Huawei Beats Revenue Expectations

But good results marred by UK ban on its network equipment

On 14 July, Huawei published its financial results for the first half of 2020, and the company delivered a stronger performance than many expected, as it dealt with severe attacks on its international business and amid the global pandemic.

Huawei reported a 13.1% rise in its revenue year-on-year to 454 billion yuan ($64.25 billion) and a net profit margin of 9.2% despite the lockdown from the Covid-19 pandemic. Revenue from the consumer business, including mobile devices, totalled 255.8 billion yuan ($36.2 billion), or 56% of the total, and the network division posted revenue of 159.6 billion yuan ($22.59 billion). The split of revenue by business group was roughly the same as in 2019, suggesting that the network and consumer divisions are currently growing at about the same rate.

Although it didn’t disclose a geographic split of its revenue, it’s fair to assume that a lot of Huawei’s growth comes from China. The company is doing well in its home market and we expect it to continue to do so for the foreseeable future.

Huawei remains the leading smartphone brand in China by far. The country saw its mobile phone shipments slip by 36% year-on-year in the first quarter of 2020, in which a large part of the population was in lockdown for several weeks. But demand has since improved, and the decline in shipments in the second quarter was just 5%.

Importantly, demand for 5G handsets in China has soared since 5G services went live there on 1 November 2019. Official data from the China Academy of Information and Communications Technology shows that in the second quarter of 2020, 50 million 5G handsets were shipped in China, making up 48% of the total shipments. Huawei has clearly managed to take advantage of this opportunity.

Huawei’s network business is also performing well in China, where the expansion of 5G networks in progressing apace: the number of base stations is on track to increase to as many as 600,000 by the end of 2020, and according to the country’s Ministry of Industry and Information Technology, 5G networks will cover almost 300 Chinese cities.

Huawei is playing a major role in this development. In early April, it was awarded more than half of China Mobile’s contract for 5G base stations, which is worth 37 billion yuan ($5.2 billion). A few weeks later, China Telecom and China Unicom, which deploy 5G together, awarded 88% of their 32 billion yuan ($4.6 billion) tenders to Huawei and ZTE, and although the split between the two suppliers wasn’t revealed, we expect Huawei to have taken a sizeable chunk.

The release of such a solid set of results for the first half of the year was good news for Huawei, especially as the company made headlines on the same day, when the UK government announced its decision to ban the purchase of Huawei’s 5G equipment and to mandate that all home networks be free of Huawei equipment by 2027. Other major 5G markets like France and Germany are still facing the dilemma of whether to ban Huawei or not.

Faced with an uncertain future outside China and mounting pressure on its business, Huawei is becoming more reliant on its home market, where demand for 5G connectivity isn’t going to subside anytime soon.