US sanctions are starting to have a pronounced impact on Huawei’s financials, with the embattled Chinese telco reporting just single digit year-on-year growth for the first three quarters of 2020.
Revenues to the end of September were 671.3 billion CNY (circa $100.4 billion, or £77 billion, at today’s exchange rates), up 9.9 per cent. This isn't to be sniffed at but pales in comparison to the 24.4 per cent jump Huawei saw for the corresponding period of 2019.
A sector-by-sector breakdown of the unaudited P&L accounts was not available, with a company representative saying that it keeps more granular data for annual and halfway reports. In a statement, Huawei said:
“As the world grapples with COVID-19, Huawei's global supply chain is being put under intense pressure and its production and operations face significant challenges. The company continues to do its best to find solutions, survive and forge forward, and fulfil its obligations to customers and suppliers."
“Moving forward, Huawei will leverage its strengths in ICT technologies such as AI, cloud, 5G, and computing to provide scenario-based solutions, develop industry applications, and unleash the value of 5G networks along with its partners. Its stated goal is to help enterprises grow their business and help governments boost domestic industry, benefit constituents, and improve overall governance,” it added.
Huawei has shown an incredible resilience in the face of crushing US sanctions, imposed in May 2019 and May this year. Its mobile business, although obviously diminished, continues to function. This is in spite of the firm’s inability to license Google’s suite of mobile applications, which include the all-important Google Play app store. This week, Huawei announced its new flagship Mate 40 series, which is powered by HiSilicon’s first 5nm SoC, and the world’s first mobile 5nm platform to include an integrated 5G modem.
This may be the last phone Huawei releases in Europe for some time, according to analysts at CCS Insight. Figures from Canalys show that Huawei's market share in Europe shrunk to 17 per cent in Q2 as it shipments declined by 17 per cent.
📱The European smartphone market decline narrows in Q2 2020, as shipments recover slowly from the impact of strict lockdown. @Apple posted the strongest Q2 ever in shipments while @Xiaomi displaced Huawei to the become the third largest smartphone vendor in Europe. pic.twitter.com/dW3xJLPXGL— Canalys (@Canalys) August 5, 2020
Separately, its carrier business can continue relying upon orders from Chinese mobile networks, as well as from nations that have otherwise evaded stern lobbying efforts from the US government, most notably in Asia and Africa.
But these silver linings do not negate the thunderous clouds on Huawei’s horizon. Earlier this year, the UK government banned carriers from using Huawei’s equipment on even the least sensitive aspects of the 5G network. Carriers are prohibited from buying new Huawei-made gear from the end of this year, and are obliged to replace it by the end of 2027. This edict followed earlier rules that limited the presence of Huawei’s infrastructure to 35 per cent of the non-core network.
Separately, Huawei was forced to scale back its UK Enterprise division in September, withdrawing a swathe of server, storage, and networking products from sale, and issuing 20 P45s out of a workforce of 50. Speaking to this publication at the time, a company spokesperson said the US government’s war against Huawei was “a factor in its decision.” The size of the Enterprise unit's sales were small but the withdrawal means less local competition.
There are questions about whether Huawei can continue to operate in the medium-term, particularly given the pummelling made to its supply chain. Earlier this year, long-time Huawei fab TSMC said it would stop producing chips on the firm’s behalf. Although Huawei has stockpiled components as a contingency, it’s only a matter of time until these are exhausted.
Huawei is set to switch fabricators to SMIC — a fab based in Mainland China. However, SMIC’s processes are outdated compared to TSMC and Samsung, both of which can now produce 5nm chips. SMIC’s most advanced process node is just 14nm, although it is in the early stages of transitioning to an 8nm node. By the time SMIC catches up, it's likely its rivals will be producing chips with 3nm transistors.
As a result, Huawei is likely to suffer from a long-term competitive disadvantage. Its only hope is a reversal — or, at the very least, a loosening of restrictions — from the US government. There's not much confidence that will happen, at least not while President Trump remains in the White House. ®