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US-China trade war creates 'new opportunities' for Huawei as growth surges despite ban

Krystal Hu

Huawei knows what it's like to be in the crosshairs of U.S.-China trade tensions, but that position hasn’t hurt the embattled company — at least so far.

The Chinese telecom and smartphone giant announced 23% revenue growth in the first half of 2019 on Tuesday, in its first financial report since the Trump administration banned U.S. companies from dealing with Huawei in mid-May. As the technology giant appeared to shrug off the impact of being put on the U.S.’s so-called Entity List, analysts say the robust demand from Chinese consumers helped maintain the growth and the real pain may be felt in the second half of the year.

Huawei didn’t break down its revenue by region in Tuesday’s report, but it says consumer business accounts for 55% of its 401.3 billion yuan ($58.3 billion) revenue in the first six months, rising from 48.4% of full year 2018. Fu Liang, a Beijing-based independent telecom analyst, believes that growth suggests stronger smartphone demand from Chinese consumers and slower growth in other business units.

In the second quarter, Huawei dominated the smartphone market in China with a 38% market share, the latest data from Canaly shows. It also grew shipments by 31% at a time when the overall market is shrinking and it rivals, from domestics companies like Vivo to foreign brands like Apple (AAPL), have declined by over 14%. Analysts say with the geopolitical headwinds, Huawei has shifted the focus of its consumer business to the domestic market.

“Because in the case of limited capacity, if it is necessary to allocate shipments, the domestic market has the lowest risk and highest returns,” Canalys analyst Mo Jia said. China is Huawei's largest high-end smartphone market. It has also built its own ecosystem to provide services, including pre-installed apps and advertising in Huawei app store.

‘The patriotic choice’

People walk past a Huawei store on July 1, 2019 in Dongdaqiao, Chaoyang District, Beijing. (Photo by Andrea Verdelli/Getty Images)

Huawei has launched marketing campaigns and PR efforts in the wake of the U.S. ban, and it appears that being targeted by the U.S. government may have fueled national pride in the company. Huawei CEO and Founder Ren Zhengfei has said buying Huawei phones has nothing to do with being patriotic, but that hasn’t stopped channel distributors and sellers from using that as a selling point.

“The US-China trade war is also creating new opportunities,” Canalys analyst Mo Jia said. “Huawei's retail partners are rolling out advertisements to link Huawei with being the patriotic choice, to appeal to a growing demographic of Chinese consumers willing to take political factors into account when making a purchase decision.”

As a private company, Huawei selects the numbers that it makes public quarterly. Although consumers on its home turf could ease the pain of the U.S. ban, the bigger question hanging over Huawei is how long the ban will last and whether key suppliers like Google could resume the business. Huawei said Google (GOOGGOOGL) has applied for waiver to supply to Huawei and is still waiting for licenses.

In its announcement Tuesday, Huawei said its shipment in the first half of the year reached 118 million. CEO Ren Zhengfei told Yahoo Finance in an exclusive interview earlier this month that it has a goal of 270 million phone shipments for the year — an aggressive target to be sure. On Tuesday, Huawei reiterated that it has the ability to develop its own operating system for smartphones if Android is not available.

“Following the May 16 ban, we continued growing due to the momentum we'd built up previously,” Ren told Yahoo Finance in an interview earlier this month. “But we will see real material impact in the second half of the year.”

Krystal Hu covers technology and China for Yahoo Finance. Follow her on Twitter.

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