Huawei's 2020 financials tied to fortunes of Chinese clients as non-domestic biz shrinks

Global pandemic and sanctions? Yes, they played a bit part too

Huawei was forced to rely solely on the buying power of its domestic customers in calendar 2020 as foreign trade melted away in the face of US-led sanctions and a global pandemic.

The privately owned tech maker today reported a 3.8 per cent hike in sales to ¥891.4bn (£98.67bn/$136.16bn) due to growth in China alone as declines were confirmed in all other regions.

It was no surprise that the steepest drop was witnessed in the Americas, where turnover was down 24.5 per cent to ¥49.6bn (£5.49bn/$7.57bn). This is Huawei's smallest international market, and it's also home to the US, which championed the sanctions-led assault on the company in 2019 and 2020.

Actions taken during the Trump administration also ripped Huawei gear from rural communications network, with the company cut off from any future federally subsidised procurement. North of the border, Huawei failed to ink any 5G carrier commitments, and it continues to lose handset market share. US politicians have lobbied allies to pressure them to drop the company, and some, including the UK, buckled.

In the APAC region Huawei's 2020 revenues fell by 8.7 per cent to ¥64.4bn (£7.13bn/$9.9bn). In EMEA revenues dropped 12.2 per cent to ¥180.8bn (£20.1bn/$27.7bn). On the carrier side Huawei has faced exclusions in several developed markets that are in the process of introducing 5G services including Poland, Sweden, and the UK.

In terms of the results Huawei's sole good news came from China, where Huawei's revenues swelled 15.4 per cent to ¥584.9bn (£64.77bn/$89.7bn). The company's carrier business was able to rely on the loyalty of China's three state-owned mobile operators (China Mobile, China Telecom, and China Unicom) for RAN and core sales.

China has additionally proven more resilient to the pandemic, with consumer confidence recovering sooner than in other developed markets.

A closer look at Huawei's three business units demonstrates the company's changing priorities in the face of US sanctions.

Huawei's annual report – which was based on an audit by KPMG – showed carrier revenues growing just 0.2 per cent to ¥302.6bn (£33.5bn/$46.2bn).

In the Consumer Business, revenues grew 3.3 per cent to ¥482.9bn (£53.4bn/$74.1bn), which rotating chairman Ken Hu said was "below expectations."

Huawei chose not to break down the performance in its consumer group, although Hu acknowledged a significant drop in smartphone sales, which he attributed to supply chain woes. In China Huawei's smartphone sales fell 13 per cent in 2020 to 123.3 million units. Globally, Huawei was down 22 per cent to 188.5 million.

Hu said this drop was offset by sales in other products including smartwatches and PCs. Although Huawei remains cut off from its suppliers in the chip foundry sector, most notably TSMC, it remains able to obtain licences for products from AMD, Intel, and Microsoft.

In the Enterprise Business Group, Huawei reported revenue of ¥100.3bn (£11.1bn/$15.4bn), up 23 per cent. In addition to physical devices (servers, routers, firewalls, network appliances, storage), Huawei plies a trade in software-based network management and control systems, which are less vulnerable to difficulties in its external supply chains.

Additional revenue came from services, such as public cloud, which Hu said saw 100 per cent growth during 2020 but he gave no exact financial figure.

Although Huawei tried to strike a defiant pose, the company was forthright about the difficulties it faces in international markets, as well as its ability to continue manufacturing consumer and carrier equipment at previous scales.

Hu said: "As we move forward, we have seen all the kinds of challenges and difficulties, including the impact of a pandemic and geopolitical conflict, which have posed obstacles to our company.

"We are confident to say that from the strategy perspective, we will remain adamant that no matter what happens on the outside, we will continue to do our own work well."

So what does this path forward look like? Hu emphasised a focus on cloud services, private mobile networks for industrial clients, and its own independent mobile ecosystem centred around HarmonyOS and Huawei Mobile Services (HMS).

It's hard to imagine Huawei being competitive on the device front given its inabilty to license Google's proprietary mobile software, its recent amputation of its Honor business unit, and the ongoing rush towards the 3nm chips by Samsung and Apple.

Huawei is stuck on 5nm process chips and has a limited supply left. After that, unless the sanctions are lifted, it'll have to find alternatives (be that using Qualcomm's 4G chips) or a way to live with the 14nm chips made by SMIC. TSMC is expected to start production of 3nm this year, with volume production coming next. Samsung is aiming to start 3nm production this year. On the chipmaker front, Apple has already started buying up 3nm supply.

Although Hu made a passing reference to future premium phone plans during the Q&A session, particularly in the niche foldable space, he acknowledged that Huawei isn't able to "see a clear picture" about the supply for smartphones.

Hu said he hopes Huawei would be able to maintain a competitive edge through its HMS ecosystem. This feels optimistic. Studies from analyst firms, including Gartner, highlights that consumer purchasing decisions are largely driven by hardware fundamentals, like camera performance, 5G connectivity, and battery life.

Net profit was up 3.2 per cent year-on-year to ¥64.6bn (£7.1bn/$9.9bn).

The annual report illustrated that Huawei's growth is tethered to the success of its domestic market and that decades of hard work in other regions, mostly notably Europe, have started to unravel. Given the size of the Middle Kingdom's tech spending muscle, things could be worse.

Perhaps the only remedy for Huawei to start growing outside of its home market is for a change in stance in Washington, which seems unlikely in the short term. ®