Financial Huawei Shows Resilience in the Face of U.S. Blacklisting
July 30, 2019
SHENZHEN, China—Huawei Technologies Co. said revenue rose sharply in the first half of the year despite a
U.S. export blacklisting, but the Chinese telecommunications giant signaled tougher times ahead as it copes with uncertainty around its access to U.S. technology.
The Shenzhen-based company said revenue rose 23% to 401.3 billion yuan (about $58.3 billion) from a year earlier. The figure marked an acceleration in growth from the previous January-to-June period. The closely held company self-selects numbers it reports.
However, Huawei said it continues to face obstacles to securing certain crucial technology. The company sees challenges ahead for its once-booming consumer products operation, including its popular smartphone business, it said.
“Neither production nor shipment has been interrupted, not for one single day,” Huawei Chairman Howard Liang said Tuesday at a news conference.
The report offered the first window into Huawei’s financial health since it was added to the U.S. Commerce Department’s entity list in May. The listing requires suppliers to apply for licenses to continue selling American technology to Huawei, restricting the company’s access to components and software used in its smartphones and cellular equipment.
“We continue to see growth even after we were added to the entity list,” Mr. Liang said. “That’s not to say we don’t have difficulties ahead. We do, and they may affect the pace of our growth in the short term.”
One indication of the U.S. blacklisting’s toll on Huawei is a slowdown in its smartphone sales in overseas markets. Mr. Liang said those sales are at about 80% of their level before the Commerce Department’s action.
Though the slowdown has been countered by a surge in domestic purchases of its smartphones, analysts say Huawei’s success in the highly competitive market hinges on whether the company can regain access to Google’s Android operating system for future device models. Access to the operating system was curtailed under the blacklisting.
“There are some hints the entity list has already caused damage to Huawei,” said Mo Jia, an analyst with data tracker Canalys. “The second half will be certainly be a lot more challenging.”
Huawei was the world’s second-largest smartphone vendor during the first quarter, behind Samsung Electronics Co. and ahead of Apple Inc., according to International Data Corp. Consumer devices accounted for more than half of Huawei’s revenue in the first half of the year.
The U.S. blacklisting of Huawei is cutting off American businesses from a big client. WSJ’s Dan Strumpf looks at the American technology that has powered the Chinese company’s smartphones. Photo composite: Sharon Shi
Its devices, however, are almost nowhere to be found in the U.S. because major carriers won’t partner with the Chinese company, which U.S. officials say is a security threat—something Huawei has long denied.
Despite a slowdown overseas, Huawei smartphone shipments in China rose 31% in the second quarter from a year earlier, according to Canalys. The company holds a record 38% share of China’s smartphone market, the world’s largest. Canalys attributed the growth to consumers flocking to support the beleaguered Chinese company.
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Mr. Liang said Tuesday the company hasn’t seen any impact from the U.S.’s entity listing on its 5G wireless rollout. Huawei has so far signed 50 commercial 5G contracts world-wide, including 11 contracts in the weeks since the entity listing was announced, he said.
Beijing views a relaxation of the U.S. blacklisting as a precondition for
any trade talks with Washington. Commerce Secretary Wilbur Ross has said the U.S. would begin granting export licenses to Huawei suppliers whose sales to the Chinese company don’t put national security at risk.
The U.S., meanwhile, has been urging American suppliers to Huawei whose technology is subject to licensing rules to apply for the waivers. Some U.S. companies whose products don’t meet licensing criteria have resumed shipments to the Chinese company.
Huawei was the world’s second-largest smartphone vendor during the first quarter, behind Samsung Electronics and ahead of Apple, according to International Data Corp.
But for key technologies that are subject to the blacklist rules—including Android—Mr. Liang said Tuesday the company has yet to receive word on whether licenses are forthcoming.
“As for the timing when we will get the licenses, we don’t know,” he said.
Huawei bought $11 billion of American technology last year, out of a total procurement budget of about $70 billion, the company has said.
Though Huawei has been working on a replacement operating system, called Hongmeng, for use in case it loses access to Android, the company has said the software was originally designed for telecommunication networks, and its plan for developing a software ecosystem around the operating system remains unclear.
Huawei’s U.S. chief security officer, Andy Purdy, said in Australia on Tuesday that the Commerce Department could take longer to grant licenses than previously expected given the continuing China-U.S. trade talks.
“There is nothing chiseled in stone that indicates that several weeks is actually going to happen,” Mr. Purdy said, referring to recent comments from Mr. Ross that
licenses could be granted in the next few weeks.
—Mike Cherney contributed to this article.
Write to Dan Strumpf at firstname.lastname@example.org
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