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Exclusive: Huawei Scales Back Overseas Operation

Rebbeca Ren

posted on May 22, 2020 7:00 pmEditor : Chen Du

Since Huawei was put on the US Commerce Department's Entity List last year, the growth of some businesses has been hindered, Guo Ping, rotating chairman of the company, said at Huawei Global Analyst Summit in Shenzhen on May 18.

"Compared with our original business plan last year, there was a gap of $12 billion in revenue. And it is becoming more difficult for us to win contracts," said the chairman.

Furthermore, future circumstances may become even more severe, as the US government prepares to impose a new round of sanctions on Huawei, prohibiting Taiwanese chipmaker TSMC from supplying semiconductors to Chinese telecom behemoth.

Although the executive did not specify which businesses are under great pressure, sources familiar with the matter told PingWest that the company's overseas markets are feeling an "unprecedented ache."

Due to the dual impact of the COVID-19 pandemic and the US restrictions, the company intends to shrink its offices in some overseas locations, requiring some staff who are Chinese nationals to return to the Shenzhen headquarters "in batches," said the sources under the condition of anonymity for fear of retaliation. 

Many of these employees would still have a job at the company, working remotely on their work, according to two Huawei sources in different regions across the globe. However, there are chances that some who cannot attend to their original projects might not be immediately assigned to new positions in China.

The situation matches with what Huawei mentioned in one of its previous statements, that new sanctions could "impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries."

Huawei's 2019 financial report exposed that the overseas businesses are losing ground. Sales revenue in Europe, the Middle East, and Africa reached 206.07 billion RMB, a trifling increase of 0.7% compared to last year, when a growth rate of 24.3% was observed.

Huawei's Asia-Pacific region especially suffered last year, recording a 13.9% decline in sales revenue at 70.533 billion RMB.

In the first quarter of 2020, smartphone sales and carrier-facing business have encountered difficulties outside China, and the latest constraint from the US is like adding fuel to the fire, according to a source.

Since the US blacklisted Huawei to prevent its newly launched phones from accessing certain key Google services on the Android operating system, the company fell over 16% market share in Europe in Q2. As for the first quarter of this year, the overseas shipments dived 35%, data from Canalys demonstrated.

Currently, chips inside Huawei's main smartphone models are manufactured with TSMC's 7nm process. If the Taiwanese company is forbidden to supply, Huawei will not be able to take advantage of its 7nm and more advanced 5nm process in the pipeline. SMIC, another chipmaker in China that serves Huawei, is capable of making chips in the inferior 14nm process at best. However it too is faced with a choice of whether to continue supplying Huawei, since most of its manufacturing devices are from the US. 

The situation is dire since even if Huawei abandons Qualcomm's Snapdragon chips and uses in-house 7nm Kirin 980 instead, it would still rely heavily on manufacturing service providers like TSMC and SMIC. Following the US government's latest measure, TSMC has stopped taking new orders from Huawei. 

"We will now work hard to figure out how to survive," the chairman said at Huawei's annual analyst conference, "Survival is the keyword for us at present."

To add insult to injury, the latest US sanctions could also affect Huawei's carrier businesses overseas, banning it from sourcing radiofrequency devices from Taiwan, making it significantly harder for Huawei to fulfill the its current contracts to build 500,000 base stations worldwide.

Telia Norway and Denmark's TDC have already jettisoned the risky firm when selecting 5G vendors, and the UK's BT recently replaced Huawei technology with Ericsson's in its 5G core. Vodafone is spending €200 million to replace Huawei throughout its European core networks.

"Not long after the US issued new sanctions against Huawei, a European telecommunications firm, one of our partners, called us, inquiring if our company would survive," said one source. Another source told PingWest that in Southeast Asian markets, the company's 5G projects were pushing very slowly as the countries were focused on curbing the spread of COVID-19.

Huawei is requiring overseas Chinese employees who can work remotely to return to Shenzhen in an effort to save on cost. As overseas businesses continue to contract, more people would come back. 

"Those who return to China will no longer enjoy allowances designated for overseas staff, which accounts for a considerable portion of our income." confirmed the sources.

Huawei is far from being completely desperate. Thanks to the robust support from Chinese consumers, state-owned enterprises, as well as governments at all levels, its business has achieved impressive growth in the home market.

As the overall smartphone market shrank in the first quarter, shipments of OPPO, Vivo, and Xiaomi all went down by more than 20%. Meanwhile Huawei became the only vendor in China to achieve positive growth, with a year-on-year increase of 6%, accounting for 39% of the market share.

As the US is planning to impose stricter export controls on Huawei, some Chinese consumers label supporting the Chinese company as a kind of showing patriotism, encouraging people to purchase Huawei devices, including smartphones, laptops, and tablets.

Moreover, the company's carrier-facing business has been witnessing an extraordinary development in China and crushing other competitors. In the two most recent 5G program bids of China Mobile, Huawei won 57.25% and 50% of the business, respectively.

Huawei's cloud computing department has also been given more priority, as the Chinese government is accelerating the construction of the so-called new infrastructure, which combines the infrastructure with advanced technologies.