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Huawei aiming to turn the tide on falling revenue

Source: scmp

1_Huawei

Will 2023 be the year when Hua­wei Tech­no­lo­gies stops the rot and finally man­ages to reverse declin­ing rev­enue? Ana­lysts are optim­istic it can, but the jury is still out on whether the tele­com­mu­nic­a­tions equip­ment giant can build a plat­form for sus­tain­able global growth based on digit­al­isa­tion of infra­struc­ture.

After being hit by US trade sanc­tions in 2019, the Shen­zhen­based tech giant has made efforts to diver­sify its rev­enue streams, led by high pro­file pledges to play a big­ger role in help­ing tra­di­tional domestic indus­tries and the gov­ern­ment to digit­al­ise, using its prowess in 5G, arti­fi­cial intel­li­gence (AI), cloud com­put­ing and other tech­no­lo­gies.
An example of these efforts is an auto­mated smart port in Tianjin, a coastal met­ro­polis south­east of Beijing, which Hua­wei opened to the media this month. Here Hua­wei, in part­ner­ship with oth­ers, has built a fully auto­mated ter­minal, where con­tainer cranes can move cargo auto­mat­ic­ally and vehicles can run and charge them­selves.
Only when the sys­tem encoun­ters a prob­lem it can­not handle in its unstaffed hori­zontal trans­port sys­tem, a 0.5 per cent chance or lower accord­ing to Hua­wei, will it sig­nal for remote human inter­ven­tion.

Hua­wei’s efforts to forge deeper ties with tra­di­tional indus­tries built on its past work with private enter­prises glob­ally, lever­aging its 5G con­nectiv­ity and com­put­ing power to auto­mate and upgrade vari­ous ver­tic­als, said Mat­thew Ball, chief ana­lyst at research firm Cana­lys.

“Over­all, this is an exten­sion of what Hua­wei has been doing for years, even before the US sanc­tions, par­tic­u­larly its enter­prise busi­ness which had a strong ver­tical focus on deliv­er­ing solu­tions across its port­fo­lio,” Ball said. “It’s just that its smart­phone busi­ness has received more head­lines.”
Hua­wei’s once-luc­rat­ive smart­phone busi­ness has been hobbled by US sanc­tions that have cut off its access to advanced chips after it was added to the US Entity List in 2019 on national secur­ity grounds. By the third quarter in 2022, Hua­wei finally ran out of less advanced in-house-designed semi­con­duct­ors for its smart­phones.

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As part of its diver­si­fic­a­tion efforts, Hua­wei estab­lished so-called legions in Octo­ber 2021. These cross-depart­mental groups, called jun­tuan in Chinese, focus on digital trans­form­a­tion products and ser­vices for smart min­ing, cus­toms and ports, tech­no­lo­gies to reduce energy con­sump­tion at data centres, smart sys­tems for high­ways, and the photo­vol­taic industry.

Aside from help­ing tra­di­tional indus­tries, Hua­wei has also made a foray into the elec­tric vehicle sec­tor, with the high-pro­file launch of Aito cars, a brand launched jointly with Chinese elec­tric-car maker Seres.

However, com­pet­i­tion in this space is cut­throat in China, and Hua­wei ranked only sixth among Chinese elec­tric vehicle start-ups with 76,180 units by the end of 2022. The firm has also forged ties with a series of car­makers offer­ing smart car com­pon­ents. These efforts have man­aged to staunch some of the bleed­ing.

After report­ing its worst ever sales per­form­ance in 2021 with a 29 per cent slump, privately held Hua­wei is expec­ted to report 636.9 bil­lion yuan (HK$734.8 bil­lion) in rev­enue for 2022, basic­ally flat com­pared to the pre­vi­ous year.
Hua­wei said it had exited “crisis mode” and it was “back to busi­ness as usual” in 2023, accord­ing to rotat­ing chair­man Eric Xu in a new year’s mes­sage.

Given the pres­sure from US sanc­tions, Hua­wei “has per­formed well to report flat growth” in 2022, accord­ing to Ball.
However, ser­vice deals with Chinese com­pan­ies may not be enough for Hua­wei to revive its past glory days, which saw the com­pany expand aggress­ively across the globe with cost-effect­ive, reli­able tele­coms equip­ment solu­tions.

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For a time, Hua­wei briefly sur­passed Apple and Sam­sung Elec­tron­ics to become the world’s biggest hand­set vendor, before US sanc­tions clobbered sales and related national secur­ity con­cerns saw major 5G con­tracts at its car­rier unit can­celled.

In the past few years, the United States has moun­ted a dip­lo­matic effort to per­suade West­ern gov­ern­ments to scru­tin­ise net­work equip­ment con­tracts with Hua­wei, high­light­ing the poten­tial dangers of hav­ing sens­it­ive com­mu­nic­a­tions put at risk by a com­pany it alleges has close con­nec­tions with the Chinese mil­it­ary. Hua­wei has con­sist­ently denied these links.

“As it moves for­wards, these large deals [at home] will drive growth, but it will also need to extend and rep­lic­ate them inter­na­tion­ally so that it is not depend­ent on its local mar­ket,” Ball said.

Tianjin port is not the only digital trans­form­a­tion project that Hua­wei is work­ing on. In June 2021, Shang­hai Inter­na­tional Port Group launched a project that applies optical net­work­ing tech­no­logy for cent­ral­ised remote con­trol, with sup­port from Hua­wei and other part­ners.

Earlier this month, Yue Kun, chief tech­no­logy officer at Hua­wei’s Smart Road, Water­way & Port Busi­ness Unit, said he believed its work in Tianjin could be applied to other ports in China.

“In the past six months, dozens of port fel­lows came and vis­ited [our project] at Tianjin port … we are also dis­cuss­ing col­lab­or­a­tion. Our prin­ciple is that we wel­come them to use our approach if that fits their ter­minal,” Yue said.

Hao Fei, project dir­ector of the Hua­wei Team Trans­form­a­tion Sup­port Office, said: “We have picked many indus­tries in the enter­prise and gov­ern­ment sec­tors, not only cus­toms and ports … 5G is a tech­no­logy with large band­width, low latency, and wide con­nec­tion.”

To date, Hua­wei has not provided any fin­an­cial details about its Tianjin project. Yue said these kinds of projects were for longterm profit, which may not involve short-term prof­it­ab­il­ity.

Nev­er­the­less, the Tianjin port project offers a rare glimpse into how Hua­wei has been work­ing with tra­di­tional indus­tries in recent years with its legions, an effort that began with a high pro­file part­ner­ship with coal mines endorsed by founder Ren Zheng­fei in 2021.

In Taiy­uan, cap­ital of the north­ern coal hub of Shanxi, Ren told report­ers that the min­ing industry would be the first to use the model where sci­ent­ists and experts from dif­fer­ent cor­por­ate depart­ments could come together to find solu­tions to spe­cific industry prob­lems.

The legions model has been pushed out to inter­na­tional mar­kets. Last June, Hua­wei provided a 5G solu­tion for a South African plat­inum mine via a part­ner­ship with a local sub­si­di­ary of Chinese com­pany Zijin Min­ing Group.

Mark Natkin, man­aging dir­ector of Mar­bridge Con­sult­ing in Beijing, said: “Out­side China, a num­ber of Hua­wei’s cross-depart­mental ‘legions’ efforts may still face the same set of con­cerns that has neg­at­ively impacted Hua­wei’s car­rier busi­ness.

“For­eign gov­ern­ments that have banned their tele­coms oper­at­ors from buy­ing Hua­wei gear due to national secur­ity con­sid­er­a­tions are also likely to opt against using Hua­wei solu­tions in other areas of national infra­struc­ture, like ports or high­ways.”

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