. Li holds a doctorate degree from Harbin Institute of Technology. Mr. Li joined Huawei in 1997 and has served as Chief of the Sweden Research Center, Director of the Product Mgmt Dept of...

  • Page 121
    ... Huawei in 1996 and has served as President of the Terminal Product Line, President of the Optical Network Product Line, President of the Supply Chain Mgmt Dept, President of the Procurement Qualification Mgmt Dept, Chief Operations & Delivery Officer, President of the Integrated Business Services...

  • Page 122
    ... an R&D project manager, Department Manager at Huawei Technologies India Private Limited, Deputy Chief of the Beijing Research Center, Director of the R&D Dept of the Data Communications Product Line, Deputy Director of the HR Branch of Products & Solutions, Vice President of the Human Resource Mgmt...

  • Page 123
    ...Fixed Network Business Unit, member of the Human Resources Committee, and member of the SDC. Mr. Yao Fuhai Born in 1968, Mr. Yao holds a bachelor's degree from the University of Electronic Science and Technology of China. Mr. Yao joined Huawei in 1997 and has served as Director of the Pricing Center...

  • Page 124
    ... financial audits with the Audit Committee. KPMG has been Huawei's independent auditor since 2000. Business Structure The company has established three BGs. Each BG is a responsibility center for the end-to-end operations in a particular customer domain. BGs are the main driving force behind Huawei...

  • Page 125
    ..., and supporting processes. Through these processes, we incorporated requirements associated with quality, internal controls, Environment, Health, and Safety (EHS), cyber security, and CSR into marketing, R&D, supply chain, procurement, delivery, service, comprehensive audits, regular assessments...

  • Page 126
    ... plan and budgets, thus helping ensure that business units are well coordinated. This action also aims to effectively manage corporate investments and assist the company in achieving its strategic and business objectives. During the annual business planning and budgeting, Huawei utilizes balanced...

  • Page 127
    ... a resource buy-and-sell mechanism that enables project teams to buy resources from Group Functions. In addition, Huawei has devoted more efforts to knowledge management, document management, and knowledge communities to enhance knowledge and experience sharing, thus improving employees' efficiency...

  • Page 128
    ...its committees, Group Functions, and multi-level administrative teams. Huawei has clearly defined roles and responsibilities for its teams to ensure checks and balances. The CFO of Huawei is in charge of internal control management. The Business Control Dept identifies areas for improvement, reports...

  • Page 129
    ... external information customers, suppliers, and other parties. Huawei has created formal channels for transferring internal information. Huawei has also established an online forum that provides a channel for employees to communicate freely with each other. Corporate management holds regular...

  • Page 130
    ... on electric power, and quickly achieved signal coverage in the relevant areas. By the end of 2013, Huawei rolled out 2G networks in mid-west, western, and far west Nepal, the country's three remote mountainous areas, providing coverage for over 8 million people. Convenient communications have made...

  • Page 131
    ... and enterprises in Africa. Now, Huawei's TD-LTE solution has changed broadband access from a luxury to a basic ICT service accessible to ordinary people in Africa. Wireless broadband is developing rapidly, playing an increasingly important role in reducing the number of Africans who lack internet...

  • Page 132
    Sustainable Development 131 Nurturing ICT Talent Telecom Seeds for the Future Program The Telecom Seeds for the Future Program offers hands-on ICT training, scholarships, work experience, and internships to students from different countries. By the end of 2013, the Program had been extended to ...

  • Page 133
    ... learn with Huawei's Desktop Cloud Huawei actively promotes the application of ICT technologies for consumers, governments, the public sector, and industries such as transportation and energy. Our customized ICT solutions help different geographic areas and groups use ICT technologies to increase...

  • Page 134
    ... restored communications for local communities and provided effective support for relief efforts. In 2013, Huawei ensured smooth communications for nearly 3 billion people worldwide and supported the stable operations of over 1,500 networks for more than 600 customers in over 170 countries and...

  • Page 135
    ..., developing, and deploying secure technology." -- Chairman of the Huawei Global Cyber Security Committee â- 2013 å¹´ 10 月 Huawei's cyber security white paper Cyber security assurance has been one of Huawei's core strategies. It has long been an area of focus of our company...

  • Page 136
    ..., delivery, and service. We make continuous innovations in our technology, aiming to increase the resource utilization efficiency of our products. We also provide customers with world-leading products and solutions that are highly energy efficient and environmentally friendly, helping customers...

  • Page 137
    ... behavior. In 2013, Huawei developed the SmartExchange platform in France and collected 300 used mobile phones through a pilot program. We ensured that no phone ended up in a landfill, and reduced the equivalent of 13 tons of carbon dioxide emissions. In 2014, we plan to continue to work with our...

  • Page 138
    ... by providing them with broad development platforms, Huawei also strives to increase employee happiness and help them achieve a work-life balance. In 2013, Huawei championed a variety of activities to help employees experience the pleasure of being part of our "big family", remain mentally and...

  • Page 139
    ...of Huawei's Major Social Charity Activities in 2013 - - France Launched the SmartExchange program to promote mobile recycling Partnered with the Institute of Civil Service to support young people Spain Launched the SmartBus program to promote the responsible use of ICT United Kingdom Supported the...

  • Page 140
    ... China - Guaranteed to stable communication in Ya'an after the 2013 earthquake and donated 3000 handsets to the quakestricken area - L aunched social charitable activities to donate books to children in remote areas, helping them realize their dreams Japan Supported the Charity Relay Run to support...

  • Page 141
    ... efforts. We aim to become part of local communities, create value for them, and help them achieve prosperity and sustainability. Operations in Compliance with Applicable Laws and Regulations Anti-Corruption and Anti-Bribery Huawei abides by business ethics, operates with integrity, complies with...

  • Page 142
    ... in engineering delivery. Huawei's executives have become more and more concerned about security management and set an example by participating in security management at construction sites. In 2013, Huawei executives at the regional vice president level and above paid 77 visits to project sites for...

  • Page 143
    142 Sustainable Development Supply Chain Management Collaboration on Sustainability Means Better Business On September 25, 2013, Huawei hosted the Fifth Huawei Core Partner Convention in Shenzhen under the theme of "Collaboration on Sustainability Means Better Business". The event attracted 341 ...

  • Page 144
    ... Evolution and Experience Center Gigabit-capable Passive Optical Network Global Position System Global System for Mobile communications High-Speed Packet Access International Accounting Standards Information and Communications Technology Internet Data Center Institute of Electrical and Electronics...

  • Page 145
    ... Service Operation Center Strategic Plan Set Top Box Time Division-Spatial Code Division Multiple Access TeleManagement Forum Total Value of Ownership Universal Mobile Telecommunication System Value Growth Solution Financial Terminology Operating profit Gross profit less research and development...

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    ... © 2014 HUAWEI INVESTMENT & HOLDING CO., LTD. All Rights Reserved. GENERAL DISCLAIMER THE INFORMATION IN THIS DOCUMENT MAY CONTAIN PREDICTIVE STATEMENTS INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE FUTURE FINANCIAL AND OPERATING RESULTS, FUTURE PRODUCT PORTFOLIO, NEW TECHNOLOGY, ETC...