Huawei revenue to ‘shrug off’ trade war

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 04 Feb 2020

Although it finds itself caught in the middle of a crossfire between the US and China, Huawei’s revenue is unlikely to take a thrashing “anytime soon” as a result, says GlobalData.

As the trade war between the world's two biggest economic powers intensified last year, the US put Huawei on an export blacklist, citing national security issues. The US also rallied its allies to cut the Chinese telecommunications equipment maker out of planned 5G networks.

The blacklist saw US tech companies, including Alphabet’s Google and British chip designer ARM, limit or cease their relationships with the Chinese company.

At the time, Huawei founder and CEO Ren Zhengfei expressed concern that his company would lose $30 billion in revenue as a result of restrictions imposed by the US government.

However, GlobalData highlights that the sanctions “will not significantly impact the company’s revenue as it generates less than 1% of revenue from the US”.

The data and analytics company indicates Huawei generated 52% of its global revenue from its domestic market China in 2018. In addition, the Europe, the Middle East and Africa (EMEA) region accounted for 29% of revenue in the same year.

In spite of the ban on US exports starting in May 2019, the company reported an 18% jump in revenue to more than $120 billion in 2019, states GlobalData.

Kantipudi Pradeepthi, research analyst of telecoms market data and intelligence at GlobalData, explains: “Europe is a key market for Huawei to deliver next-generation 5G equipment. Huawei board member and senior vice-president Catherine Chen said that so far, Huawei had won more than 50 worldwide 5G commercial contracts, of which 28 have been signed with European operators.”

5G exclusion

GlobalData says initially, the European Union (EU) considered banning Huawei due to pressure from the Trump administration.

However, the EU countries later realised that banning Chinese companies for telecoms equipment would add $62 billion to the cost of 5G and eventually delay technology by about 18 months.

As a result, the EU countries plan to ban Huawei from the core network infrastructure, but not from the 5G network radio component.

While the US warned UK prime minister Boris Johnson not to approve Huawei for its 5G rollout, the UK government confirmed plans to give Huawei a “limited role” in the UK's 5G network.

According to GlobalData’s Asia-Pacific Mobile Broadband Forecast Pack, 5G is expected to hold 21.3% of the total subscription share in the region by the end of 2024. However, 4G will remain as the dominant leader during the forecast period.

Pradeepthi states: “Huawei has identified cyber security as a major threat and to counter this risk it allocated $2 billion. Huawei opened the European Cyber Security Transparency Centre in Brussels in March 2019. Competitive prices and technology give Huawei advantage over its 5G competitors such as Ericsson and Nokia.

“A rapid reconfiguration of the supply chain has also allowed the company to shrug off the US sanctions. On the other hand, the world’s second-largest telecoms market India has recently permitted Huawei to participate in the trials of its 5G spectrum. As a result, the company may retain its position in the global telecom market in the near future.”

Meanwhile, Huawei and ZTE have both asked the Federal Communications Commission (FCC) not to finalise its designation of the China tech giants as risks to US national security, according to Reuters.

This after the FCC voted 5-0 to initially designate Huawei and ZTE as national security risks in November last year, a move that would bar their US rural carrier customers from tapping an $8.5 billion government fund to purchase equipment.

According to the news outlet, Huawei says the action was “designed to implement a campaign by certain government officials, including members of Congress, to single out Huawei for burdensome and stigmatising restrictions, put it out of business in the United States, and impugn its reputation here and around the world”. It called the effort “unlawful and misguided”.

Similarly, ZTE asked the FCC to “take additional time to assess ZTE’s enhancements in the area of US export control and economic sanctions compliance and security controls in ZTE products”.

The commission left the final determination to the FCC’s Public Safety and Homeland Security Bureau, which could determine not to finalise the risk designation, states the Reuters report.