Huawei's Meng Wanzhou faces uphill battle in reversing flat revenue, plummeting profits
Huawei Technologies Co chief financial officer Meng Wanzhou faces an uphill battle in finding new growth for the Chinese telecommunications giant as she takes up the top role of rotating chairwoman on Saturday, after the sanctions-hit company reported flat revenue growth and plummeting profits in 2022.
Privately-held Huawei recorded 642.3 billion yuan (US$90.9 billion) in sales for the full year 2022, representing slim 0.9 per cent growth compared to 636.8 billion yuan in 2021, the company said on Friday. The uptick, driven by fast growth in new businesses such as cloud computing, marks an improvement from 2021 when it reported its worst ever sales performance with a 29 per cent plunge in sales.
Net profits, however, fell to 35.6 billion in 2022, shrinking to one third of the 113.7 billion yuan in the previous year when Huawei saw a profit surge from its sale of budget smartphone unit Honor.
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"Profit margin is at an historical low for Huawei ... due to the declines in revenues and an increase in R&D expenses," Meng said at the company's annual report press conference held at its Shenzhen campus on Friday.
Huawei spent a quarter of its revenue on R&D, totalling 161.5 billion yuan in 2022, the highest-ever R&D ratio for the company. Key R&D costs were component replacements, circuit board redesigns, and operating system development.
The number of employees increased to 207,000 in 2022 from 195,000 in the previous year, according to the company.
"In 2022, a challenging external environment and non-market factors continued to take a toll on Huawei's operations", said Eric Xu, Huawei's rotating chairman, at the press conference.
Meng, daughter of founder and chief executive Ren Zhengfei, will face mounting challenges in steering Huawei through US sanctions, and finding new revenue streams, as the company's income from the once-lucrative smartphone business has shrunk dramatically.
At the same press conference, Meng said Huawei's succession system was not focused on one individual. "[We] will not put the faith of the company on one individual," she said. "The governance rules spell out the roles and responsibilities, schedule of the rotating chairman, and I will follow those rules."
She added: "As a company, we have no capability to change the geopolitics or the environment, we can only adapt to that environment."
Huawei has been scrambling to adapt its production of smartphones and telecommunications network equipment to the "new normal" of trade restrictions that were tightened by Washington in 2020. The sanctions cover Huawei's access to advanced semiconductors developed or produced using US technology, from anywhere.
Revenue from Huawei's consumer business, which includes smartphones and its latest foray into electric cars with the AITO brand, declined 11.9 per cent to 214.5 billion yuan.
An employee uses a Huawei P40 smartphone at the IFA consumer technology fair in Berlin, Germany September 3, 2020. Photo: Reuters alt=An employee uses a Huawei P40 smartphone at the IFA consumer technology fair in Berlin, Germany September 3, 2020. Photo: Reuters>
Formerly China's biggest smartphone vendor, Huawei ran out of advanced in-house-designed semiconductors for its smartphones in the third quarter of last year, according to a report by Counterpoint Research. However, the company has yet to give up on its handset business, and launched its latest flagship P60 models and foldable phone Mate X3 last week. However, without 5G connectivity, the devices are powered by Qualcomm's 4G version of the Snapdragon 8 chip.
Sales from its carrier business grew a marginal 0.9 per cent to 284 billion yuan, while the enterprise business achieved a 30 per cent increase in revenue to 133.2 billion yuan, benefiting from strong demand for digital upgrades from industry clients.
Huawei also revealed revenue breakdowns in new business segments for the first time, including its cloud computing business that brought in 45.3 billion yuan last year. Revenue from its car component business was 2.1 billion yuan.
While Huawei looks for diversification to make up for its losses in the smartphone business, the company is facing increased pressure from the US. Reports have said that the Biden administration is considering cutting the firm off from all of its American suppliers.
Xu said Huawei has stepped up development of domestic replacements for electronic components, an effort which began a decade ago - long before it was sanctioned by the US. The company has replaced more than 13,000 components in its products with local substitutes, and redesigned over 4,000 circuit boards in the past three years, founder Ren said during a February 24 seminar, in comments that were made public earlier this month.
Huawei has also replaced 78 foreign-made tools, spanning from hardware to software development, since it was first added to the US trade blacklist list in May 2019. The US-led technology blockade on Huawei was largely intensified after August 2020, cutting the company off from acquiring technology and services from non-American companies such as Taiwan Semiconductor Manufacturing Co.
In the chip design area, where Huawei's in-house "fabless" chip company HiSilicon once led in China and attained global status, Huawei claimed that it has "basically achieved domestic" electronic design automation (EDA) software capability for chips above the 14-nanometre process node, without providing details. It aims to finish testing these design tools in 2023.
Xu said Huawei's breakthrough on 14-nm chip design tools meant little to Huawei's own business, rather, it would provide an opportunity for chip firms in China to use these tools in the future.
On the impact of US sanctions on its high-end smartphones, Xu said the company will only be able to produce 5G smartphones when Washington lifts its restrictions. He did not provide an update on Huawei's progress in developing a domestic replacement for smartphone chips.
Huawei's problems in the chip making area will not go away any time soon, according to analysts and industry sources. Chip design processes often require numerous EDA tools working together, and while Huawei could have developed some software replacements, the likelihood of it developing all the necessary EDA tools remains low, they said.
US companies Synopsys, Cadence Design Systems and Siemens EDA, formerly Mentor Graphics, have a near monopoly on the global EDA market.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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