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US sanctions cut Huawei profits by half in first quarter

The Chinese tech giant has 'yet again increased investment in R&D' to make up for technology losses

The first quarter of 2023 wasn't an easy one for Chinese tech giant Huawei, which saw its profits continue to plunge in the face of sanctions with sales largely stagnant, growing just 0.8 percent compared to the same quarter last year.

Huawei is a private company but has long reported basic financials. This quarter it only shared the metrics mentioned above, along with saying it had a profit margin of 2.3 percent on 132.1 billion Chinese yuan in revenue. That equates to around 3 billion yuan in profit, or around $434 million. 

When compared against Huawei's 2022 year end report, the picture becomes even more bleak: profits dropped by 46 percent in the first quarter of 2023 compared to year-end statistics. 

Looking at companies' topline and bottom from quarter to quarter is accepted practice when an organization is deemed to be struggling.

Huawei said little else in its Q1 statement, only sharing that the results were in line with its forecasts, and that the company is again increasing investment in R&D "to keep innovating for the future," or perhaps more accurately, innovating around US sanctions.

Earlier this year, the United States halted all American technology exports to Huawei as part of its ban on the sales of US goods to Chinese companies. That cut Huawei off from parts produced by companies like Qualcomm, which until the ban had a export license with Huawei for smartphone chips.

The ban has forced Huawei to develop its own electronic design automation (EDA) software for developing chips down to 14nm, as well as its own homegrown enterprise resource planning (ERP) software, which the company said last week it had been working on for three years since Oracle cut it off as an ERP customer over US sanctions. 

Huawei's troubles may not be over, either: German officials have been considering requiring telcos in the country to rip the Huawei and ZTE equipment from their networks, which Chinese officials warned would be difficult because some 60 percent of Germany's 5G networks are run on Huawei hardware. 

Huawei said in a statement last month that Germany's attempt was an abuse of power by the government interfering in the market, that they have "operated in compliance with laws and regulations" in Germany and that suggesting otherwise was tantamount to a smear campaign.

The US may not be done kicking Huawei while it's down, either: a group of nine Republican senators reportedly sent a letter to the Biden administration recently urging the Commerce, State and Treasury to sanction Huawei's cloud products as well. 

The previously unreported letter, which was viewed by Reuters, claims that Huawei Cloud was launched in cooperation with Changsha Tianyi Space Science and Technology Research Institute, which the senators said was previously sanctioned by the Treasury Department for providing satellite imagery to Russia. The senators asked the Biden administration to also block Alibaba cloud products.

Whether such a ban would be effective is unclear; Alibaba Cloud and Huawei Cloud are the largest cloud providers in China, accounting for 36 and 19 percent, respectively, of that country's market in calendar Q3.

The sanctions wouldn't necessarily be unfair, however: China has long banned US-based cloud operators like Google and Dropbox, and many other US tech companies. Amazon, which operates AWS in China, does so through local businesses to "offer a technology service platform that is similar to other Amazon Web Services Regions around the world." 

The US isn't exactly building its own Great Firewall, but Huawei shouldn't be shocked if it finds itself deprived of another ingress route into the US economy, or if its economic woes continue until that beefed-up R&D budget is able to deliver. ®

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