Abu Dhabi, UAETuesday 14 July 2020

Huawei faces difficult 2020 as US mounts pressure on China's top tech company

The firm says it will overhaul its management next year despite a rise in 2019 revenue

Huawei invested $15bn in R&D in 2018 and has plans to invest an additional $100bn over the next five years. Reuters
Huawei invested $15bn in R&D in 2018 and has plans to invest an additional $100bn over the next five years. Reuters

An ongoing campaign against Huawei by the US government will make 2020 a difficult year for China's biggest technology company, with the firm set to overhaul its management despite a rise in sales this year.

Huawei is confronting a “strategic and long-term” campaign against its business by the US administration and “if the campaign persists for long, it would be difficult to survive and thrive”, Huawei's current chairman, Eric Xu, said in a New Year’s message to 190,000 employees.

The company plans to fire as many as 10 per cent of the company’s worst-performing managers in 2020. It also plans to merge support and operational units or could downsize them as it reassign workers to other divisions.

"Survival will be our first priority" next year, he added.

The embattled company predicted an 18 per cent year-on-year rise in 2019 revenue to 850 billion Chinese yuan (Dh447.7bn). The tech giant last year reported revenue growth of almost 19.5 per cent.

“These [2019 revenue] figures are lower than our initial projections .… yet business remains solid and we stand strong in the face of adversity,” he said.

As the world’s second-largest producer of smartphones, Huawei sold 240 million handsets this year, nearly 34 million more than last year, according to the company.

Huawei has been in a dispute with the White House, which accuses it of involvement in high-tech espionage for the Chinese government, for months. The Donald Trump administration has pushed its allies such as the UK, Australia, Canada and Norway to exclude Huawei from lucrative 5G network deals. However, Huawei has repeatedly denied having ties to the Chinese authorities and refuted claims its products could be used for spying.

The tiff with the US administration will impact revenue growth next year and will not reach the 23 per cent rise seen in the first half of this year, said Mr Eric.

“The external environment is becoming more complicated than ever .… downward pressure on the global economy has [also] intensified,” he said.

“The US government will continue to suppress the development of leading technology… a challenging environment for Huawei,” he added.

The White House, in May, barred US companies from doing business with Huawei, the world's largest telecommunications equipment maker, without prior special approval from US trade authorities.

US technology companies such as Google – owner of the Android operating system – grudgingly complied, but conveyed their displeasure to the administration on potential loss of revenues.

Earlier this month, the US Secretary of State Mike Pompeo urged European Union governments to work with domestic telecoms companies Ericsson and Nokia to build 5G networks and deny Chinese companies an opportunity to take “control” of their vital infrastructure.

Nevertheless, Huawei aims to “go all out” in 2020 to build its own mobile services ecosystem, offering cloud storage and an app gallery. This will be the “foundation of our ability to sell smart devices in markets outside China”, said Mr Eric.

Shenzhen-headquartered Huawei is one of the world’s largest investors in research and development. The company invested $15bn in R&D in 2018 and has plans to invest an additional $100bn over the next five years.

To win global support, it has also established testing centres in the UK, Belgium and Canada to allow for independent testing of Huawei’s equipment.

The Huawei ban could also backfire for the US as counter-measures could cost the world's biggest economy up to $240bn, according to a study by American economist Debra Aron.

The supply ban will prompt Huawei and Chinese government to accelerate their technology investment to “reduce reliance on foreign suppliers”, said S&P Global Ratings. This could eventually “lower” the long-term growth prospects of US technology firms, the ratings agency said.

A Financial Times report earlier this month, citing Chinese technology analysts, said the Chinese government has ordered all public sector offices and institutions to remove all foreign hardware and software within three years.

Updated: December 31, 2019 07:11 PM

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