Huawei takes hit from technology bans in first quarter

Bans batter revenues at Huawei, which is bracing for more challenges but insists good times are ahead in 5G and comms software

Warning that a challenging year lies ahead, a defiant Huawei has said its business remains resilient despite showing results for the first quarter of 2021 where revenues have plummeted 16.5% year-on-year, proving the clear effect of the bans on use of its technology in the national infrastructures of countries around the world.

For the first quarter ended 31 March 2021, the communications technology giant generated CNY152.2bn in revenue. Yet, while significantly down overall compared with the same time in 2020, the company’s network business is said to have maintained steady growth, while consumer business revenue declined, in part as a result of selling the Honor smart device brand in November 2020.

Huawei’s net profit margin was up 3.8 percentage points year-on-year at 11.1%, the result, said the company, of its ongoing efforts to improve quality of operations and management efficiency, as well as a patent royalty income of US$600m.

Even though it insisted the Q1 results were in line with those forecast and that 2021 would be the year its future development strategy would begin to take shape, it conceded that it would be another challenging year.

“We thank our customers and partners for their ongoing trust,” said Eric Xu, Huawei’s rotating chairman. “No matter what challenges come our way, we will continue to maintain our business resilience. Not just to survive but do so sustainably. As always, we will remain focused on the needs of our customers and keep delivering practical business value.”

Heading these challenges is the knock-on effect of the bans of Huawei following the decision by the then-Trump US government on 15 May 2020 to extend its restrictions on the sale of hardware and software to so-called “high-risk” suppliers such as Huawei, leading to the company being unable to purchase equipment from longstanding suppliers.

In July 2020, the UK government committed to a timetable for the removal of Huawei equipment from the country’s growing 5G communications infrastructure by 2027 – effectively a huge U-turn on the decision it took only in January 2020 to restrict Huawei’s presence to just the radio access network element of 5G setups.

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The call was made after the UK’s National Cyber Security Centre (NCSC) noted that the US move had created uncertainly around the Huawei supply chain, and that the UK could no longer be confident it would be able to guarantee the security of future Huawei 5G equipment.

To that end, the UK government made it illegal for UK telcos to purchase Huawei 5G network equipment from the end of 2020. In the second parliamentary reading of the Telecommunications (Security) Bill, the UK decreed that local operators must stop installing any Huawei equipment in 5G networks from the end of September 2021.

Undeterred, Huawei said that going forward it was driving efforts to fully unleash the value of 5G and that it would help carriers around the world roll out their 5G networks, meeting the demands of consumers and industries alike, while boosting its own delivery efficiency. Indeed, in February 2021, the company predicted a booming 5G market was set to rise in the next 12 months and the company revealed the first use case for its 5G business suite in industrial mobile.

The other key part of the Huawei forward strategy was to improve its software engineering capabilities and ramp up investment in the software sector to gradually increase the proportion of software and services in its total revenue mix. Just weeks ago, the firm revealed a major pivot to maximise its software capabilities and provide components for intelligent vehicles.

“As always, we remain committed to technological innovation and investing heavily in R&D as we work to address supply continuity challenges caused by restrictions in the market,” added Xu. “We will continue making breakthroughs in basic science and pushing the frontiers of technology.”

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