Huawei puts on a brave face despite reporting 3.8 per cent revenue growth for 2020, slowest in a decade

Celia Chen
·5-min read

Executives of Chinese telecommunications giant Huawei Technologies Co on Wednesday put on a brave face even as the company saw its slowest revenue growth in a decade.

“Over the past year we’ve held strong in the face of adversity,” said Ken Hu Houkun, Huawei’s rotating chairman, in a statement on Wednesday. “We’ve kept innovating to create value for our customers, to help fight the pandemic, and to support both economic recovery and social progress around the world.”

Shenzhen-based Huawei reported on Wednesday 891.4 billion yuan (US$136.7 billion) in group revenue, up 3.8 per cent from a year ago, its slowest annual revenue growth in the past decade. Revenue from China accounted for 65.6 per cent of total sales, driven by a 15.4 per cent domestic sales growth, according to financial statements audited by KPMG.

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That contrasts with negative growth in its overseas markets, with sales down 12.2 per cent across markets in Europe, Africa and the Middle East and sales in the Asia-Pacific declining 8.7 per cent. That fall showed the company’s difficulties outside its home market after it was targeted with trade sanctions by Washington over national security concerns.

In a media briefing after the release of the company’s results, Hu said that although smartphone revenue declined last year, there was an increase in income from other kinds of hardware, software and services. “I believe you will see more hardware products, software and services from Huawei”, said Hu, referring to the company’s so-called 1+8+N strategy to develop an ecosystem of digital products beyond the smartphone.

Attendees walk past the Huawei Technologies Co logo at the MWC Shanghai exhibition in Shanghai, China, on Tuesday, Feb. 23, 2021. Photo: Bloomberg
Attendees walk past the Huawei Technologies Co logo at the MWC Shanghai exhibition in Shanghai, China, on Tuesday, Feb. 23, 2021. Photo: Bloomberg

Privately held Huawei’s three key business segments – consumer, carrier, and enterprise – generated revenue of 482.9 billion yuan, 302.6 billion yuan and 100.3 billion yuan, representing growth of 3.3 per cent, 0.2 per cent, and 23 per cent, respectively.

Huawei founder Ren Zhengfei calls for decentralisation, focus on profits to survive US trade sanctions

Net profit increased 3.2 per cent to 64.6 billion yuan for the year, with the net profit margin at 7.3 per cent. In the first six months of 2020, the company’s net profit margin was 9.2 per cent.

Hu said Huawei was satisfied with its performance in the Middle East market which makes an “important contribution” to group revenue. The company is forecasting “positive” growth in overseas markets in 2021 as the pandemic comes under control, but Hu declined to give any specific numbers.

Huawei said it invested 141.9 billion yuan, or 16.7 per cent of revenue, in research and development last year. Its cumulative R&D investment over the past decade has reached 720 billion yuan.

“Huawei is not pursuing profit margin, rather we will keep up our investment into research and development,” Shi Yanli, the company’s deputy CFO, told the brieifing.

Last year was arguably one of the most challenging in the company’s recent history, with operations feeling the full impact of Washington’s earlier decision to add Huawei to the Entity List. That restricted its ability to buy hardware, software and services from American suppliers without approval from the US government.

It adversely affected Huawei’s smartphone operations, which was starved of high-end semiconductors, and led to the company’s decision last November to sell its Honor budget smartphone business to a consortium of over 30 agents and dealers.

Hu said Huawei has enough chip inventory for its enterprises business, but when it comes to semiconductors for other products like smartphones, “the situation depends on how the global supply chain can be repaired” amid the worsening global chip shortage.

“We are looking forward to help from global leaders to restore cooperation in the semiconductor industry,” Hu said.

Bryan Ma, vice-president of client devices research at IDC, said there will definitely be downward pressure on Huawei’s consumer business group this year, not only due to its dwindling stockpile of smartphone components, but also because the Honor business won’t be a contributor anymore.

“It is impressive that PCs, tablets, and wearables were able to offset some of those losses last year, but the odds are still against Huawei given not only the ongoing supply chain risks, but also intense competition coming from vendors like Lenovo and Apple,” he said.

Given its chip supply problems, Huawei subsequently tumbled in the rankings of global smartphone brands in the fourth quarter last year, when it shipped 33 million units globally - down 41 per cent from a year earlier - to rank as the world’s sixth-largest vendor, according to data from research firm Counterpoint. It was the first time in six years that Huawei slipped out of the top five, and this year the company is expected to drop to seventh place, according to research company TrendForce.

During the media briefing, Hu noted that the company’s consumer business always attracts a lot of attention, especially its smartphones, but he declined to speculate on its future growth. “Our smartphone business is seriously impacted [by US sanctions]”, he said. “We have not seen a clear picture on the supply chain, so at the current stage, we cannot make a forecast on our smartphone business development.”

However, Hu said the roll out schedule for Huawei’s new flagship phones will be kept. “We believe Huawei smartphones can still maintain a leading position in the market,” he said.

Amid its struggles with the US trade sanctions, Huawei has undertaken a management reshuffle. The firm expanded the duties of its consumer business group chief executive Richard Yu Chengdong to include cloud services and artificial intelligence, a change that could strengthen its moves into new growth markets such as smart vehicles.

Huawei’s domestic competitor in smartphones, Xiaomi Corp, is also joining the fray in the country’s booming smart vehicle industry, announcing an initial investment of US$1.5 billion that will grow to US$10 billion over the next decade.

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