Huawei reports severe revenue drop as US sanctions bite consumer business

Chinese chipmaker SMIC also reports trouble getting the American kit it needs to expand

Chinese tech giant Huawei has reported a 29.5 per cent year-on-year plunge, blaming it in part on US sanctions, but also shrugged off the situation.

The company last Friday reported H1 2021 revenue of ¥320.4bn ($49.56bn). H1 2020 yielded ¥454bn ($70bn) of revenue. But the news wasn't all bad because Huawei reported its net profit margin rose to 9.8 per cent – up from 9.2 per cent a year ago.

Eric Xu, Huawei's rotating chairman, blamed the results on "a decline in revenue from our consumer business caused by external factors". That's an oblique reference to US sanctions that make it hard for Huawei to source the components it needs to make top-notch products – especially mobile devices.

But Xu was bullish about the performance and prospects of the company's carrier and enterprise businesses.

In Australia, where Huawei is banned from selling 5G equipment to carriers, the company made huge cutbacks to its enterprise sales effort – because outside China it largely feeds off networking sales to telcos. Xu clearly hopes that China and other markets where Huawei's prospects are better can deliver that growth. Perhaps air conditioning will help – on the same day it announced its results, the company announced a "new generation of indirect evaporative cooling solution" for data centres developed with giant Chinese e-tailer JD.com

Huawei was not alone in reporting financial issues because of US sanctions: China's top chipmaker, SMIC, said that being added to the USA's Entity List – entities that US-based companies can only deal with under special licence – has created "difficult circumstances".

In SMIC's earnings announcement [PDF] co-CEOs Dr Haijun Zhao and Dr Liang Mong Song stated "uncontrollable factors such as license approvals, supply chain tightness, and logistics impacted by the epidemic have also inevitably affected the equipment arrival times".

Licences matter because while SMIC is on track to develop new fabrication facilities, if they're to make cutting-edge kit they need technology from US companies.

At least SMIC's results were prettier than Huawei's – Q2 20210 revenue reached $1.345bn, a 43.2 per cent year-on-year increase compared to Q2 2020's $938.5bn. Profit was $405m and gross margin was 30.1 per cent. By way of contrast, Intel's most recent quarterly revenue figure was $19.6bn, gross margin was 57.1 per cent and profit topped $5bn. So SMIC has a way to go before it's a global contender, and a rival superpower is doing its best to prevent the company's rise. ®