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Huawei reports first-ever yearly revenue drop, but profits up

Subsidiary sales, enterprise division may be responsible for the buoying

Chinese telecom giant Huawei's 2021 report is out, showing the company had a massive drop in total revenue last year, but an even bigger bump in profit. 

Huawei CFO Meng Wanzhou, who late last year returned to China after nearly three years of house arrest in Canada, led Huawei's presentation.

Meng said the company's 75.9 percent year-over-year increase in profits, despite a considerable drop in revenue, shows that "we are more capable of dealing with uncertainty." 

Uncertainty is likely a common answer to business questions within Huawei's leadership: The company has faced a continued stream of sanctions and loss of access to markets due to accusations its equipment was an ingress point for Chinese state-sponsored cyber activities. 

Meng admitted that US sanctions, continued supply chain issues and slowing demand for 5G in China were to blame for Huawei's revenue fall, the first on record.

Guo Ping, Huawei's rotating chairman, said the company's performance was in line with expectations. 

Huawei's total revenue in 2021 was $99.9 billion while in 2020 it totaled $139.9 billion, a decline of 28.5 percent. Profit, however, rose 75.9 percent, from $10 billion to $17.8 billion.  Additionally, Huawei's liability ration (total liabilities expressed as a percentage of total assets) dropped to 57.8 percent, indicating its debt is shrinking while profits are growing. 

Huawei's biggest sales drop came from its consumer division that includes smartphones, tablets and wearables. This unit shrank 50 percent from 2020 to 2021, likely as a direct result of US sanctions and other market access losses.

Digging in to Huawei's 2021 report, a couple of interesting discrepancies in line items between 2020 and 2021 emerge. There was a massive jump in "Other income" from CNY 692 million (~ $108.6 million) to CNY 60.7 billion (~ $9.53 billion) driven by the sale of several subsidiary brands - the major reason Huawei reported huge profit despite losing revenues.

One of the subsidiaries sold was Huawei's server hardware company xFusion Digital Technologies, whose backers included Chinese state-backed investing groups. The second deal, the sale of its Honor smartphone brand in 2020, was the higher profile one. Investors for that sale also included Chinese state-backed organisations, and it was reportedly offloaded due to sanctions that impeded Huawei's business. 

The sale of Honor was criticized by the US government as being designed to evade sanctions placed on Huawei. Honor has yet to be added to the US Entity List of companies banned from doing business in the US. 

Honor had been unable to use Google's Android OS since sanctions began in May 2019, leading to Huawei designing its own Android-alike, HarmonyOS.

Huawei said it plans to make up for its financial shortfall in 2021 by expanding its other software ecosystems, as well as increasing investment in research and development. The company's enterprise business unit reportedly grew rapidly in 2021 as well, likely as another result of US sanctions forcing Huawei to change course. ®

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