How Huawei is trying to thrive despite sanctions and bans

Sanctions and restrictions in several countries—in response to fears that Huawei secretly uses its network and consumer products to spy on behalf of the Chinese government—are cutting into Huawei’s operations and sales. So the Chinese telecoms supplier has needed to shed unsustainable business lines and lean heavily into innovation to remain viable in the face of declining sales. But is pursuing a heavy R&D agenda to capture the growing demand for digitalisation enough?

The impact of sanctions and restrictions against Huawei products across the US, Canada, the UK, Australia, New Zealand, and some European countries has fundamentally altered Huawei’s business. It’s been forced to become more resilient against market and component restrictions as well as flexible in finding new avenue, declaring in its recently released 2022 report it’s in a better position to deal with uncertainty, something it’s had in spades over the years.

Huawei’s moves in response to bans from various governments that have limited its involvement in the telecom sector, is naturally moving the focus to markets where it can operate, said Hugh Ujhazy, IDC’s vice president for internet of things and telecom in Asia-Pacific.

“It seems to have largely pulled out of Australia and may well do the same in the UK. Europe has traditionally been a strong market for the business, but investments in Africa and Southeast Asia seem to be more relevant at this stage; Huawei continues to develop its customer base in the Philippines, Malaysia, Indonesia, and Thailand focusing on 5G deployments and on fixed and fixed-wireless access expansion,” Ujhazy told Network World Asia.

By the numbers: How sanctions are changing Huawei’s business

Its latest annual report shows the company in 2021 recorded 113.7 billion yuan (US$17.9 billion) in net profits and 636.8 billion yuan (US$100 billion) in revenue, although income was down across all key business units (carrier, enterprise, and consumer) compared to 2020.

In 2021, Huawei’s carrier business generated 281.5 billion yuan (US$44.2 billion) in revenue from a customer base that spanned some 170 countries across the globe, although this revenue was down from 2020. It also signed more than 3,000 commercial contracts for industrial 5G applications, underscoring the continuing importance of 5G to the business. Huawei CSO Andy Purdy told Network World Asia, “We’ve also adopted thousands of partners around the world. The enterprise market has been has been critically important; digitalization is critically important.”

Huawei also recorded mammoth R&D investment as it looks to scope out new opportunities in markets outside of where it faces sanctions or bans. Huawei’s annual report said the carrier business remained stable, while it’s moving its consumer business into new domains and enterprise is growing.

Purdy conceded one of the biggest impacts was losing access to semiconductors from the US suppliers for its mobile devices. “Although one of the claims against Huawei is that we pose a national security threat and that we’re a threat in 5G, the semiconductor [blockages] affected the mobile devices. It hasn’t really affected our 5G carrier business,” he said.

Purdy noted that with almost 50% of its carrier business outside the US, the telecoms giant is doing “fairly well”. But it’s really pushing divergence and the opportunities in digitalization, with everyone from energy and digital power to smart roads, customs, and ports. It’s all part of the company’s “determination and commitment to find a way to overcome the obstacles”, he said.

Not quite business as usual for Huawei

International telecommunications consultant Paul Budde said there’s a higher economic payoff in the corporate market compared to consumer, although it’s a harder, longer-term play—but things like sanctions compel a business to make seismic market shifts. “The sales cycles can take years, so that’s one of the reasons why when everything is going well there’s no bother because it takes such a long time and such a lot of effort. [But, if successful,] the rewards are big—once you have that platform set up,” he said.

Budde said he see Huawei looking at how to extend its IT knowledge, and “therefore its products, into things like smart housing, smart energy, smart cities, and smart manufacturing while also looking at new corporate customers”.

With its huge investment in innovation, to the tune of 142.7 billion yuan (US$22.4 billion) in 2021, representing 22.4% of its total revenue, the telecoms giant has plans to continue lifting its spend in this area. Budde said that “it’s about utilizing the research and development, which is very big, to actually start looking at new innovations and new things”.

The telecoms analyst said Huawei has been a leader in innovation in mobile technology, ahead of companies including the European telecoms giant Ericsson. “It’s well positioned to come up with innovative developments over the next couple of years,” he said. He also sees something of a political element in coming up with the latest innovations “to outshine the US and Europe in some technologies—even if they can’t buy the products”.

Changing strategic directions at Huawei

IDC’s Ujhazy described Huawei’s initiatives as taking a strategic direction to become a leader in ‘”beyond 5G”: “With slightly less than half of its carrier sales coming from the Chinese carriers, China has become a critical market to further hone its technical 5G prowess including massive MIMO, 5G private wireless networking, mobile edge computing, and network slicing across many industries, including utilities, transportation, healthcare, and manufacturing.”

Independent analyst Budde said going beyond retail and into enterprise means that Huawei is going into far more difficult markets, which requires far more technology skills and more negotiation in the approach. It’s about forging entire new enterprise relationships and new business, which means that “Huawei has to work with the government, with the city, with the developers”, he said.

The impact of the US restrictions in particular has necessitated that Huawei review its products as well as the sourcing of supplies for these products—and even make preemptive strikes. Purdy said that on several products Huawei accelerated the end of their useful life. “We stopped supporting certain products because we only had certain chips and we had to redirect certain chips into our carrier 5G business. The ones with the longest useful life stayed,” he said.

But its strategic dissection hasn’t stopped there. “The export controls, together with chips shortages as a result of the pandemic, really forced us to reevaluate our supply chain and try to make sure we had confirmed sources of supply for the most important most essential components,” Purdy said.

With enterprise is a continuing growth focus for Huawei, IDC’s Ujhazy said, there may be moves against big-name rivals. “With a wide portfolio of IT, applications, and data center products, it would make sense to take on the likes of Cisco to attack the enterprise market,” he told Network World Asia.

However, Huawei may be hindered in some of its efforts to build a partner network to deliver on connected solutions without the necessary product and technology offerings. Still, “this may be something it can overcome through strategic acquisitions and focus on partners in underserved segments of the market,” Ujhazy said.

Huawei’s approach to technology and trust: ‘Don’t single us out’

Describing the “complex situation” in countries like the US and Australia that have bans and sanctions, Purdy says all countries need to be vigilant about cybersecurity and the spectre of attacks. Citing the SolarWinds and Exchange Server attacks, the Huawei CSO and former US federal prosecutor said the idea of a so-called “trusted vendor” is no longer adequate. “Hackers can attack everybody, so to raise our defences we really need to test everybody’s equipment,” he said.

Purdy said he wants to see a raising of international standards and conformance programs, greater transparency, and greater information sharing. “All these things are necessary so that we can have a cyberspace safe enough to depend on the technologies that we’re coming to need so much. … I understand the US has a tremendous scepticism of China and is concerned about the importance of 5G communications, but there needs to be an objective and transparent basis for knowing which products and services are worthy of trust, wherever they come from, and the global community needs to do much greater job of that,” he said.