Huawei Extends Hot Streak in the Face of U.S. Blacklisting

Date: Wednesday, October 16, 2019
Source: The Wall Street Journal

HONG KONG—Huawei Technologies Co., the world’s largest maker of telecommunications equipment, reported accelerated revenue growth in the third quarter despite its U.S. export blacklisting.

The Chinese technology giant said smartphone shipments rose 26% to 185 million smartphones during the first nine months of the year. Huawei is the No. 2 maker of smartphones world-wide, behind Samsung Electronics Co.

The results suggest that the impact to Huawei’s core business from its addition to the U.S. Commerce Department’s entity list in May, on national-security grounds, has been limited. The blacklisting prevents companies from exporting to Huawei U.S.-sourced technology without a license. No such licenses have been formally given, although President Trump has signed off on some licenses, suggesting some may be granted soon.

Huawei’s update released on Wednesday offered only a limited window into its financial performance, making it difficult to determine exactly how the blacklisting is affecting the company. Its 5G business has been a target of a U.S. global campaign to persuade countries to block the Chinese company over cybersecurity concerns.

Revenue during the first nine months of the year rose 24% to 610.8 billion yuan ($86.2 billion), while its profit margin was 8.7%. The company didn’t disclose net profit for the period, a breakdown in performance of its different business line or any figures for the third quarter—the first full three-month period during which the company was subject to the entity listing.

However, calculations based on previous disclosures indicate that the company’s revenue in the third quarter rose 26.7% to 209.5 billion yuan ($29.6 billion), suggesting a faster pace of growth during the third quarter compared with the first half of the year.

Privately held Huawei from time to time reports unaudited financial updates, which includes self-selected disclosures. Once a year, it reports a more detailed audited report comparable to that released by publicly traded companies.

Huawei’s telecom equipment is used widely, although its products have been effectively shut out of the U.S. since a 2012 congressional investigation raised concerns that its gear could be used by Beijing to spy on Americans. Huawei has repeatedly denied it would ever spy on behalf of any government.

Under the Trump administration, U.S. officials have stepped up their assault on Huawei, pressing allies to shun the company’s equipment in their 5G wireless rollouts. The effort has had mixed success; Germany on Tuesday indicated it wouldn’t exclude Huawei from its 5G rollout.

Although Huawei’s blacklisting has cut it off from some components, it is still able to secure large amounts of American chips—manufactured outside the U.S.—and executives say the company has taken steps to mitigate the effects of the export ban. It has stockpiled large inventories of other U.S. components, secured alternative sources for other parts and is investing in proprietary chip technology to reduce its reliance on foreign technology. Huawei has said it is now manufacturing 5G base stations entirely free of American technology.

Huawei’s founder and CEO, Ren Zhengfei, initially said in June he expected the blacklisting to cost the company $30 billion in lost revenue, leaving it with revenue that was effectively flat for 2019. The company later said the impact would be more modest.

Huawei could face additional trouble if it permanently loses access to Google’s Android operating system on its smartphones—potentially dimming their appeal to many Western users. The company’s top-of-the-line Mate 30 smartphone, launched on Sept. 19, was the first Huawei smartphone to launch with only an open-source version of Android. Huawei has said it would prefer to continue using Android, although it is working on a backup operating system known as HarmonyOS.


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