Against the backdrop of the global coronavirus pandemic, it was always going to take some effort on Huawei’s part to recapture the media frenzy of months gone past as it announced its 2019 results on March 31. And, in fairness, the tech giant did its best, threatening that China would punish the U.S., cutting the tech supply chain to American companies if the campaign against Huawei continued.
Huawei’s chairman, Eric Xu, did not hold back in his comments to reporters. “The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board,” he warned. “Why wouldn’t China ban the use of 5G chips or 5G chip-powered base stations, smartphones and other smart devices provided by American companies, for cybersecurity reasons?”
As for the actual results, Huawei described 2019 as “a solid performance,” but cautioned that 2020 would be much harder. Last year continued an uninterrupted decade of growth—sales up 19% to $123 billion, net profits up slightly to $9 billion and another $19 billion invested back into R&D. The year was “extraordinary,” Xu tried to assure in a statement, “despite the enormous outside pressure.”
Huawei’s results were driven by two factors, both rooted in China, both now a business concern. First there was the 36% sales growth in China, now accounting for almost 60% of revenues, balancing disappointing performance elsewhere. Huawei’s international hedge against a domestic shock has diminished. And, second, Huawei’s consumer business was up 34% to $66.9 billion—with the networking and enterprise business units showing only single-digit growth.
Huawei’s smartphone business was driven by its stellar market share in China—where the company now has 38.5% market share, up from 27% in 2018. Elsewhere, the smartphone business struggled, with the flagship Mate 30 launch falling flat in the fall, shipping without Google’s software onboard. Smartphone shipments for 2019 have already been shared: the company shipped 240 million units—still growth, but nowhere close to the 300 million it needed to topple Samsung.
All of this is a liability for 2020. Fresh from the launch of the P40, another phone lacking Google’s bells and whistles, Huawei is now completely dependent on China for its growth. These results suggest that any slips at home will be damaging. And so the competitive moves by its domestic smartphone rivals are a major worry.
Last month, Huawei’s leading domestic rival, Xiaomi, overtook the tech giant for the first time in smartphone shipments. This is a big deal. With Huawei dependent on domestic sales, and China’s 5G obsession, these hungry tech players smell blood. Until the blacklist hit last May, Huawei was building an international powerhouse. That has now changed. Huawei expects smartphone shipments to decline this year. Meanwhile, Xiaomi which reported its own 2019 results on the same day as Huawei, bragged that in the fourth quarter of 2019, “it achieved the highest year-over-year smartphone shipments growth among the top five smartphone companies.”
The 2020 smartphone battle in China will be fierce.
Worse for Huawei, the much smaller Xiaomi is ploughing new international markets at will. “In 2019,” the company says, “Xiaomi’s revenue from overseas markets was up 30.4% year-over-year. In the fourth quarter, overseas revenue grew 40.7%—accounting for 46.8% of total revenue.” This includes European growth of “115.4% year-over-year in the fourth quarter—smartphone shipments in Spain, France and Italy grew by 65.7%, 69.9% and 206.2% respectively.”
“The external environment will only get more complicated going forward,” Huawei’s Xu admitted as he presented the results. And while this is primarily the blacklist and the impact that COVID-19 is having on global sales, there is also Huawei’s Chinese poster-child status, putting it front and centre as a target. In the U.K., for example, there are reports that the government may reverse its marquee decision to allow Huawei into its 5G network over China’s alleged coronavirus disinformation.
As 2020 rumbles on, Huawei also has the new fear that U.S. blacklist restrictions are set to get worse, stemming the flow of chips that carry its IP onboard. Xu played this down, suggesting Huawei can access tech from Korea’s Samsung and Taiwan’s MTK instead. But judging a coincidentally-timed editorial in Chinese government media, Washington’s latest threat is a big deal. “The U.S. government will have no chance of strangling the Chinese company to death,” China Daily warned. “And if new measures are implemented, the Chinese government will have no choice but to do the same to U.S. companies.”
Three months ago, in a New Year message to staff, Huawei’s Xu warned that 2o2o was set to be a hellish year for the business, saying that “survival will be our first priority.” On the surface, this set of results has some positive headline numbers—and that’s certainly how they will be presented. But read what’s actually being said, take a look at the drivers behind those numbers, and that story of continued momentum and investment has a somewhat different slant.