Huawei Claims Breakthrough Despite Profit Decline

According to CNBC, Huawei Technologies reported its biggest profit decline ever last Friday. The Chinese giant blamed rising commodity prices, China’s strict pandemic controls, U.S. sanctions. However, it is important to note that comparison to 2021 is somewhat inadequate due to one-off gain related to the sale of its mid-range smartphone business.

2022 Figures

During the earnings call, Eric Xu, rotating chairman, described last year as being shaped with a challenging external environment that continued to take a toll on Huawei’s operations.

The Chinese telecommunications giant made a net profit of $5.18 billion in 2022 35.6 billion yuan which translates to a YoY decline of 69% as 2021 profit was helped by the sale of Honor. However, it is still a steep decline even when compared to 2020 which adds up to 44%.

Revenue rose 0.9% to 642.3 billion yuan as the company somewhat stabilized its business following a more than 28% drop in sales in 2021 as U.S. export controls attacked and smashed its once mighty smartphone business. However, this mild growth is still a far cry from 2019’s record of 891.3 billion yuan when Huawei was the top Android smartphone vendor globally.

R&D spending rose 13.2% to 161.5 billion yuan ($23.50 billion), which equates to a quarter of total revenue, as Huawei was replacing components in its products that were hit by U.S. trade sanctions. Back in February, founder Ren Zhengfei told a university the company had replaced more than 13,000 parts.

The asset-to-liability ratio was 58.9% and a net cash balance amounted to 176.3 billion yuan.

A Crippled Smartphone Business

Through 2019 and 2020, the U.S. sanctions have cut off the Chinese technology giant from essential technology and components, such as Google’s Android operating system and semiconductors. As a result, consumer electronics business tumbled 11.9% to 214.5 billion yuan in 2022, but it is still significantly less sharp compared to 2021’s decline.

In response to sanctions, Huawei launched its own operating system and HarmonyOS is reported to have been installed on 330 million devices at the end of 2022 which translates to a 113% YoY increase of 113%. Unfortunately, adoption outside China didn’t happen.

Telecommunications Business

Equipment sold to carries generated a revenue of 284 billion yuan which is a 0.9% YoY increase after dropping compared to 2021. Over the past years, the U.S. has been urging countries over to ban Huawei from their next-generation 5G networks with the U.K. following suit and reportedly Germany considering banning some of its equipment. 

Cloud Computing

Huawei’s enterprise business that includes some of its cloud computing revenue expanded 30% YoY as it generated revenue of 133.2 billion yuan. This was the first time that Huawei reported figures for the cloud computing business alone that generated an annual revenue of 45.3 billion yuan.

Automotive

Huawei responded to threats by diversifying its business. One move was to embark on the EV train as it joined forces with automaker Seres. Huawei invested $3 billion in the“Intelligent Automotive Solutions” unit since establishing it in 2019 and it now generated 2.1 billion yuan in annual revenue.

2022 Is The Year “Out Of Crisis Mode”. 

Chief Financial Officer Meng Wanzhou, daughter of the company's founder who was detained for three years in Canada over alleged breach of U.S. sanctions, claimed that Huawei is now back to business as usual. Besides a small increase in revenue, Meng added the company has made significant progress in replacing sanction-affected components.

A Rebirth Of China’s Chip Industry

Also on Friday, the Chinese telecommunications giant claimed a breakthrough in semiconductor design technology. Eric Xu, rotating chairman, revealed that as a result of a partnership with other domestic firms, Huawei brought to life electronic chip design tools required to make semiconductors sized at 14 nanometers and above.

China’s domestic chip industry relies heavily on foreign technology so it has made self-reliance a big priority amid the tech battle with the U.S., but it is still lacking companies of the required caliber. for military purposes. Xu is also seeing green development as opportunities as Huawei plans to start rolling out 5.5G products by 2025.