Huawei's revenue growth slows as the US tightens sanctions

Huawei's revenue growth slows as the US tightens sanctions

China tech giant Huawei's revenue growth slowed in the third quarter amid new US sanctions and the global economic downturn triggered by the coronavirus pandemic.

Huawei said on Friday that sales for the first nine months of the year were Rmb 671.3 billion (USD 100.5 billion). This represents a 3.7 percent year-over-year increase in the July through September period, a decrease from the 27 percent growth in the third quarter of 2019. The company recorded an average annual revenue growth rate of 21 percent for the past five full years.

The slowdown comes as the Trump administration tightened its chokehold for Huawei. The US sanctions that came into force in mid-September forced companies around the world to obtain licenses to sell American-made technologies to Huawei, which largely sealed them off from their chip suppliers.

Huawei's future growth could also be hurt by declines in its consumer business, which accounts for more than half of its revenue.

Huawei did not provide a breakdown of sales for this business area. However, the numbers the company made available to analysts, including research firm Canalys, showed that smartphone sales in China fell 18 percent year over year in the third quarter. This was the first such decline. The domestic smartphone market had helped prop up Huawei's sales since the first US sanctions were imposed in 2019.

"It doesn't matter how much demand the Chinese market is currently in as Huawei has a limited supply of components," said Nicole Peng, vice president of Canalys in Shanghai, referring to recent US restrictions.

Ms. Peng said Huawei could seek to "strategically extend" its presence in the global smartphone market by throttling sales in China to hold back inventory for other countries. Huawei's close relationships with local distributors and established customer base could help win back buyers in China if delivery issues are resolved, she said.

There are already signs that the lack of components due to Washington sanctions is affecting the company. Huawei has suggested that the latest flagship smartphone, the Mate 40, announced Thursday, could be the last after it admitted that there are "bottlenecks" in sourcing the high-end chips needed for these products.

"This year could mark the end of the last generation of Huawei's Kirin high-end chipset," said Richard Yu, head of Huawei's consumer division, in August, referring to the chips that power the company's smartphones.

Huawei employees hope the U.S. Department of Commerce will license key suppliers like Qualcomm. Intel is the only publicly known company to have received such a license.

The company is also under pressure to government bans the use of its telecommunications equipment on national networks after lobbying the US government. The UK and Sweden are the youngest to do this. However, according to Huawei, the most lucrative markets – East Asian such as China and South Korea – do not share these security concerns.

Canalys' Ms. Peng said some relief could come from the fact that global telecommunications equipment manufacturers, including Huawei, were just beginning to generate revenue from sales of equipment that powers next-generation 5G networks, suggesting that this could be a long journey. temporary income.

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