hankyoreh

Huawei's strong performance can be attributed to the Chinese domestic market and the company's competitiveness in the telecommunications sector.

Chinese telecommunications firm Huawei posted surprisingly strong figures for 2020. Sales were up year on year, even after sanctions imposed by the US. Huawei's performance was backed by China's massive domestic market and the company's continuing dominance in the telecommunications equipment sector.

But given the ongoing slump in smartphones, which has been one of Huawei's key business areas, many analysts are pessimistic about the company's prospects.

According to the yearly earnings report released Wednesday by Huawei, the company's revenue last year amounted to 891.4 billion yuan (US$136.7 billion), a 3.8% increase year on year. The company's net profit last year, at 64.6 billion yuan (US$9.9 billion), was also up 3.2% from the previous year.

Huawei's revenue grew at a much slower rate than in 2019, when it saw 19.1% growth. Even so, industry analysts and the market overall seem more focused on Huawei's maintenance of its revenue than its sluggish growth.

Since US trade sanctions were driving a major decrease in smartphone sales — a key source of revenue for Huawei — many had initially projected that Huawei's revenue would fall.

"This was an unexpected outcome," said Kim Yang-paeng, a research fellow at the Korea Institute for Industrial Economics and Trade.

Ken Hu, Huawei's rotating chairman, said Wednesday that the company had achieved modest growth despite pressure and sanctions from the US because it had diversified its supply network and continued to increase investment in technological innovation.

Huawei's strong performance can be attributed to the Chinese domestic market and the company's competitiveness in the telecommunications sector. While COVID-19 has battered the whole world since early 2020, China has enjoyed a relatively fast recovery. Huawei relies heavily on China's domestic market, which helped it emerge from the pandemic shock more quickly than its competitors.

"[Huawei's] total sales rose as subsidies by the Chinese government and telecoms helped it perform strongly in the 5G and [Internet of Things] equipment sectors. The fact that 5G equipment is more expensive than LTE equipment also appears to have helped drive up sales," said Kang Gyeong-su, an analyst with Counterpoint Research, in a telephone interview with the Hankyoreh.

Huawei offered a similar analysis. In a Q&A session following the earnings release, Hu said that the Chinese market accounted for more than 65% of sales in the mobile device sector last year. He added that considerable growth in non-smartphone mobile devices helped the company offset the drop in smartphone sales.

"Compared to the past, we saw more growth in the Chinese domestic market last year than in other markets overseas," a Huawei spokesperson explained in a telephone interview with the Hankyoreh.

Huawei's competitive edge in price and technology in the telecommunications equipment sector seems to have been another factor cushioning American sanctions' blow.

Data provided by the Dell'Oro Group, a market research firm, shows that Huawei was the global leader among 5G telecommunications equipment providers in the fourth quarter of 2020, with a 31.4% share of the market.

On Wednesday, Huawei underlined business diversification, including its "1+8+N" strategy. That suggests that Huawei is turning to new businesses as it seeks a fundamental solution to the prolongation of American sanctions.

The crux of the 1+8+N strategy is implementing Huawei's independently produced operating system not only in smartphones but in a variety of IoT devices, including televisions, tablets, and personal computers.

In the same context, Huawei is also speeding up its development of software. One of its recent achievements is the launch of a cloud-based online learning platform for students in elementary and middle schools. Huawei's sales in the enterprise business sector, which includes software development, surged by 23% last year.

But many market observers are pessimistic about Huawei's future. Despite the robust growth in the enterprise business sector, that only accounts for a small percentage of Huawei's total sales. On top of that, the slump in the critical smartphone sector is likely to get worse.

"This year, the impact of US sanctions will become somewhat visible [in the company's performance]," said Kang, the analyst.

By Song Chae Kyung-hwa, staff reporter

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