Huawei’s Profit Dives 67% After U.S. Sanctions Wallop Phone Arm

(Bloomberg) -- Huawei Technologies Co. profit fell about 67% in the first quarter as the Chinese telecom-equipment giant continued to battle crippling U.S. trade and investment sanctions.

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Revenue declined 14% to 131 billion yuan ($19.8 billion) in the three months through March, the closely held company said Thursday in a statement. Net profit margin narrowed to 4.3%, which translates to 5.6 billion yuan in net income. That compares with a margin of 11.1% and net income of 16.9 billion yuan a year earlier.

While Huawei didn’t give a reason for the earnings slump, its profit was hit by waning sales and growing research and development expenses, according to a person familiar with the financials. The company has allocated 22.4% of its 2021 sales to develop chips, telecom gear and smartphones that could stand free from sanctions imposed by the U.S. That dwarfs the proportional spending by the world’s biggest tech mammoths from Meta Platforms Inc. to Apple Inc.

“We have yet again increased our investment in R&D to harness the momentum of our innovation and create new value for customers,” Rotating Chairman Ken Hu said in the statement. “In 2022, we still face a challenging and complicated business environment.”

Huawei has battled for survival since the U.S. barred it from buying an array of imported components from Qualcomm Inc.’s most advanced chips to Alphabet Inc.’s Android system two years ago. It is looking for growth in emerging businesses such as wireless communication products used in coal mines and smart cockpit solutions for electric vehicles.

Unit disposals and patent licensing fees received from competitors have helped Huawei’s earnings in recent years. The company’s 2021 profit surged 76% despite falling sales. It gained 61 billion yuan in additional net income last year after selling the smartphone sub-brand Honor and a x86 server unit to government-backed consortiums.

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