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Left to its own devices: Huawei swipes right on revs, but profits down

Still trying to recover from massive blow to its handset business

After three years spent languishing on the US Entity list, Huawei insists that while the decline in its device business is ongoing, it is "slowing", and would give only the profit margin figure for its carrier arm, which grew modestly.

How bad is the damage? Well the private company didn't disclose the net profit of the overall group, but the brightest figure must be the wireless communications products and base stations unit, as it was the sole profit number the company was prepared to disclose.

Huawei said today it generated CNY445.8 billion ($6.1 billion) in revenue for the first nine months of calendar 2022.

The profit margin of the beleaguered comms company's "main business" - Huawei Carrier BG, by far its biggest business segment - was 6.1 percent, it said. That's 10 billion yuan less than the first three quarters of 2021, when it pulled in 455.8 billion yuan, with a net profit margin of 10.2 percent (46.4916). Carrier made up nearly 45 percent of Huawei's business last year, trailed by the consumer unit (38.2 percent) and enterprise (16.1 percent) and Other.

Reuters has estimated that the company experienced a drop in net profit of 42.45 percent to 26.75 billion yuan from the same three quarters in 2021. We have asked Huawei for comment.

As Reg readers may recall, Huawei's main focus and cash-bringer was its Android handset business, and it had ambitions to be the number one mobile phone seller in the globe by 2020. Just days before the Trump administration hit it with the banhammer in May 2019, it managed to steal into second place worldwide with handset sales of 59.1 million.

The company's main focus at the moment is finding a way to pivot from consumer handsets, a massive hit to its bottom line over the past few years, in which it sold both its Honor subbrand, all but admitting the deal was due to US technology export restrictions, and its x86 server biz.

The fact that Huawei is locked out from doing business with American companies has meant, among other things, that it now runs a homegrown mobile operating system, HarmonyOS (aka HongMeng) on its handsets and devices, widely believed to consist of Android OS core plus a few tweaks. This is because it lost access to its Google Android license, security updates and all, in 2019, and was also precluded from bundling in the proprietary Google Mobile Systems (GMS) – which includes Gmail and the Google Play store. The plan is to license the platform to other vendors.

Further US curbs in 2020 and beyond, where foreign manufacturers using US tech have to ask for a license to sell semiconductors to Entity List dwellers like Huawei hit its supply chain hard. For example, Huawei had to launch the flagship P50 and P50 Pro without 5G connectivity last year. There are rumors Huawei is trying to work around the ban by redesigning the handsets to include less advanced 5G chips made by Chinese companies before relaunching the products.

Meanwhile, Seagate has found itself fending off allegations it defied US export rules by illegally shipping drives to Huawei. The storage maker says its HDDs aren't subject to those export regs and denies the claims.

The carrier business also faces headwinds in the form of massive US lobbying to exclude its network hardware from new standalone 5G buildouts across the world against the backdrop of claims that it is a security risk. Huawei has always denied these claims, and maintains a presence in both 4G core and RAN network infrastructure of many countries, not least of which China itself, whose carriers recently hit the 1 billion 5G services subscriptions mark locally.

The tech giant last week named two execs to run its enterprise and carrier businesses following the death of Ryan Ding Yun, who had managed both units.

The company spent 142 billion CNY (c$19.7 billion) on R&D in 2021, and its expansion into areas less affected by American sanctions seems set to continue.

Huawei CEO Xen Zhengfei told staff earlier this year that Huawei is in survival mode and it has been looking to employees to brainstorm ideas, encouraging them to "speak freely" to figure out where the company should go next.

Huawei said today: "Going forward, we will keep bringing in top-notch talent and investing in R&D to take the competitiveness of our products to a new level." ®

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