Huawei grew in 2020 thanks to China but how long can that continue?

Chinese telecoms vendor Huawei has released its audited 2020 annual report, which reveals it managed to grow but leaned heavily on the Chinese market to do so.

Revenues of $136.7 billion were up 3.8% year-on-year, while net profit was $9.9 billion, up 3.2% year-on-year. Not bad for a company with the might of the US of A stacked against it. Of course Huawei has its own superpower to fall back on and is becoming ever more reliant on both the Chinese consumer and the Chinese state to offset its international challenges.

“Over the past year we’ve held strong in the face of adversity,” said Ken Hu, Huawei’s Rotating Chairman (pictured). “We’ve kept innovating to create value for our customers, to help fight the pandemic, and to support both economic recovery and social progress around the world. We also took this opportunity to further enhance our operations, leading to a performance that was largely in line with forecast.”

The annual report, while audited by KPMG, is mainly qualitative, with the usual acres of copy devoted to every conceivable achievement over the course of the year. You can see the main numbers below, which reveal that while revenue grew, margins shrank, leading to a 7% decline in operating profit.

How is it possible for a 7% decline in operating profit able to yield a 3% increase in net profit, we hear you ask. Simple, just pay half the amount of tax you did last year.

Despite the major 5G rollout in China last year, Huawei’s carrier business was flat due to market share losses in countries that banned it from their 5G networks. The consumer business managed a bit of growth and the enterprise business had a great year. As you can see below, however, Huawei now derives almost two thirds of its revenue from China alone.

The lengthy press conference convened to deliver the report was largely a regurgitation of it. During the Q&A Hu repeatedly reflected on how unfair its persecution at the hands of the US and its allies has been and made all the right noises about just wanting to be a good global citizen. There was also a distinctly defiant undertone to the presentation, as if to say Huawei has taken America’s best shot and is still doing just fine.

Whether that will continue to be the case is another matter. Can Huawei continue to pay so little tax? Will its consumer business survive being denied access to full Android? Amid signs that Chinese operators are slowing their 5G build out, will be the carrier business fall into terminal decline? Huawei did very well to grow last year in spite of everything, but it will be even more difficult to repeat that this year.