China just isn’t that big a market, Huawei finds after US trade ban

By Eric Johansson

Huawei made a profit last year, but says “life was not easy” after bans in the US and elsewhere forced it to rely too much on growth in China. As it unveiled its results for 2020, market analysts warned of the risks attached to depending too much on its home market.

The telecoms giant was banned by the US in May 2019, with stateside regulators citing national security risks due to Huawei’s close ties with the Xi Jinping regime. The ban meant that Chinese equipment would not be used in the rollout of US 5G networks. Several European countries – such as the UK, France, Sweden Poland and Finland – have also imposed similar constraints.

The US has since toughened its stance against Chinese companies further. The US Federal Communications Commission (FCC) moved to eject telcos China Unicom Americas, Pacific Networks and its subsidiary ComNet in March, having previously barred China Mobile from operating in the country. Huawei was also one of the five Chinese companies named by the FCC earlier this year as threats to national security in accordance with a 2019 law.

As the company unveiled its results for 2020, it made no secret that being barred from the world’s biggest market has taken its toll.

“Life was not easy for us,” Ken Hu, Huawei’s chairman, told the BBC, branding the situation as “very unfair”.

Despite the sanctions, Huawei’s revenue stood at $136.7bn, representing a 3.8% increase. Its net profits also increased by 3.2%, reaching $9.9bn in 2020. Huawei’s strength in the Chinese market was a key factor behind the growth.

Revenue in China grew by 15.4% in 2020 to reach $89bn. At the same time, revenue in America fell by 24.5% to $60.24bn. In Europe, Huawei’s revenue dropped by 12.2% to $27.5bn.

Market analysts have noted that while the growth in China can keep Huawei afloat for now, it could become a risk further down the line.

“Dependence on a single region makes the company vulnerable to various risks associated with political and economic uncertainties in the region,” analysts noted on GlobalData’s Technology Intelligence Centre. “Also, lack of revenue from other geographical regions limits the company’s ability to build a diverse customer base.”

In 2020, Huawei diversified its supplies, and invested in research and development. It is also reportedly developing its own chip production capabilities within China, which would enable it to cushion the blow from the global shortage of chips and semiconductors. Hu called for a “rethinking” and a “review” of the globalised semiconductor supply chain.

The news comes as Beijing and Washington’s relationship has recently taken a turn for the worse in the aftermath of the massive zero-day exploits that compromised hundreds of thousands of on-site Microsoft Exchange Servers around the globe at the beginning of March.

Even though the White House has so far refrained from publicly blaming the country behind the hacks, the Biden administration has pledged to do so in the not too distant future. For their part, Microsoft analysts attributed the initial hack with “high confidence” to Chinese state-sponsored cyberespionage group Hafnium.

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