Huawei’s Growth Slows Down as U.S. Sanctions Take Toll

By Adriana Anastasiades Friday, October 23, 2020

Huawei, the China-based tech giant, saw its revenue growth slow down significantly in the third quarter as a result of sanctions introduced by Washington.

US sanctions are obviously dealing substantial damage to Huawei’s profits. The tech behemoth was placed on the Entity List last year, banning it from accessing products manufactured domestically and abroad from US technology and software companies.

In addition, Google also stopped collaborating with Huawei, prohibiting the Chinese company from using Google’s Android operating system. These sanctions have significantly harmed Huawei’s sales abroad.

Slower-Than-Expected Growth

The tech firm reported plunging margins and revenue of ¥217.3 billion ($32.54 billion) for the quarter through September, only 3.7% higher than in the year-ago period.

Huawei reported revenue of ¥671.3 billion ($100.52 billion) for the first nine months of 2020, 9.9% higher compared to the ¥610.8 billion ($91.46 billion) reported for the same period in 2019.

Furthermore, the company said its net profit margin for the first nine months this year was 8%, lower than 8.7% reported in the same period year ago.

On the other hand, Huawei saw progress in the domestic market but didn’t reveal what contributed to the surge in its revenue. Several months ago, Huawei said the $12 billion deficit in revenue it reported last year happened largely due to shortcomings in its consumer business.

The company’s set of mobile phone chipsets, Kirin, was responsible for Huawei’s jump to the peak of the worldwide handset market.

However, Richard Yu, CEO of the Consumer Business Group, said earlier this year that Huawei would soon stop manufacturing sophisticated Kirin chips as experts believe it will run out of stock next year.

New Smartphone Model Unveiled

Yu introduced Huawei’s latest flagship smartphone, Mate 40. The lite version of Mate 40 features the high-end Kirin 9000 chipset, manufactured at the 5-nanometer process node, that only Apple and Qualcomm managed to produce.

Chinese customers are already hurrying to purchase Huawei’s smartphones as they’re worried whether Huawei will continue making new models.

Canalys analyst Mo Jia believes Mate 40 will produce good sales numbers in China, but he thinks that total sales will be hurt from supply-chain difficulties.

“Huawei won’t find it hard to sell the Mate 40 series, as most of the shipment will go to China,” he said. “But it can only produce limited units powered by the Kirin 9000 series, which will impact the number of the Mate 40 phones it can ship.”

Sweden Becomes the Latest Country to Ban Huawei’s 5G Gear

New challenges keep emerging for Huawei as Sweden followed the footsteps of the US and the UK and banned Huawei from building 5G infrastructure in the country on Tuesday.

Swedish Post and Telecom Authority (PTS) ordered Huawei and ZTE to remove their equipment from the country until 2025. The move comes after Sweden’s military and security services advised PTS to ban Huawei, citing that China is “one of the biggest threats” to the country.

Sweden is the latest country to ban Huawei equipment after the US, Australia, the UK, and France. In response to Sweden’s decision, Zhao Lijian, China’s Foreign Ministry spokesman, said that China denounces Sweden’s move.

He said that Sweden is taking advantage of “national security as a pretext to slander Chinese companies, openly oppress Chinese telecom companies, and politicize normal economic cooperation.”

Zhao continued that Sweden should reconsider its move if it wants to prevent an adverse “impact on China-Sweden economic cooperation and the Swedish businesses operating in China.”

The move by Sweden has significantly helped its domestic telecom company, Ericsson, which won a minimum of five contracts in other countries to supply 5G gear as a result of these countries banning Huawei and ZTE equipment.

However, the telecom regulator in China might respond to Sweden’s decision and hurt Ericsson’s operations within the country, where Ericsson also holds contracts to provide 5G gear.

“Sweden’s ban on Tuesday of Huawei Technologies and ZTE Corp from its 5G networks … did not surprise observers. It is the blunt reference to China as a threat to national security that did,” said Stuart Lau from the South China Morning Post, indicating that Sweden is not concerned much about the consequences.

Summary

Huawei reported a notable slowdown in revenue growth in the third quarter of this year and a decline in margins as a result of sanctions on its 5G equipment by several major countries. Sweden became the last country to ban Huawei’s 5G gear.

About the Author


Headshot for author Adriana Anastasiades

Adriana is a Journalist with a passion for reporting on business leadership, with a diverse interest in multiple industries.

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