Huawei in 2022; Growing up like a Chinese Dragon
Even with sanctions and amidst a first revenue drop, profitability soars.
In this Newsletter, China Superpowers, I try to write positive stories about China’s growing technological prowess. It’s my own private Global Times. While they don’t write in a realistic believable way, I think I write closer to the truth.
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Huawei has been through a lot in recent years. Huawei Technologies Co., Ltd. is a Chinese multinational technology corporation headquartered in Shenzhen, Guangdong, China. It designs, develops and sells telecommunications equipment, consumer electronics and various smart devices.
Huawei is among China’s strongest private companies inspite of global scrutiny, U.S. sanctions and blacklisting. So what does the data say about its difficult year?
In 2021, Huawei brought in revenue of 636.8 billion Chinese yuan ($99.9 billion), a 28.5% year-on-year decline. That is the first yearly decline in revenue based on publicly available reports.
It’s always interesting to see how corporations perform under extraordinary bad and trying periods. I consider Huawei has been operating under extremely difficult conditions for at least the past three years. So how did they do and how did they bounce back?
Huawei’s net income surged 75.9% year on year to 113.7 billion yuan as it focused on boosting profitability.
Huawei’s business has been hurt by U.S. sanctions which have sought to cut it off from key software and components like semiconductors.
Huawei’s drama in recent years is the stuff of legend. The eldest daughter of billionaire founder Ren Zhengfei was arrested and held in Vancouver over fraud allegations. She will now help oversee a company grappling with a series of U.S. technology export and investment restrictions -- most imposed by former President Donald Trump -- that have severely undermined its business from the U.K. to India. Even in Canada, confidence in its 5G business as a provider is very low. It’s a miracle then that Huawei has someone increase its profitability in 2021.
China and its most powerful entities are very good at putting on a stoic (and brave) face in the midst of opposition outside of their own control.
Huawei reported its first yearly revenue decline on record in 2021 as U.S. sanctions continued to hurt the company.
But the Chinese technology giant’s income surged last year as it focused on boosting profitability. It’s hard to say even if we view Huawei in a different light? We know now they are a survivor.
“Despite a revenue decline in 2021, our ability to make a profit and generate cash flows is increasing, and we are more capable of dealing with uncertainty,” Huawei’s chief financial officer, Meng Wanzhou, said in a statement.
It wasn’t so long ago they were the fastest growing smart phone maker, among other things.
Huawei’s annual report released Monday is the first high-profile corporate event Meng has led since returning to China from Canada, where she was engaged in a nearly three-year extradition battle with the United States.
Tl;dr on Huawei Sanctions
In case you do not recall, under former U.S. President Donald Trump, I think CNBC sums it up the best. Huawei was put on a U.S. blacklist called the Entity List which restricted American firms from exporting key components and software to the company. Washington has sought to cut Huawei’s access to high-end chips required for its smartphones and other hardware. Huawei’s smartphone market share globally has plunged as a result.
So what does it mean for Chinese companies going forwards? They need to be careful of their reputation. Huawei with Government support was growing nearly “too fast”. ByteDance is in a similar position now in the 2020s. China’s intent to create its own BigTech legacy means powerful companies will start coming out of China that can take over the world with their products and a new demand for their technologies and services.
Whether that’s Alibaba Cloud or in E-commerce or EVs, it’s only just beginning as a movement. Huawei is in this sense a real pioneer for corporate behemoths coming out of China. Nearly $100 billion in revenue just shows you the massive operation Huawei still is even in 2021’s results.
Huawei needs to improve in the B2B enterprise segment since its smartphone industry has declined nearly 50%. Huawei’s consumer division, which houses smartphone sales and other products, brought in 243.4 billion yuan in 2021, down nearly 50% year on year. It’s not clear if it will ever recover.
Huawei reported 61 billion yuan in additional net income in 2021 from sources it didn’t specify. Sales at its consumer arm, once China’s largest maker of smartphones, halved to just 243.4 billion, while carrier revenue slid 7 per cent and the enterprise solutions division eked out 2 per cent growth.
That Huawei is able to put a positive-spin on things even when facing such obstacles, really demonstrates what a corporate Dragon it is in China’s evolving technological dynasty.
What Can China Learn from Huawei’s Experiences in Reputation Management
Even with China’s loyalty to its trade partner of Russia, China can hopefully evade sanctions from a united North American European front. China’s gamble on Russia before its invasion of Ukraine shows its lack of sophistication in diplomacy, but there’s no doubting China’s technological and engineering prowess with a slew of new companies capable of winning economic and business battles on the global state.
China’s digital Yuan is off to a good start and its also building its own global trade-block that might one day include the likes of Russia, Pakistan, Iran, Brazil and others. China could redefine what the BRIC acronym means, if you replace Iran with India. Huawei is an emblem for a Chinese generation who believes they will only grow stronger in the world of technology and business.
Huawei demonstrates best I think how China needs to become a better player in global diplomacy. China’s strong-arm tactics with India, Australia, Canada and others haven’t gone too well. Meanwhile, the U.S. has called Huawei a national security threat and urged other nations not to use its telecommunication equipment for next-generation 5G mobile networks. Huawei has repeatedly denied it is a national security threat.
Huawei’s best opportunity is to improve its Huawei Cloud business. Think about it, a real potential bright spot for the company was its nascent enterprise business, its smallest division currently, but one Huawei is focusing heavily on to pick up the slack. Huawei’s enterprise unit includes cloud computing.
With a 17.0 percent market share, Huawei Cloud was the second-largest vendor. It increased its revenue by 49.1% year over year, focusing on the development of new products and solutions, including enhanced compatibility with Huawei Mobile Services.
Huawei is the Azure of China’s Cloud market if Alibaba Cloud is the AWS. Not a terrible position to be in seeing as China is still behind in Cloud adoption, as compared with the U.S. in a bigger market of China and SE Asia, and ultimately Japan, Taiwan and Australia.
It’s also possible that Huawei’s considerable prowess in R&D will discover and implement something incredible. To counter U.S. sanctions, Huawei is investing heavily in new areas including the automotive industry and hiring more scientists to focus on technology development. The CNBC links in this article are really good factual info on how well diversified Huawei actually is, and how big it is actually is that’s difficult sometimes to comprehend.
Huawei is very nearly a generational company for China, in a world where 65% of the “generational” companies are now coming out of China. To give you a scope of the research and development budget of this company even in a bad terrible year, Huawei’s spent 142.7 billion yuan on research and development in 2021, slightly higher than 2020′s figure of 141.9 billion yuan. How is that for future prospects?
Huawei, once the world’s largest smartphone maker and most advanced telecom networking company, is at the heart of a U.S. campaign to contain China’s economic ascent. The U.S. have done little or are unable to contain the rise of TikTok and ByteDance. It’s difficult for America to label every Chinese giant an existential threat of course. However China’s marketshare in places like South America, Africa and even parts of Europe in key segments will test U.S. dominance in the 2020s and certainly in the 2030s.
China has dozens of nascent technology companies that are growing globally if Huawei fails or continues to stumble in its native industries or new innovations or the Cloud. Even with a pantheon of cash rich BigTech companies, the U.S. is not seeing the business prospects and growth China has enjoyed in the last decade and things after a potential recession in 2022 and 2023 will sleep up again for China I predict.