Huawei has posted its lowest revenue growth in years – the result of a once-in-a-century global pandemic, as well as a campaign by President Trump to sow seeds of fear, uncertainty and doubt about the Chinese biz.
The privately owned tech monster today reported calendar Q1 2020 results, which show revenue growing a mere 1.4 per cent year-on-year to ¥182.2bn (about £20.8bn).
For context, before the teleco found itself on the Trump administration's naughty list, it enjoyed Q1 2019 revenue growth of 39 per cent. And before it switched to quarterly figures, Huawei boasted 15 per cent year-on-year growth during H1 2018.
This drop in fortunes can be attributed to several factors, all out of Huawei's immediate control. Most obvious is the coronavirus pandemic, which resulted in an economic shutdown in China, and a notable slowing of its supply chain, resulting in the country's GDP contracting by 6.8 per cent. Although economic data from the Middle Kingdom is questionable at the best of times, this is still noteworthy as it's the first recorded decline in China's history.
China is the biggest market for Huawei's phones, according to Counterpoint Research, accounting for 60 per cent of all global shipments for the company. It also holds a leading position in the market, with a 35 per cent market share – although this is split between the parent company and its sub-brand Honor. As a result, Huawei's fortunes are directly tied to the economic state of China.
Telecommunications also represent a huge chunk of Huawei's revenue and the lockdown, combined with depressed consumer spending, likely also placed downward pressure on infrastructure sales to China's mobile operators. The impact of COVID-19 will be felt more outside of China from Q2.
Then there's the Entity List. In mid-2019, the US Department of the Treasury enacted a crushing embargo on Huawei, preventing it from acquiring components or technology from American firms. This had an impact on Huawei's non-US suppliers, many of whom fell under the provisions of the list due to their inclusion of American components.
Some companies were able to obtain exemptions. Microsoft was granted a licence to continue selling Windows 10 to the firm for its globally available laptop lines. Microsoft apps also appear on the Huawei AppGallery, the company's home-grown app store.
Google, however, was unable to receive an exemption to continue selling Google Mobile Services to Huawei. As a result, neither Huawei nor its subsidiaries can sell phones with the mainstream Android app store pre-installed. This has dented the appeal of Huawei's phones in the West, with sales predictably plummeting as a result.
The US has also sought to limit Huawei's ability to sell networking gear to Western telcos, ostensibly because of fears that China will use the company to spy on other countries. This has prompted governments in countries like France and the UK to limit the amount of Huawei equipment used, and to ban it from providing core network equipment entirely.
The sole silver lining for Huawei is that it remains a profitable operation, with a net profit margin of 7.3 per cent in Q1 2020 (around ¥13.3bn, or £1.5bn). This is slightly reduced from its previous margin of 8 per cent in Q1 2019. With the global economy expected to enter a deep recession, it's unclear how well this will hold up. ®