Huawei reportedly set to salvage honor with sale of server x86 business

US sanctions mean the Intel chip well has run dry, so China's champion has little alternative but to offload

Huawei is reportedly poised to offload its x86 server business after US sanctions left it unable to buy the silicon it needs to build boxes, according to Bloomberg.

Negotiations with possible buyers continue, with the newswire reporting that the purchaser is a consortium including a government-backed buyer who has asked not to be identified – at least not yet. The value is unknown but thought to be multiple billions of yuan – a billion yuan is around US$156M.

The rumors have been swirling for a while. In July Chinese media reported the company was considering selling a portion of its x86 server business once Chipzilla's export license to Huawei expires and the flow of components comes to a grinding halt.

The Trump-era sanctions – upheld by the Biden Administration – not only prohibited American use of Chinese telecom gear, but also blocked both AMD and Intel chips from reaching Huawei.

Huawei reported a 29.5 per cent year-on-year revenue plunge in Q2 this year, which Huawei's chairman Eric Xu attributed to "a decline in revenue from our consumer business caused by external factors". The company then saw a 38 per cent year-on-year slide in Q3 revenue, although it maintained overall profitability.

This isn't the first time Huawei has sacrificed a business unit. In November 2020 it let go of its midrange smartphone brand Honor. The move was described by Huawei as an action to ensure the sub-brand's survival.

Cutting the x86 server line doesn't mean the mega-corp is out of the datacentre business, given it also has the Arm-based Kunpeng technology up its sleeve. In September 2021, the firm announced it would invest US$100M over three years for small- and medium-sized businesses to develop on Huawei cloud, signalling a commitment to that market segment.

But losing x86 servers would bite for two reasons.

One is that a lot of Huawei's server and storage sales were fries-with-that deals that came with network sales – which is why it quit UK server, storage, and networking sales once government bans saw its prospects of big carrier deals all but vanish.

While the Chinese colossus is struggling to sell much kit in the West, it's still doing well elsewhere. If it can't bundle servers, those deals will shrink and Huawei's wallet share of carrier customers will shrink.

The other is the architectural trends in telco-land – especially 5G – towards software-defined networks running on commodity servers rather than on proprietary boxes. If Huawei can't sell its own x86 servers and has to rely on third-party hardware, its software-defined networks will become a little less elegantly integrated.

The Register expects that whoever acquires Huawei's servers will remain close to the Chinese giant in the kind of partnership that works well in the carrier market. But such relationships need to be tight, as shown by the VMware/Dell tie-up to take VMware's edge and telco stack to market on Dell and Lenovo hardware designed specifically for the job.

Buying Huawei's server business would therefore be risky – there's no guarantee that the USA will allow x86 silicon to reach any other Chinese company if it might bolster Huawei's prospects. ®