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.
Context: The US banned its companies from doing business with Huawei in May but has since issued temporary licenses to allow Huawei to continue. It extended on March 10 this license again to May 15.
- 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.