China
Trump’s blacklisting of #Huawei is failing to halt its growth
It turns out they were far too pessimistic. Huawei recorded an 18% rise in sales to a new high of 850 billion yuan ($122 billion) last year, although that was down from about 23% in the first half and missed its own internal targets. Company projections for 2020 are similar. Huawei holds the enviable position of being the world’s largest supplier of communications equipment to telecom operators and the largest smartphone maker globally after Samsung Electronics Co.
Huawei isn’t just surviving; it’s actually thriving in some areas. The question is for how long. Last week, executives warned in a New Year’s memo that survival itself is a priority, urging employees to brace for a difficult 2020. Inventories stockpiled months in advance of the May blacklisting are drying up. The company can no longer count on momentum alone to drive the business, Rotating Chairman Eric Xu warned.
How Huawei survived the US blacklisting could prove a case study in unintended consequences and a vast shift underway in global IT production. Huawei is a big customer for all of its suppliers, and a few actually cut ties after the blacklisting. Others lost out to rivals in Japan and South Korea. But American companies with extensive global operations, including Microsoft Corp. and chipmaker Micron Technology Inc., found legal ways around the ban, leaning on production outside the U.S. so Huawei-destined products wouldn’t be hit. Huawei itself put armies of engineers to work redesigning products to reduce its reliance on American parts.
Trump’s attack also had surprising implications for Huawei’s brand. A few countries, like Australia, agreed with the US president’s assessment and barred its equipment from their networks. But in the rest of the world, Huawei’s name recognition soared. After laboring in obscurity for decades, the maker of digital piping was suddenly front-page news everywhere. Beyond the U.S. and its close allies, telecom operators wanted to find out what all the fuss was about. In China, consumers and carriers rallied to Huawei’s side in response to what they saw as unfair persecution, driving a sales boom.
The Trump sanctions in some ways validated Huawei’s ability to develop cutting-edge technology, from fifth-generation networking gear to AI chips. On Tuesday (7 January), the new head of Canada’s biggest telecom firm, BCE Inc., became the latest to publicly endorse the Chinese company’s gear.
“It’s quite a stupid thing the U.S. is doing,” Zhang said, a key architect of Huawei’s global ambitions and efforts to mitigate the impact of American sanctions. “They are confused about how this business works.”
Huawei’s a global goliath with revenues more than General Electric Co. or Boeing Co. In just three decades it’s grown from an obscure re-seller of switchboards into one of the world’s biggest private companies, with businesses from telecom to cloud computing to cybersecurity. After plowing billions into research, the company is now among China’s top recipients of international patents, edging out rivals Nokia Oyj and Ericsson AB in a technology that underpins applications from robotics to AI.
Huawei started to tap overseas markets in the late 1990s, dispatching sales representatives to Russia, Southeast Asia and Africa, where competition was less intense than in developed arenas. It used lower pricing as a wedge to gain entry, then tried to one-up its rivals on round-the-clock customer service. One of its earliest markets was Malaysia, where it wielded that formula to great effect. “I was asked by one of the board members to consider Huawei. I remember my response at the time was, I don’t want to waste my time,” Jamaludin bin Ibrahim, chief executive officer of Malaysian wireless carrier Axiata, said. “When they started initially, it was price that gave us confidence.”
Once Huawei secured the contract, they pulled out the stops. According to Jamaludin, Huawei’s then rotating-CEO would get personally involved in Axiata problems or maintenance issues. When friction developed between Axiata ground staff and Huawei workers assigned to the contract, Jamaludin called the Chinese company’s rotating CEO and within two days, all the Huawei employees had been re-assigned, he said, describing rarely disclosed, behind-the-scenes details of how Huawei conducts business. Today, Huawei gear occupies about 80% of Axiata’s core network, he said. While the equipment isn’t necessarily always the most capable or advanced, the Chinese company has other things going for it. “The combo of tech, customer service, support and price is what makes it stand out,” Jamaludin said.
Cultivating such deep ties in countries like Malaysia appears to have paid off. Last May, Prime Minister Mahathir Mohamad said the Southeast Asian country will use Huawei’s gear “as much as possible” as they offer “tremendous advance over American technology.”
How Huawei landed at the centre of global tech tussle: QuickTake
Huawei executives like to trumpet instances where employees go above and beyond to get the job done. Sometimes, they also seize the initiative. In 2003, without Ren’s blessing, some Huawei executives decided to venture into mobile phones. It wasn’t until the early 2010s that Huawei made its first smartphone, and early models were no-frills, basic affairs that competed on price -- much as its networking gear once did. But within a half-decade, Huawei had used a combination of savvy marketing (partnering with Leica in 2016 on cameras was a master-stroke) and research to move up the value chain and challenge Apple Inc. and Samsung.
It’s in smartphones that evidence of Huawei’s diversification efforts emerge. Launched last fall, the marquee Huawei Mate 30 Pro handset uses communications modules from Japanese supplier Murata Manufacturing Co. Ltd. and contains a number in-house components. This contrasts with the Mate 20 Pro released a year earlier that relied on components from U.S. wireless semiconductor manufacturer Skyworks Solutions Inc.
Huawei’s smartphone business is now the world’s No. 2, growing shipments 16.5% to a record 240 million units in 2019. Much of that growth came from China, where Trump’s sanctions have little effect since the Google apps it’s shut out of can’t be used anyway. Even some senior Huawei executives hadn’t expected the smartphone business, which today contributes about half of revenue, to survive the sanctions, not to mention expand.
But this year may not be so rosy. “Huawei faces strong challenges in 2020, especially on the smartphone business,” said IDC analyst Will Wong. “Its retail channel will face immense pressure as some buyers may turn to Samsung or another brand since the latest Huawei phones lack support from Google Mobile Services.”
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