2020 is a critical year for the comprehensive construction of 5G networks. Recently, the 5G procurement plans released by the three major operators have involved 500,000 base stations. Calculated at a cost of 200,000 per base station, the investment capital is as high as 100 billion. Apart from China, South Korea is the country developing 5G the fastest regardless of cost, with a penetration rate of nearly 10%. The United States and Europe are also accelerating, and competition among countries has become fierce.
The report shows: As of January 1, 2020, the number of global 5G standard patent applications was 21,571. Huawei ranks first with 3,147 items, followed by Samsung (2,795 items) and ZTE (2,561 items); LG Electronics (2,300 items), Nokia (2,149 items) and Ericsson (1,494 items) rank 4-6 respectively. . Qualcomm and Intel from the United States only ranked 7th and 8th. Sharp and NTT Docomo successfully ranked among the top ten.
In addition to Huawei and ZTE in the top three, Chinese companies such as China Academy of Information and Communications Technology, OPPO, vivo, and Lenovo are also on the list. Of course, the application process is quite lengthy, and there is no guarantee that a patent will be obtained. At present, less than half of Huawei's approvals have been approved. If we look at the number of authorization approvals, it can only rank fourth. The top three are Samsung, Nokia and LG.
In fact, patented technology is only a small part of Huawei's business. As the world's largest communications equipment manufacturer, they have won 91 5G commercial contracts and shipped more than 600,000 5G base stations, leading the industry. For comparison, Ericsson has obtained 81 5G commercial contracts and provided equipment for 24 officially operational 5G commercial networks; Nokia and ZTE have 67 and 46 contracts respectively.
In the past year, Huawei has suffered many tests, but its performance has still achieved steady growth. Operating income reached 858.8 billion yuan and net profit was 62.7 billion yuan, a year-on-year increase of 19.1% and 5.6% respectively. Challenges have escalated further this year. In the first quarter, sales revenue was 182.2 billion yuan, a year-on-year increase of 1.4%, which was a sharp decline from the 39% year-on-year growth in the same period last year; the net profit margin was 7.3%, a slight year-on-year decline.
Although the growth prospects are not optimistic, Ren Zhengfei believes that this is just a temporary difficulty. He said that Huawei's development in the next few years will only be better than that in 2019 and 2020, because we know where we are hurting and where we need to treat it. We believe that we will become healthier in the next few years. After experiencing these lessons, I will summarize it and climb slowly like climbing a hill.
Behind the confidence is a steady stream of R&D investment. Last year, Huawei invested 131.7 billion yuan in R&D, which was more than twice its net profit and accounted for 15.3% of its annual sales. In the past ten years, Huawei's R&D expenses totaled more than 600 billion yuan. As of now, the company has 85,000 valid patents worldwide, of which invention patents account for 90%. Despite the difficult situation, Ren Zhengfei said that R&D funding will increase by US$5.8 billion this year and may exceed US$20 billion.
ZTE’s strength cannot be underestimated. In addition to ranking among the top three in patent applications, it has also obtained 46 5G commercial contracts around the world, covering markets such as China, Europe, Asia Pacific, and the Middle East, and has launched in-depth cooperation with more than 70 operators. They have developed more than 300 partners in 15 industries including industrial manufacturing, cultural tourism, education, energy, and transportation, and have cooperated with more than 200 industry-leading product providers.
Last year, ZTE achieved revenue of 90.737 billion yuan, a year-on-year increase of 6.11%; net profit was 5.148 billion yuan, a year-on-year increase of 173.71%. Behind the outstanding results is also the continuous investment in research and development. The expenses spent on technology research and development reached 12.548 billion yuan, a year-on-year increase of 15.06%, accounting for 13.83% of operating income. The R&D team has 28,300 people, accounting for 40% of the total number. The number of global patent applications exceeds 74,000, and more than 34,000 patents have been authorized.
There is no doubt that 5G will lead the next era. It is through continuous investment in research and development that Huawei and ZTE have the right to speak in this field.
As operators in various countries increase their investment in 5G, it is expected that mobile capital expenditures will reach US$1.1 trillion from 2020 to 2025, of which nearly US$900 billion will be used for 5G network construction. This will be a huge benefit to communications companies.