Huawei has staunched the bleeding but can it regain overseas traction?

Will 2023 be the year when Huawei Technologies Co stops the rot and finally manages to reverse declining revenue? Analysts are optimistic it can, but the jury is still out on whether the telecoms 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 Shenzhen-based tech giant has made various 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 unmanned horizontal transportation 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 builds on its past work with private enterprises globally, leveraging its 5G connectivity and computing power to automate and upgrade various verticals, says 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,” said Ball. “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.

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 helping traditional industries, Huawei has also made a foray into the electric vehicle (EV) sector, with the high-profile launch of Aito cars, a brand launched jointly with Chinese electric carmaker Seres. However, competition in this space is cutthroat in China, and Huawei ranked only sixth among Chinese EV upstarts with a total of 76,180 units by the end of 2022. The company has also forged ties with a series of carmakers offering smart car components.

But 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 (US$91.5 billion) in revenue for 2022, basically flat compared to the previous year. Huawei said it has exited “crisis mode” and it is “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 from Canalys.

However, service deals with Chinese companies may not be enough for Huawei to revive its past glory days, which saw it expand aggressively across the globe with cost-effective, reliable telecoms equipment solutions. 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 US 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,” said Ball.

Tianjin port is not the only digital transformation project that Huawei is working on. In June 2021, Shanghai International Port Group launched its smart command and control centre project, the first project in the world to apply optical networking technology for centralised remote control in ports, with support from Huawei and other partners.

In a media event this month, Yue Kun, chief technology officer at Huawei’s Smart Road, Waterway & Port Business Unit said he believed that their work in Tianjin can 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,” said Yue, adding that ports which use a very different digitalisation approach will unlikely be potential clients.

Hao Fei, project director of the Huawei Team Transformation Support Office, told reporters at the same media event that 5G technology fits with the digitalisation plans of many industries. “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,” Hao said.

To date, Huawei has not provided any financial details about its Tianjin project. Yue said these kinds of projects are for long-term 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 himself in 2021.

In Taiyuan, capital of the northern Chinese 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 can 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.

However, this overseas enterprise push will face the same risks that its carrier business has had to endure in recent years, said Mark Natkin, managing director of Marbridge Consulting in Beijing.

“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,” said Natkin. “Foreign governments that have banned their telecom 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.” South China Morning Post