U.S. Set Out to Hobble China’s Huawei, and So It Has

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The big maker of telecom gear and phones lacks advanced chips and is facing customers who call attention to restrictions or doubt the company’s technical credibility.

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Huawei is in the midst of a deep recession. As recently as early last year, the world’s largest maker of telecommunications equipment was gaining market share in the 5G rollout and headed for the top of the global smartphone market, following a year of export restrictions imposed by the Trump administration. off the.

Now, its revenue has dropped for three consecutive quarters. The company has fallen to number 9 in smartphone sales, whose buyers are moving from Europe to China. Its global telecommunications market share is declining as it has lost key markets, it is designed to curb the spread of Huawei’s 5G technology as a result of US pressure and the ability to remain technically competitive by some customers. But there is concern.

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Components for lines of business such as mobile phones are running scarce, a result of far-reaching rules enacted by Washington that curb the ability of Huawei – which the US has accused of stealing trade secrets and violating sanctions – To obtain parts and software by using. American technology. Huawei has denied the US allegations.

US officials and members of Congress call Huawei a national security threat, concerned that the Chinese government could use the privately held company’s gear to spy on telecommunications networks around the world or intercept communications .

Huawei has repeatedly denied that it poses a security threat and said that the US action was unfair. The company has increased its lobbying and public relations budget in the US in an effort to get Washington to reconsider, but the US has not given the company a clear path to lift the sanctions.

US-imposed sanctions have also blocked Huawei’s access to chips from suppliers outside the US, prompting the Chinese company to sell its budget phone unit and estimate up to $40 billion in lost smartphone revenue this year Is. It relied on China for two-thirds of its revenue last year, compared with half in 2017.

Washington’s campaign has used some of the most destructive tools in its arsenal, and they have succeeded, forcing Huawei to experiment with new business lines, abandon overseas territory, and promote a supply chain independent of the US. While it has a stock of high-end chips. Happens. Rarely has America taken such a large foreign company directly and had such an impact.

Huawei executives, who often refer to the fight for survival, are leading the company towards electric vehicles, software and coal-mining technology. Many efforts remain nascent and make up a small portion of the revenue.

Huawei’s core business of selling telecommunications equipment has also started to suffer. Huawei has said that in the first half of 2021, revenue from selling telecom carrier gear such as base stations and routers fell 14% from a year earlier to 136.9 billion yuan, about $21 billion.

Despite its troubles, Huawei posted profits each quarter and disclosed $55 billion in cash and short-term securities late last year. Executives attribute Huawei’s hefty research and development budget to its insurance plan. Last year it said it spent $22 billion on R&D, more than Apple. Inc.

spent in its most recent financial year.

Huawei said it expects revenue from selling telecom equipment will eventually show “moderate, but solid, growth” by the end of the year as China’s 5G rollout picks up steam. But it acknowledges that its new ventures are unlikely to offset the loss of revenue from declining sales of its smartphones anytime soon.

Ms Meng arrived home on 25 September to welcome a hero as part of an apparent prisoner exchange between China and Canada. It has banned Huawei’s activities while opposing extradition to the US after it was accused of lying to one of its banks about Huawei’s alleged business in Iran.

The daughter of Huawei’s powerful founder and CEO Ren Zhengfei, Ms Meng pleaded not guilty, but admitted some wrongdoing in return for the US. postpone the prosecution and drop the charges against him the following year, provided he does not violate the terms of the agreement.

While the deal that freed two Canadians from Chinese prisons is seen as a major victory for Huawei in China, there are few signs of the US easing sanctions on the company. Biden administration officials said Ms Meng’s release did not indicate a softening of US policy. Commerce Secretary Gina Raimondo told news outlets that her department would continue efforts to prevent Huawei from receiving the upgraded chips.

In June 2020, Huawei opened a massive retail store in an Art Deco building in Shanghai. Fans lined up outside, eager to see tables spread out with smartwatches, tablets and smartphones inside.

Today, visitors face a different view. On a weekday in August, three hybrid SUVs were on prime display while mobile phones were carried to a side table where a sales clerk warned that many were not in stock. Huawei is pushing long-standing business lines and throwing its weight behind novel ventures such as systems used in electric cars.

The vehicle on display was the Ceres SF5 built for Huawei by a small Chinese auto maker. Huawei designed the car’s electric-drive system and its electronics. It has put up state-owned auto maker BAIC Automotive Group Co for sale by the end of the year. A more advanced vehicle has also been developed with it.

Huawei has said it will sell cars at 1,000 stores across China by the end of this year. Officials set an ambitious target of selling 300,000 vehicles next year, nearly twice that of Tesla Inc.

Sold in China since August this year.

Huawei’s consumer-business chief, Richard Yu, said earlier this year, “By selling cars, Huawei can offset the impact of declining profits due to US sanctions on our phone business.”

It is facing fierce competition in China’s crowded electric-vehicle industry. EV sales are booming, but hundreds of entrants have emerged. China’s chief tech regulator encouraged consolidation in September, having said that there are a lot of companies in this field.

Other new Huawei enterprises indicate a transition from hardware to software that requires overseas supply chains.

Cut off by US sanctions from most Google Android features, Huawei this summer debuted an in-house operating system called Harmony OS for smartphones. Engineers spent years developing it, first bringing it to gadgets like smartwatches and speakers. Executives resisted deploying it on smartphones, but the loss of key functions on Huawei’s Android-powered phones forced their hand.

Officials expect the new system to be adopted by other mobile-phone and gadget vendors. So far, the main buyers have been Chinese manufacturers of Internet-connected devices such as Haier Group and Media Group..

Huawei says that more than 100 million phone users are now running Harmony OS.

According to Neil Shah, vice president of research at Counterpoint Research, a Hong Kong-based firm, users are almost entirely limited to China. US sanctions block popular US apps like Netflixhandjob

Facebook and Uber from Huawei’s App Store have weakened their appeal in Western markets. Xiaomi Corp. Chinese rivals, including Huawei, which has replaced Huawei as the country’s top global smartphone vendor, continue to run Android on their devices.

Other ventures unveiled this year include bringing artificial intelligence to pig farming and building 5G-connected cameras to monitor fish farms. In May, the Hong Kong-based beauty-products vendor tapped Huawei to supply retail technologies such as data analytics and electronic payments.

“None of these efforts in these novel areas will be enough to offset the decline in smartphone sales,” said Dan Wang, a Shanghai-based technology analyst at Gawekal Dragonomics, a Hong Kong-based research firm.

Earlier this year deputy chairman Eric Xu said the company had found ways to increase chip inventory. Something seems to be coming to an end: Huawei’s latest flagship smartphone, the P50, was launched in July without 5G connectivity. Huawei cited a lack of advanced chips.

“Due to US sanctions over the past two years, we no longer want to use the best components to make the best products,” Ren said in an August speech to employees. Instead, he said, Huawei was “turning to the appropriate components to create high-quality products, which have significantly improved our profitability.”

Huawei has said that its core business of selling telecommunications equipment such as base stations, routers and switches is still a good supply.

Huawei has been barred from 5G rollouts in nine markets, including the UK, Australia and Japan, following a US campaign alleging security risks in the Chinese company’s networks, according to a March tally by the Council on Foreign Relations. Even more have placed restrictions on the company’s technology.

According to Dell’Oro Group, Huawei’s telecommunications-equipment market share declined to 29% during the first half of this year, from 31% in 2020, after increasing every year since 2007.

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