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At one point in time, certain smartphone brands might have captivated your attention, but the once-popular Nokia, Blackberry and HTC phones are no longer considered in the running for the new, must-have technology.
Yes, Huawei Technologies Co. sold more smartphones than Apple in 2018. But forget calling your stockbroker; Huawei is a private company and it’s impossible to buy its shares.
A Brief History of Huawei
Huawei was founded in 1987 by Ren Zhengfei and was a sales agent for a Hong Kong-based producer of private branch exchange (PBX) switches. The handset department was not established until 2003, and its first mobile phone was revealed in 2004.
Huawei’s first Android smartphone didn’t appear until 2009. In 2012, Huawei became the world’s third-largest smartphone manufacturer. In the same year, it revealed its P Series, which was the world’s slimmest phone. Others, such as Honor, Mate, and the Y Series followed. The Mate 10 was released in 2017 and it was the first smartphone with an embedded artificial intelligence (AI) chipset.
The company also produces MateBook, its laptop brand.
Huawei’s growth story involves serious troubles with the U.S. government, which sees its technology as a cybersecurity threat. The U.S. government is concerned that Huawei’s products contain backdoors that could enable surveillance by the Chinese government and by the People's Liberation Army.
How You Can Invest in Huawei
Huawei is a private company owned by its employees and it is not currently possible to include it in your stock portfolio. The media has speculated a possible IPO for a long time, but Ren Zhengfei has repeated several times that the company has no intentions of going public. Bond investors have more luck, as Huawei has an international bond market funding program and it’s, therefore, possible to purchase its bonds.
If you are looking to buy ETFs that have Huawei bonds as its constituent, that is going to be quite difficult. There are ETFs with bonds of Chinese companies, but I couldn’t find one that owns Huawei bonds.
So if you are interested in Huawei bonds, you have to buy them directly.
Huawei is using Proven Honour Capital Limited, a special purpose vehicle, as the issuer of its bonds. Huawei has issued two issues through the SPV and their maturity dates are May 2025 and May 2026. The minimal amount for this investment is $200,000 and you can check with your broker if these instruments are available for trading. I used Interactive Brokers to get current quotes. If you pay the ask price for these bonds you can currently get an implied yield of 5.46 percent for the 2025 maturity and 5.62 percent for the 2026 maturity.
You can check with Interactive Brokers, and some of Benzinga's top online brokerages, to see if the bond is available.
If Huawei Goes Public, Should You Invest?
The media has speculated about the IPO because of the recent call from China's financial authorities to unicorn companies and major tech firms to list on the Shenzen’s A-share market. If Huawei responds to the call, it would be useful to think about the pros and cons of investment in Huawei shares.
Pros of Purchasing Huawei Stock
- Strong market share: Huawei has recently become the second largest smartphone maker. It now has a market share of 15% and in 2012, it had less than 4%.
- Profitable company:The company had 9.3% operating margin in 2017 and it more than doubled its net profit since 2013.
- Internet of things:Its NB-IoT technology can be found in more than 500,000 base stations deployed around the world.
- Cloud strategy:Huawei continues to advance its cloud strategy, with over 350 network functions virtualization (NFV) contracts and 380 software-defined networking (SDN) commercial contracts around the world. It has also deployed more than 30 CloudAIR commercial networks with wireless air interfaces.
- 5G technology: Huawei tested its 5G technology with over 30 leading carriers in more than 10 cities around the world and its network performance far exceeded its requirements.
Cons of Purchasing Huawei Stock
- U.S. lockdown: Due to cybersecurity threats, Huawei phones are not available for sale in the United States. Planned partnerships with AT&T and Verizon collapsed due to political pressure.
- Blocking of 5G technology:The U.S. government is trying to persuade its allies, Japan, U.K., Australia and New Zealand to stop buying Huawei networks due to security risks.
- Detention of Huawei’s CFO:On December 1, Meng Wanzhou, the CFO of Huawei and the founder’s daughter, was arrested in Canada on an extradition request of the United States. The arrest has negatively affected relations between China and the United States, which were already hurt by the recent trade war.
Huawei offers innovative products popular around the world and is an important player in the global smartphone market, even though political troubles with the United States have bubbled to the surface. If the company decides to go public, potential investors will be interested in a solution to those serious cybersecurity accusations.
To gain access to more customers, Huawei would have to prove that it has no ties to the Chinese government or to the People's Liberation Army. If the company decides to go public and it lists its shares on the domestic market, it will be hard for U.S. citizens to buy shares. Instead, they’ll have to look to exchange-traded funds (ETFs) to get exposure.