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US sanctions fail to get in Huawei as embattled Chinese vendor reports 23% revenue growth

It may be a 'plane riddled with bullet holes' – but it's still flying

Huawei is apparently like a "plane riddled with bullet holes" that keeps on flying – at least according to chairman Liang Hua.

He employed the colourful metaphor twice in a press conference in Shenzhen as he reported the company's first financial results since 16 May, when the US put Huawei on the "Entity List".

This managed to slow its growth rate in the first half of 2019, but Liang claimed that neither production nor shipments were interrupted – unlike with its domestic competitor ZTE, which was recently forced to stop some of its assembly lines due to import controls.

Huawei reported revenue of ¥401.3bn ($58.33bn) for the first six months of 2019, growing 23.2 per cent year on year.

The consumer business, which includes smartphones, tablets, PCs and IoT devices like smartwatches, brought in ¥220.8bn ($32.09bn), with the company shipping 118 million units – up 24 per cent year-on-year. Hua estimated that Huawei could have lost as much as 20 per cent of its smartphone sales due to American sanctions.

Revenue from the company's traditional carrier business stood at ¥146.5bn ($21.29bn) and Hua said it managed to secure 50 commercial 5G contracts across 30 countries to date, and shipped more than 150,000 base stations – 11 of the contracts were agreed since the US sanctions came into effect.

Revenue from its enterprise business – which now includes cloud computing – totalled ¥31.6bn ($4.59bn).

Hua estimated that Huawei could have lost as much as 20 per cent of its smartphone sales due to American sanctions.

Delayed impact

Liang noted that for most of the first half of the year, the company was able to conduct its business undisturbed – the sanctions were only in place for 45 days before the reporting date – and results from the second half could be less impressive if the limitations on trade with the US stay in place.

"There has been some impact in some business areas, such as intelligent computing, there is some impact on our server business, and there is also some impact on our consumer business in non-China markets, but generally speaking, the impact on the company in the first half of the year is not large," the chairman said.

Liang added that the impact of the US sanctions on production was "manageable" and just like its American counterparts, Huawei was busy tweaking its supply chains.

"Since 16 May we have proactively responded to the situation, we worked very hard to address issues in production and ensure supply chain continuity," he said.

The chairman added that Huawei will "invest in people and materials to replace hardware and software" in order to weather the impact of sanctions on its second-half results.

As far as Android OS, which powers its smartphones, was concerned, Liang put on a brave face: "If the US government wouldn't allow the US suppliers to provide for us, we have the capability to develop an operating system and an ecosystem, however, our preferred choice is always to use Android," he said.

Some have suggested Huawei might try to adopt the homebrewed Hongmeng OS as a replacement for Android, but Liang was quick to point out that Hongmeng is far from being a perfect alternative and would only be used as a last resort.

"The Hongmeng operating system from its inception was developed for the Internet of Things – it has the potential to be applied for autonomous driving, remote healthcare services and industrial controls," he said. "As for what the Huawei smartphone OS would look like exactly – I think we will have to evaluate our whole portfolio."

Huawei is notable for its commitments to splurging a massive chunk of revenue on R&D – it spent more than $15bn in 2018, ahead of the likes of Microsoft, Apple and Intel. This year is no exception: the company said it would invest a total of ¥120bn ($17.44bn) into research and development.

In the UK particularly, the company hopes to grow its number of R&D staff by a third, from 300 in 2018 to 400 by the end of 2019.

Domestic dealings

The firm previously said it aims to supply half of all smartphones in China by the end of 2019. According to tech analyst Canalys, the company has hit 38 per cent market share in the country – the highest for any smartphone vendor in eight years. It shipped 37.3 million units to domestic customers, up 31 per cent year-on-year.

"Huawei's addition to the United States Entity List caused uncertainty overseas, but in China it has kept its foot on the accelerator," commented Canalys analyst Mo Jia. "Its core strategy remains investing in aggressive offline expansion, and luring consumers from rival brands Oppo and Vivo, while unleashing a wave of marketing spend to support new channels and technologies.

"But the US-China trade war is also creating new opportunities. Huawei's retail partners are rolling out advertisements to link Huawei with being the patriotic choice, to appeal to a growing demographic of Chinese consumers willing to take political factors into account when making a purchase decision." ®

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