Huawei warns of supply chain disruption after growth evaporates
Huawei Technologies’ quarterly revenue shrank for the first time on record, reflecting the devastating impact of US sanctions that forced China’s largest technology company out of smartphones and into other technology areas.
The disappointing results underscore the depth of the damage Washington has wrought on a company that once vied with Apple and Samsung Electronics to lead the global smartphone market. It reported revenue fell 11% to CN¥220.1-billion (US$33.5-billion) in 2020’s final quarter. That’s down from 3.7% growth in the September quarter and 23% in the second quarter, according to calculations based on previously reported figures.
Full-year sales and profit rose 3.8% and 3.2% respectively, in line with the “marginal growth” previously projected, according to financial statements audited by KPMG. Huawei had credited record 5G base station orders and strong mobile sales in the first half for offsetting the final six months.
Huawei is emerging from its toughest year on record when Trump administration sanctions smothered its once leading smartphone business and stymied advances into chip making and 5G networking. The Biden White House has shown few signs of letting up, prompting billionaire founder Ren Zhengfei to direct Huawei towards new growth areas such as smart agriculture, healthcare, and electric cars. It hopes for a seat at the table with tech giants vying to define the rapidly evolving fields of connected vehicles, homes, and workplaces.
“Over the past year, we’ve held strong in the face of adversity,” said rotating chairman Ken Hu, one of three executives who take turns filling the top role. “We also took this opportunity to further enhance our operations, leading to a performance that was largely in line with forecast.”
Huawei is the subject of persistent speculation it wants to join tech giants from Apple to Baidu and Xiaomi in exploring automotive technology or designing and assembling entire cars. While Huawei has denied it plans to launch a car under its own brand, it’s worked with several manufacturers to test its autonomous driving and driver-car interaction technologies. Its info and entertainment features can already be found in Mercedes-Benz sedans and the firm has teamed up with domestic players such as BAIC BluePark New Energy Technology to develop smart car systems. The first model under its partnership with the Chinese EV maker, the Arcfox αS HBT, will be unveiled at Auto Shanghai in April.
It also plans to begin charging mobile giants like Apple a “reasonable” fee for access to its trove of wireless 5G patents, potentially creating a lucrative revenue source by showcasing its global lead in next-generation networking.
The owner of the world’s largest portfolio of 5G patents will negotiate rates and potential cross-licensing with the iPhone maker and Samsung, promising to charge lower rates than rivals like Qualcomm, Ericsson, and Nokia. Huawei should rake in about $1.2-billion to $1.3-billion in patent and licensing fees between 2019 and 2021, executives said without specifying which of those stemmed from 5G. It’s capping per-phone royalties at $2.50, versus the $7.50 that Apple says Qualcomm demands of every iPhone.
Huawei in 2019 found itself thrust into the heart of US-Chinese tensions after the White House labelled it a national security threat and imposed a series of trading restrictions. Those curbs curtailed its growth and forced the company to sell off its low-end Honor devices arm last year, hamstringing a smartphone business that briefly surpassed Apple’s. Under Trump, the US made headway in pressing allies to steer clear of Huawei equipment for 5G mobile networks.
Separately, the US is seeking to extradite Huawei chief financial officer Meng Wanzhou — also Ren’s eldest daughter — from Canada over allegations of sanctions violations. The case has stoked tensions between Beijing and Ottawa after police arrested two Canadian citizens in China for spying shortly after the CFO was detained in December 2018.
Hearings in that case, in which US officials accuse Meng of misleading banks into handling transactions for Huawei that violated American sanctions, are continuing and may take as long as a decade to resolve. Huawei says she is innocent and has repeatedly called on the US and Canada to let Meng go home.