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April 5, 2022

Huawei Technologies weathering the storm despite geopolitical challenges

The 2021 annual report from Chinese telecommunications vendor Huawei Technologies, released in March, shows that the company remains profitable despite a massive decline in revenue compared to 2020. In total, Huawei reported revenue of CNY 636.8 billion, or $99.9 billion, in 2021, representing a 29% decline from the prior year. The stiff decline ends a 35-year period of nearly continuous growth since the company’s founding in 1987.

The company’s revenue decline was felt most acutely in its Consumer business, where Huawei’s inability to access US-based technologies – and especially the Android operating system – drove a reduction in revenue of nearly 50% year-to-year. Huawei has been forced over the past few years to develop its own operating system, Harmony OS, and the company has expanded its focus well beyond smartphones to include wearables, tablets, and in-car video consoles.

Huawei’s Carrier business struggled, but not nearly as much as its Consumer business. Huawei posted a 7% year-to-year decline in Carrier revenue, reporting continued activity in supporting 5G network buildouts from mobile operators in its domestic market. Huawei managed to sustain modest growth of 2.1% in its Enterprise business.

Huawei reported a somewhat counterintuitive 68% jump in operating profit year-over-year to CNY 121.4 billion (or $19 billion). However, the bulk of that increase is explained by one-time asset sales in response to US-imposed restrictions. Most notably, Huawei sold off its Honor budget smartphone brand to a Chinese government-backed consortium of over 30 agents after being denied access to US-supplied chipsets.  Huawei also sold its xFusion server business after being denied access to x86 chipsets because of American sanctions.

Even after accounting for those one-time items, however, there are signs that Huawei Technologies may be coping effectively with the impacts of geopolitical struggles. Even without the asset sales, Huawei would have posted an operating margin of 9.5%, up slightly from 8.1% in 2020. So while Huawei’s future remains cloudy, some rays of sunshine are still shining through.

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