US economy

Huawei: stale mate


Huawei has proved surprising resilient up until now. The privately held Chinese telecoms giant overtook Samsung as the top smartphone maker by market share in the second quarter and continued to grow in the third quarter, in spite of escalating sanctions. But the good times cannot last. This may be the last hurrah.

Growth is slow. Revenues rose 3.7 per cent on the previous year. Compared with a 27 per cent year-on -year increase in 2019, the figure are troubling. More worrying news: Huawei has suggested that its latest flagship smartphone, Mate 40, will be the last of its high-end line-up.

Chips crucial for Huawei’s smartphone models are expected to run out early next year. A panicked stockpiling of chips before bans took effect last month will have contributed to a decline in net margins to 8 per cent in the first nine months.

The continuing fight between China and the US has rattled countries that previously took a neutral stance. Sweden is the latest to ban Huawei from its 5G network buildout. It is losing existing clients too. SoftBank, the Japan carrier, which previously used Huawei gear, has skipped them for its 5G set-up.

A more pressing problem looms. Even if Huawei can secure more chips, without the Android operating systems on its handsets it will have to rely almost solely on its home market. Demand here has fallen nearly a fifth in the last quarter.

Huawei is running out of options in both its handset and network gear businesses. Together they make up 90 per cent of total revenues. Profits at Asian suppliers including Panasonic, Japan Display and Sony will be next in line to show the effects of the Huawei ban. Huawei is expected to account for about a fifth of Sony’s image sensors business.

Beijing’s pledge to support its tech sector, including telecoms, is one remaining source of hope. But a proposed fix will have to come quickly to stop Huawei from unravelling.

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