HONG KONG—Huawei Technologies Co. reported Monday that its revenue rose 40% in the first half of the year, but its operating margin shrank as the Chinese technology giant increased investment for its smartphone business.

The world s third-largest smartphone maker by sales behind Samsung Electronics SSNHZ 0.00 % Co and Apple Inc. is trying to challenge the two giants not only in China but increasingly in overseas markets such as Europe and the Middle East.

Huawei, which makes handsets as well as networking equipment such as base stations, said its revenue for the six months through June rose to 245.5 billion yuan $36.67 billion from 175.9 billion yuan in the same period last year, while its operating margin shrank to 12% from 18% in the first six months of 2015.

The modest reduction in operating margin during the period is mostly the result of increased investment to support future growth, a Huawei spokesman said.

Still, Huawei grew at a faster pace than last year—its revenue growth in the first half of 2015 was up 30% from the same period in 2014.

We are confident that Huawei will maintain its current momentum, and round out the full year in a positive financial position backed by sound ongoing operations, Huawei Chief Financial Officer Sabrina Meng said in a news release.

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