Forced smiles at Huawei as pressure mounts

By Wei Sheng
4 min read
Liang Hua, chairman of Huawei, at a news conference at company headquarters in Shenzhen on July 30, 2019. (Image credit: TechNode/Shi Jiayi)

Huawei put on a brave face for the cameras on Tuesday at a carefully planned event to announce the troubled telecom player’s unaudited first-half results.

While the world’s attention has been squarely focused on the intense US political pressure on the Shenzhen-based firm, Huawei chose to concentrate on its growing market share and booming domestic demand for handsets at a press conference on Tuesday.

The company said it has received more than 2,600 journalists so far this year at its campuses in Shenzhen and Dongguan as part of efforts to maintain an air of openness, and many were in attendance yesterday to hear from Chairman Liang Hua.

From the outset, business results for the first six months appear healthy enough—revenue rose by 23.2% to RMB 401.3 billion ($58.3 billion) and it shipped 118 million handsets. However, the company did not reveal specific figures for the second quarter, which is when the US upped the ante. The 39% surge in revenue posted for the first quarter alone implies that there was a significant drop-off in the second quarter.

Liang admitted that US sanctions had caused some disturbances to Huawei’s business, but called the impact “controllable.” Growth continued even after the US put the firm on a trade blacklist on May 16, thanks to what the company has called “market inertia.”

“There isn’t one day that we stopped production, nor did we stop shipping to our customers after May 16,” he said.

Huawei also preached that it would maintain a strong growth path with sizable expenditure on research and development even if the US ban continues. The company plans to invest RMB 120 billion in R&D this year.

But experts maintain that the company’s future performance will be dependent on the outcome of US-China trade talks, and not the company’s drive for self-reliance.

A small train runs through the center of Huawei campus in Dongguan on July 29, 2019. (Image credit: TechNode/Shi Jiayi)

Hard times

The first half of 2019 has been turbulent for Huawei. The year began with President Trump threatening to restrict US carriers’ purchases of equipment from foreign companies that pose national security risks, such as Huawei and its domestic rival ZTE. The threat later became a reality.

The Trump administration has also launched a campaign to block Huawei from competing in the global rollout of 5G networks by persuading its allies to freeze Huawei out of their future network plans.

The core issue is concerns about Huawei’s ties to the Chinese government and fears that its telecom equipment could be used to spy on other countries, which the company has repeatedly denied.

Though the campaign met wide resistance in Europe, some of America’s closest friends, including Australia and Japan, have followed the US in banning Huawei gear. Others such as Germany, Italy, and France continue to accepted Huawei hardware, arguing there is no concrete evidence that it poses a real risk.

The underlying issue of the whole Huawei dispute may be the different ways in which the Chinese and US governments view privacy, US-based wireless analyst Jeff Kagan told TechNode.

“China uses technology to track citizens for things like safety and social order. The US considers this a violation of privacy. So, this may simply be a difference in the way these two countries see the issue of privacy,” said Kagan.

“I expect the US ban on Huawei to continue at least until trade issues between China and the USA are resolved, and privacy threats can be eliminated,” he said.

Risks ahead

Though the US sanctions haven’t stopped Huawei from growing in the first six months, the company acknowledges that huge difficulties lie ahead with consumer business to be most affected. The division contributed 55% of revenue in the first half.

Google has cut Huawei’s access to future updates of the Android operating system following the US trade blacklisting, contributing to falling international sales.

Liang admitted that it is up to the US if upcoming Huawei phones will have access Android. “If the US government allows us to use Android, we will use Android. But if the US doesn’t allow us, then we will turn to alternatives,” he said.

He maintained that Huawei is yet to see any impact of the US blacklisting on its 5G business, adding that the company has so far signed 50 commercial 5G contracts worldwide, including 11 signed after May 16.

“For a company with over $100 billion yearly revenue, the US sanctions can not be deadly,” Guo Fulin, president of international media affairs at Huawei, told TechNode on the sidelines of Tuesday’s event.

Huawei has been working on a so-called “business continuance” system to address potential extreme scenarios for over 10 years, he said.

Under the guidelines, Huawei stockpiled 12 months-worth of components ahead of the blacklisting to prepare for trade friction uncertainties, Nikkei Asian Review reported in May.

Huawei will have to find alternatives to US suppliers after the stocks run out, said Arthur Dong, a professor at Georgetown University’s McDonough School of Business.

“They (Huawei) only have two alternatives. They either can start producing some of these technologies on their own, which is going to be not easy and will take a long time. Or they’re going to have to find alternative sources to us suppliers,” said Dong.

“The best scenario is that the Trump administration agrees to a sort of [solution] that allows Huawei to continue to purchase critical parts from American companies. If the negotiations go poorly, or if they go slow, we can expect Huawei sales not to be as good, and it all depends on how much inventory parts they have,” he added.