Last year was “a very challenging year” for Huawei Technologies, the Chinese telecom manufacturer’s rotating chairman Eric Xu said during a press conference Tuesday, announcing the group’s 2019 results. Revenue rose 19.1% to $121 billion, and profits increased 5.6% to $8.84 billion—a significant slowdown from 25% profit growth the year before.
Action by the U.S., which last year squeezed Huawei’s supply lines by placing the smartphone maker and scores of its affiliates on the dreaded entities list, cost the smartphone maker $12 billion in projected revenue, Xu said. With the coronavirus pandemic continuing to threaten Huawei’s supply lines, Xu warns the year ahead could be even tougher than the year before.
Zooming in
“The coronavirus outbreak is catching everyone’s attention,” Xu said, addressing a camera in a largely empty auditorium. Journalists—both domestic and international—joined the meeting via Zoom.
Xu says Huawei’s production facilities in China have all been “fully restored” as the coronavirus outbreak is “under control in China.” However, with the pandemic still raging in the U.S., there’s a chance that Huawei’s semiconductor supply lines will be disrupted.
“We are being briefed on a daily basis on how our suppliers are performing,” Xu says. “If some individual suppliers cannot continue supplying to us, it will cause long-term challenges and it will provide uncertainty as to whether we can continue to supply to the market. Of course this is something we don’t want to see.”
The Trump administration recently issued a fifth reprieve on Huawei’s addition to the entities list—which would require U.S. Companies to seek permission before trading with the company—but continues to threaten its complete implementation. The U.S. Commerce Department placed Huawei on its entity list in May last year because the Trump administration sees it as a security threat.
“I think the Chinese government will not just stand by to watch Huawei get slaughtered on the chopping board,” Xu said during the press conference, adding that he believes the government would take countermeasures, potentially even banning U.S. Components from China’s 5G networks.
Paranoid android
The U.S. Action has already prevented Google from providing Android services to Huawei, forcing the world’s third-most-popular smartphone maker to release products without Google services and apps. Nevertheless, Huawei’s consumer business group—which includes sales of smartphones, laptops, and tablets—led the company in revenue growth last year, rising 34% to $66 billion.
“Outside of China the loss of Google has made Huawei smartphones a tough sell, and sales have dropped somewhat. But in markets like Southeast Asia and Russia, they don’t use Google services as much, so they are fine so long as the phone has a good camera,” says Neil Shah, partner at Counterpoint Research.
Inside China, the loss of Android services wasn’t noticed, as Google is already banned. In fact, Huawei sales increased there last year, according to Counterpoint Research, surging 10 percentage points to occupy 36% of the market.
Some analysts reckon Huawei’s reliance on its domestic market has left it overexposed to the coronavirus lockdown, which kept swaths of the Chinese consumer market home during the first quarter of the year. However, Shah says Huawei performed well with shipments buoyed by online sales of its youth-focused Honor brand.
“Since the lockdown started in Wuhan, Huawei ramped up production in the last 10 days of January and increased their online strategy. They have enough stock to survive March, and already the China smartphone market is back to normal,” Shah says.
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