Huawei Warns of Supply Chain Disruption After Growth Evaporates
(Bloomberg) -- Huawei Technologies Co.’s quarterly revenue shrank for the first time on record, reflecting the devastating impact of U.S. sanctions that forced China’s largest technology company out of smartphones and into other technology arenas.
The disappointing results underscore the depth of the damage Washington has wrought on a company that once vied with Apple Inc. and Samsung Electronics Co. to lead the global smartphone market. It reported revenue fell 11% to 220.1 billion yuan ($33.5 billion) in 2020’s final quarter. That’s down from 3.7% growth in the September quarter and 23% in the second quarter, according to Bloomberg calculations based off previously reported figures.
Full-year sales and profit rose 3.8% and 3.2%, respectively, in line with the “marginal growth” previously projected, according to financial statements audited by KPMG. Huawei had credited record 5G base station orders and strong mobile sales in the first half for offsetting the final six months.
Huawei is emerging from its toughest year on record, when Trump-administration sanctions smothered its once leading smartphone business and stymied advances into chipmaking and fifth-generation networking. The Biden White House has shown few signs of letting up, prompting billionaire founder Ren Zhengfei to direct Huawei toward new growth areas such as smart agriculture, healthcare and electric cars. It hopes for a seat at the table with tech giants vying to define the rapidly evolving fields of connected vehicles, homes and workplaces.
“The global supply chain Huawei heavily relies on has been disrupted,” said Rotating Chairman Ken Hu, one of three executives who take turns filling the top role. “I don’t know who will benefit from it but definitely not the industry.” The global semiconductor supply chain needs to be overhauled in order to resolve the current shortages, he added.
Cash flow weakened last year as the company built up inventories ahead of U.S. sanctions that effectively cut off its access to American technologies last September and it has enough stockpiles for its enterprise business, Hu told reporters. Huawei had previously purchased $10 billion to $20 billion of components each year from U.S. suppliers and other customers won’t be able to fully make up for the lost business.
Huawei’s consumer electronics unit -- which still accounts for more than half of total revenue -- missed sales targets, he added. Huawei’s smartphone shipments tumbled 42% during the final three months of last year to lag behind Apple, Samsung and domestic rivals Xiaomi Corp. and Oppo, according to research firm International Data Corp. The firm intends to keep launching flagship phones as planned, while it builds up other consumer electronics, like wearables, which grew by 65% last year, Hu said.
U.S. sanctions forced Huawei to strike a deal to sell its budget Honor unit to a state-backed consortium. Huawei has received a 10 billion yuan deposit from the buyers but the deal’s closing has been delayed by the pandemic, the company said in its annual report published Wednesday. The transaction should close this summer, according to Huawei.
Huawei is the subject of persistent speculation it wants to join tech giants from Apple to Dubai Inc. and Xiaomi Corp. exploring automotive technology or designing and assembling entire cars. While Huawei has denied it plans to launch a car under its own brand -- which Hu reaffirmed Wednesday -- it’s worked with several manufacturers to test its autonomous driving and driver-car interaction technologies. Its info and entertainment features can already be found in Mercedes-Benz sedans and the firm has teamed up with domestic players such as BAIC BluePark New Energy Technology Co. to develop smart car systems. The first model under its partnership with the Chinese EV maker, the Arcfox αS HBT, will be unveiled at Auto Shanghai in April.
It also plans to begin charging mobile giants like Apple a “reasonable” fee for access to its trove of wireless 5G patents, potentially creating a lucrative revenue source by showcasing its global lead in next-generation networking.
The owner of the world’s largest portfolio of 5G patents will negotiate rates and potential cross-licensing with the iPhone maker and Samsung, promising to charge lower rates than rivals like Qualcomm Inc., Ericsson AB and Nokia Oyj. Huawei should rake in about $1.2 billion to $1.3 billion in patent and licensing fees between 2019 and 2021, executives said without specifying which of those stemmed from 5G. It’s capping per-phone royalties at $2.50, versus the $7.50 that Apple says Qualcomm demands of every iPhone.
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