Huawei, the world’s largest maker of telecom equipment by revenue, released earnings for 2019, saying that it missed a target set internally by $12 billion due to a US trade ban. The company also warned of retaliation by the Chinese government.
Why it matters: After a year of “unprecedented challenges” brought by a US ban on sales of its gear to American companies, the marquee Chinese technology company reported significantly slower profit growth and revenues which missed its own goals by a wide margin.
- Despite the May ban, US suppliers continued to deal with Huawei. Eric Xu, Huawei’s chairman, said in an interview that in 2019 the company spent $18.7 billion with US companies.
- Its annual earnings report also laid out future growth directions besides 5G: smart wearables and internet of things devices, cloud service platforms and artificial intelligence, and billion-dollar programs that support developers to add to its homegrown ecosystem, in an effort to pose a viable alternative to Android and Apple applications.
“The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board.”—Eric Xu, Huawei rotating chairman, at a press event
Details: Huawei reported revenues of RMB 858.8 billion ($123 billion) for 2019, an increase of 19.1% year on year and maintaining consistent top line growth compared with a year ago when revenue rose 19.5% on an annual basis.
- It posted net profit of RMB 62.7 billion, slowing to 5.6% growth year on year compared with 25.1% year on year in 2018.
- Xu warned of retaliatory measures by the Chinese government during the annual report press event, saying “Why wouldn’t the Chinese government ban the use of 5G chips or 5G chip-powered base stations, smartphones and other smart devices provided by American companies, for cybersecurity reasons?”
- The carrier business grew 3.8% year on year to RMB 296.7 billion and accounted for 34.5% of the company’s total revenue, falling below 40% for the first time. Last year, it made up 40.8% of total revenue.
- Its consumer business earned RMB 467.3 billion during the year, making up more than half of total revenue (54.4%).
- Xu said that the US sanctions meant that its consumer business lost $10 billion in overseas markets. It remains the fastest growing of Huawei’s three major businesses.
- Huawei shipped 240 million smartphone units globally, up 16.5% year on year compared with 35% year on year in 2018.
- Huawei said that its RuralStar base station solutions allow more than 40 million people living in remote areas to have mobile internet coverage. That includes a quarter of the smallest wireless carriers in the US on which many of the country’s farmers rely.
- Huawei’s executives said that Covid-19 has affected its plans to build 5G infrastructure in Europe and China, though domestic construction may ramp up since the outbreak seems to be under control in China.
- Much of Huawei’s manufacturing is based in southern China which means its supply chains are less affected by the Covid-19 lockdown in Hubei, central China.