HUAWEI maintained its profit streak in a tough 2020, but US sanctions did hurt

HUAWEI has today released its annual financial report for 2020, a year that was marked by pandemic-related business disruption and sanctions imposed by the US government that had a drastic impact on the company’s business, especially smartphones. However, the company still recorded net revenue of CNY 891.4 billion (~ $136.04 billion), which amounts to a rise of 3.8 percent compared to last year. The net profit went up by 3.2 percent and touched the CNY 64.6 billion (~ $9.86 billion) mark.

HUAWEI's net profit went up by 3.2 percent and touched the CNY 64.6 billion (~ $9.86 billion) mark.

The Chinese market alone accounted for 65.6% of the net revenue, contributing CNY 584.9 billion (~ $89.26 billion) to the overall figures. However, the revenue from other markets recorded a steep decline. For example, revenue generated from the Americas went down by 24.5 percent, while the EMEA and Asia Pacific region witnessed a negative growth of 12.2 percent and 8.7 percent respectively.

From a business arm perspective, the carrier business remained relatively stable with only a 0.2 percent revenue growth, the enterprise business grew by 23 percent, while the consumer business only saw 3.3 percent growth. Talking about the consumer business, the downfall witnessed by the mobile business was negated by the other product categories that are a part of HUAWEI’s 1 + 8 + N strategy.

During the press conference, Hu mentioned that the ‘8’ and ‘N’ parts of the 1+8+N strategy compensated for the decline in smartphone business. For the unaware, here’s the breakdown: 1 (phones), 8 (AR/VR, tablet, PC, TV, smartwatch, speakers, vehicles, and audio wearable), and N (services like video and mapping, and a wide array of other hardware such as projector and printer).

HUAWEI’s smartphone strategy moving forward

“The supply restrictions for smartphone business have caused a great impact and we haven’t really been able to see a clear picture about the supply for smartphones. So at the moment, it is very difficult for us to make a forecast for our smartphone business,” Hu said while answering a question about HUAWEI’s strategy moving forward. However, the HUAWEI executive made it clear that the company will launch more flagship phones that are currently a part of its roadmap.

Hu’s statement also quashes rumors claiming that HUAWEI was planning an exit from the flagship phone game and might sell its Mate and P-series business to give it a chance of survival. The HUAWEI executive also pointed that interest in its latest foldable phone – the Mate X2 – was high, and the company aims to maintain that streak of smartphone innovation in the foreseeable future. However, the HUAWEI executive also pointed towards the global semiconductor industry shortage, and that a lot hinges on how the situation unfolds in th coming months.

“Because of the unfair sanctions placed on us by the US, our mobile phone business saw a revenue decline,” Hu said during the presentation. In its annual report, the company mentioned that the number of HUAWEI smartphone users has crossed the 730 million figure globally. The company also noted that the growth experienced by its HMS ecosystem has exceeded its expectations through 2020.

The road ahead is not an easy one for HUAWEI

“For the industry it has been a lose-lose situation. It [is] very unfair and caused a lot of damage to us” Hu was quoted as saying by MobileWorldLive regarding the impact of US sanctions, which has hurt sales of phones as well as its telecom gear. An executive told TheWashingtonPost that 2020 was ‘a really tough year for HUAWEI’ on conditions of anonymity. As per a Bloomberg report, smartphone shipments went down by 42% in the last quarter of 2020, falling behind international names (Apple and Samsung) as well as domestic rivals (OPPO and Xiaomi).

The main reason behind HUAWEI losing smartphone market share following the US sanctions was the lack of access to core Google services such as Maps, Gmail, and Play Store. While the aforementioned software shortcoming doesn’t mean much for the Chinese market, users in other regions where these services are at the heart of Android experience find it extremely limiting. Additionally, the sanctions also chocked HUAWEI’s supply chain, which means sourcing core components for smartphones also became difficult for the company.

One key reason why HUAWEI lost market share in China was the inability to diversify its 5G smartphone portfolio across different price brackets in 2020. And with the US government showing no signs of making things easy for HUAWEI with respect to the existing trade restrictions – and made things even trickier for 5G equipment trade earlier this month – remains to be seen how the company charts its business plan for the international markets.