Huawei Posts First Profit Fall in Decade After US Spurs R&D

Huawei Technologies Co. posted its first annual profit decline in more than a decade, after years of US sanctions all but obliterated its smartphone arm and compelled the Chinese telecom gear maker to ratchet up research spending.

(Bloomberg) — Huawei Technologies Co. posted its first annual profit decline in more than a decade, after years of US sanctions all but obliterated its smartphone arm and compelled the Chinese telecom gear maker to ratchet up research spending.

The Shenzhen-based company said its net income for 2022 fell almost 70% to 35.6 billion yuan ($5.2 billion), though the year-ago comparison was inflated by the sale of its youth-oriented Honor mobile unit. Yet Huawei on Friday emphasized it poured 25.1% of its 642.3 billion yuan revenue back into research. That’s among the highest ratios in the global tech industry and reflects the Chinese telecom gear maker’s sustained intent to develop alternatives to the American components and software it can no longer access.

Huawei is trying to open up new markets and businesses after US tech export restrictions gutted its smartphone business — briefly the world’s largest — and curtailed the sale of advanced gear in developed markets. Chief Financial Officer Meng Wanzhou — the daughter of Huawei founder Ren Zhengfei — joined other executives on Friday affirming the company’s intent to continue researching ways around a blockade of vital American technologies.

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The effort echoes Chinese President Xi Jinping’s calls to step up the development of China’s own technologies as the tech race against the US escalates. The Biden administration is said to be mulling a new round of sanctions against Huawei, banning all sales to the Chinese company.

“2023 will be crucial to Huawei’s sustainable survival and development,” current rotating chairman Eric Xu said in a statement. “Plum blossoms tend to grow sweeter from a harsh winter’s freeze. Today, Huawei is like a plum blossom.”

The responsibility of leading that effort will fall on Meng for much of 2023. She is slated to join the company’s roster of rotating chairpersons in April, a six-month role that will allow her to oversee Huawei’s operations for the first time. Ren, who is turning 79 in October, hasn’t announced his succession plan. On Friday, she dismissed a question about plans after ascending to her new role, saying Huawei has always been run by a “collective leadership.”

“The company will not tie its destiny to any individual. We have a clear commitment to that rule,” Meng told reporters gathered at Huawei’s leafy Shenzhen campus for an annual briefing.

Meng seldom attends public events since her high-profile return from Canada in 2021. The 51-year-old spent almost three years under house arrest in Vancouver as she battled extradition to the US on fraud charges. Meng has denied wrongdoing and accused the US of overreach.

Her company is now developing its own semiconductor capabilities from photolithography technologies to software, to get around its US blacklisting. Xu said in a recent speech that the company has developed its own chip design software, known as EDA tools, that makes 14 nanometer chips. US developers Cadence Design Systems Inc. and Synopsys Inc. are the major players in this industry.

Read more: Huawei Declares ‘Business as Usual’ After Weathering US Curbs

Revenue from the carrier business, which includes sales of advanced fifth-generation mobile networking gear, climbed slightly to 284 billion yuan. China’s state-owned telecom carriers put on aggressive 5G network construction projects last year despite Covid lockdowns. The country added close to 900,000 5G base stations in 2022, government data showed.

The consumer business was the worst-hit division for Huawei following 2019 sanctions that cut off essential smartphone chips from Qualcomm Inc. and Micron Technology Inc. Huawei stockpiled components and managed to make 4G phones after 5G chips ran out. But shipments gave out eventually, a major setback for a company that once vied with Apple Inc. and Samsung Electronics Co. for market leadership.

Huawei has since moved its focus to electric vehicles and enterprise businesses in hopes of fueling growth. It sold networking equipment and remote control programs powered by artificial intelligence to coal mines, sea ports and science parks across China. And it teamed up with carmakers to develop cockpit software running on an in-house operating system, making it one of the largest tech companies in an already-crowded EV market. Huawei also started to collect royalties from global smartphone brands, another way to expand income.

(Updates with Meng’s comment on succession from the sixth paragraph)

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