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2019 was hard but 2020 will be even harder – Huawei CEO

Record revenues, record profits and record smartphone shipments, but the US Entry List heavily impacted Huawei in the second half and 2020 is going to be tougher again.

US aggression, the coronavirus outbreak and OpenRAN are just three of the areas which were addressed as Huawei CEO Eric Xu unveiled the 2019 Annual Report, but the executive has also predicted ripples which turn into waves for everyone around the world should the on-going conflict between the US and China continue.

“We might see an endless flow of disastrous aftermath,” said Xu. “If that happens, not a single player in the global value chain can stay immune.”

As Xu pointed out, the Chinese Government is not simply going to sit back and do nothing while its telecoms champion is ‘slaughtered’ on the ‘chopping block’. Continued aggression against Huawei will see eventually see reciprocal actions against US firms which will impact everyone and anyone.

Although the financials do not necessarily paint a picture of panic, Xu might be considered the proverbial duck in water; calm and collected on the surface, but frantically paddling underneath fighting off the various challenges to Huawei’s success.

2019 saw revenues increase 19.1% year-on-year to $123 billion, profits climb 5.6% to roughly $9 billion and cash flow jumped 22.4% to $13.1 billion. Smartphone shipments exceeded 240 million across the year, while 15.3% of its 2019 revenue, some $18.9 billion, was invested into R&D.

Looking specifically at the Carrier Business Group, revenues grew 3.8% year-on-year to roughly $41.8 billion. Huawei has signed 90 commercial 5G contracts around the world to date and shipped more than 600,000 5G base stations. These numbers say one story but digging deeper tells another tale.

Some longstanding customers, who Huawei worked with for 2G, 3G and 4G, have chosen to go elsewhere for 5G. TDC in Denmark and Vodafone in Australia are two examples, though it remains to be seen how much of an impact the US will have on Huawei’s fortunes.

Huawei was added to the US Entity List, banning US companies from working with it, during May. For the first six months of the year, Huawei was flying according to Xu, though US aggression severely dented the financials. The business recovered during the fourth quarter, though Xu suggested as much as $10 billion in revenue was lost due to the on-going friction with the US.

The most immediate impact from the US Entity List was to the smartphone business, as while shipments grew attractively in 2019, the bulk of these fortunes were domestic. Xu highlighted that Huawei has no intention of scaling back international operations for its Consumer Business Group, which accounts for 54% of total revenues, but continued success depends on the adoption of Huawei Mobile Services (HMS).

Launched towards the end of 2019, HMS is the ecosystem to replace Google. It will act as the supporting mechanism for developers as well as the marketplace to interact with users. The smartphone is only as good as the applications which can be installed on it, therefore the Huawei smartphone fortunes are almost 100% dependent on the success of this initiative.

This is a direct consequence for Huawei, but the negative impacts can flow the other direction also. A report from Boston Consulting Group (BCG), sponsored by the Semiconductor Industry Association (SIA), suggested restrictions to Chinese trade could result in the US losing its leadership position in the semiconductor industry.

As Xu points out, if Huawei and other Chinese companies are not able to work with US firms, Chinese alternatives might well emerge. It could reduce the influence of US semiconductor companies on the global industry and offer accelerated development of the Chinese challengers. And thanks to ‘Made in China 2025’ strategy from the Chinese Government, there would be plenty of support for growth in this segment.

But these challenges might only be the tip of the iceberg.

In 2019, Huawei only had to deal with the US Entity List, and the subsequent bans, for seven months, but it will have to become accustomed to these discomforts for the full 12 months in 2020. Add in the complications caused by the COVID-19 outbreak, the prospect of Chinese retaliation and potential competition emerging in the Open RAN ecosystem, and the next year could be somewhat turbulent.

Aside from the political conflict escalating, the coronavirus is another very obvious challenge for the business to negotiate.

From a supply chain angle, the most obvious complication is dealing with international suppliers. In China, Huawei suggests the manufacturing capabilities are now close to 100% though the risk which is being faced is to do with the rest of the world. The coronavirus is spreading rapidly outside of China, especially in Europe and North America, which could impact the operations of suppliers. Huawei’s manufacturing operations might be close to 100%, but it is as reliant on external factors for components and materials as anyone else.

Another challenge worth considering are the most immediate concerns of customers. In the Carrier Business Group, the attention of telcos are drawn more towards improving network resilience as opposed to aggressive deployment of 5G. Huawei SVP Victor Zhang highlighted deployments have not stopped, but more work is being done to improve the reliability of broadband and 4G networks as coronavirus causes societal changes, which might detract from the pace of deployment in the 5G world.

Looking at OpenRAN, again this is another challenge, but one which the Huawei team is not overly concerned about in the short-term. These products should not be considered market-ready for the moment, so will not have a material impact of the commercial prospects of Huawei in the foreseeable future.

Perhaps another twist to consider is the parallel deployment of Single RAN and OpenRAN products. Xu likened this dynamic to the idea of General Purpose (GP) and Specialised Purpose computing (SP), where GP was supposed to threaten the existence of SP. In this segment, usecases have emerged to satisfy the demands of both, which Xu believes will be the same result in the RAN world.

Merged altogether, the telecoms infrastructure leader has an interesting 12 months on its hands. Huawei is a company which has been and will continue to be successful, but the hurdles to overcome are starting to become larger and more frequent. 2019 might have been a tough year for the team to negotiate, but 2020 promises to be much more challenging.

Here’s the whole annual report press conference for anyone with an hour and a half of self-isolation to kill.

  • 5G Networking Digital Symposium

  • Telecoms.com LIVE

  • 5G Network & Service Strategies

  • 2020 Vision Executive Summit

  • TechXLR8

  • BIG 5G Event

  • 5G World

  • 5G Latin America


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