US economy

Huawei’s revenue growth slows as US tightens sanctions

Revenue growth at Chinese technology group Huawei slowed during the third quarter in the face of new US sanctions and the global economic downturn prompted by the coronavirus pandemic.

Huawei said on Friday that revenues in the first nine months of the year were Rmb671.3bn ($100.5bn). That translates into a 3.7 per cent year-on-year increase in the July to September period, a drop from the 27 per cent growth recorded in the third quarter of 2019. The company had a compound annual revenue growth rate of 21 per cent for the past five full years.

The slowdown comes as the Trump administration has tightened its chokehold on Huawei. US sanctions that took effect from mid-September forced companies worldwide to obtain licences to sell American-made technologies to Huawei, largely cutting it off from its chip suppliers.

Future growth at Huawei could also be hurt by declines in its consumer business, which accounts for more than half of its revenues.

Huawei did not provide a breakdown of sales for this business segment. But figures the company provided to analysts, including research firm Canalys, showed smartphone sales in China fell 18 per cent year on year in the third quarter, marking their first-ever such decline. The domestic smartphone market had helped prop up Huawei sales since the first US sanctions were imposed in 2019.

“It doesn’t matter how much demand the Chinese market has now, because Huawei has limited component supply,” said Nicole Peng, Shanghai-based vice-president at Canalys, referring to the latest US restrictions.

Ms Peng said Huawei might be attempting to “strategically prolong” its presence in the global smartphone market by throttling sales in China in order to hold back inventory for elsewhere. Huawei’s strong relationships with local distributors and its established customer base could help it win back buyers in China if and when its supply issues are resolved, she said.

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There are already signs that shortages of components due to Washington’s sanctions are taking their toll on the company. Huawei has suggested its latest flagship Mate 40 smartphone, announced on Thursday, could be its last after admitting to “shortages” in sourcing the high-end chips needed for these products.

“This year may be the end of the Huawei Kirin high-end chipset, the last generation,” Richard Yu, Huawei’s consumer division head, said in August, referring to the chips that power the company’s smartphones.

Huawei staff say they hold out hope that the US Department of Commerce will grant licences to crucial suppliers, such as Qualcomm. Intel is the only company publicly known to have obtained such a licence.

The company is also under pressure from government bans on the use of its telecoms equipment in national networks following lobbying by the US government, with the UK and Sweden being the latest to do so. However, Huawei says its most lucrative markets — east Asian ones such as China and South Korea — do not share these security concerns.

Ms Peng of Canalys said some relief could come from the fact that global telecoms equipment makers, including Huawei, were only just beginning to receive revenues from the sales of gear that powers next-generation 5G networks, suggesting this could be an avenue of long-term revenues.

“It will be difficult for Huawei to maintain growth, but the carrier business will provide a cushion,” she said.


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