Huawei, hit by US sanctions, reports falling profits

Chinese telecommunications giant Huawei Technologies reported a nearly 70% drop in annual profit on Friday, a setback that encapsulates the economic scars wrought by escalating US sanctions, rising commodity prices and ongoing restrictions in pandemic case.

Net profit in 2022 fell 69% from a year earlier to 35.6 billion yuan, or just over $5 billion, Huawei said Friday at an annual conference in Shenzhen, China. China. But the company managed to post a 0.9% gain in revenue to 642.3 billion yuan.

The company blamed the drop on pandemic shutdowns and U.S. sanctions, higher commodity prices triggered by supply chain disruptions, increased investment in research and development, and a one-time increase in profits the previous year thanks to the sale of its Honor mobile phone arm.

Huawei has served as a symbol for tech competition between Washington and Beijing, becoming an indicator of how Chinese tech companies have adapted to the US’ global campaign to cut off China’s access to critical technologies.

US officials have long suspected that Huawei has close ties to the Chinese government, fearing that its technologies, such as 5G telecommunications equipment, could be used as surveillance tools. Huawei, a private company, denies having ties to the state.

The Trump administration began restricting semiconductor sales to Huawei in 2019. Last year, the Biden administration expanded those controls, cutting off Huawei’s access to U.S. consumers and suppliers and imposing a punitive freeze on chip manufacturing equipment to large parts of China’s semiconductor industry.

The measures amounted to a “nearly complete embargo on American technology and American products” for Huawei, said Daniel B. Pickard, a lawyer at Buchanan Ingersoll & Rooney and an expert on US export controls. “I always think of Cuba, stuck in the 1950s and 1960s only because of a unilateral embargo by the United States.”

The sharp decline in profits, along with Huawei’s acknowledgment of its economic challenges, was emblematic of the new economic reality for some Chinese companies. Last week, the chief executive of TikTok, which is owned by Chinese company ByteDance, withstood five hours of hostile questioning during a hearing before US lawmakers.

On Friday, Huawei executives acknowledged growing geopolitical challenges, while adopting a defiant tone. China’s semiconductor industry has suffered a “continuous stream of sanctions”, said Eric Xu, rotating chairman of Huawei, adding that “China’s semiconductor industry will not sit idly by, but make efforts for self-saving, self-reinforcing and self-reinforcing”. addiction.”

In recent years, Huawei has diversified its business in an effort to wean itself off US parts. After selling off part of its smartphone business, the company said, it moved to cloud computing and stepped up integration of software and hardware used in manufacturing systems and smart cars.

Huawei said it also invested heavily in research and development, including a semiconductor investment fund launched in 2019 as Washington tightened sanctions. The fund has supported more than 80 Chinese companies.

Xu said Huawei, together with a number of Chinese companies, has developed chip design tools to enable Chinese companies to manufacture more advanced semiconductors. He heralded it as a boon for the Chinese chip industry.

But analysts were skeptical of Mr. Xu’s claim, pointing to the challenges of doing so without American parts or American-sponsored machinery.

“There are a lot of questions,” said Douglas Fuller, associate professor at Copenhagen Business School and expert on US export controls. “Is this a unique piece for a specific chip involving tools of dubious IP origins?”

Mr. Xu joined Huawei chief financial officer Meng Wanzhou, who had returned 18 months earlier from a nearly three-year extradition battle on Huawei-related fraud charges.

Ms Meng, the daughter of Huawei founder Ren Zhengfei, was due to take on a six-month rotation as chief executive on Saturday, a sign of her growing role in China’s drive to tech stardom.

At the conference, she spoke candidly about the company’s situation. When a reporter asked how Huawei could reconcile its claim to financial stability with a huge drop in profits, she replied, “Overall, we still exist and we will continue to exist. It is the best embodiment of financial strength.