Abu Dhabi, UAEThursday 24 October 2019

US ban stings Huawei hard, wiping $30 billion off revenue this year

The company will not cut R&D spending despite lower revenue forecast, its chief executive says

Huawei's revenue forecasts have suffered from the US ban.
Huawei's revenue forecasts have suffered from the US ban.

China's Huawei Technologies has taken a harder than expected hit from a US ban, the company's founder Ren Zhengfei said, and slashed revenue expectations for the year.

Mr Ren's downbeat assessment that the ban will hit revenue by $30 billion (Dh110bn), the first time Huawei has quantified the impact of the US action, comes as a surprise after weeks of defiant comments from company executives who maintained Huawei was technologically self-sufficient.

The US has put Huawei on an export blacklist citing national security issues, barring US suppliers from selling to the world's largest telecommunications equipment maker and the second manufacturer of smartphones, without special approval.

The company has denied its products pose a security threat.

The ban has forced companies, including Alphabet's Google and British chip designer Arm to limit or cease their relationships with the Chinese company.

Huawei had not expected that US determination to "crack" the company would be "so strong and so pervasive", Mr Ren, who is also the chief executive of China's biggest technology company, said at the company's Shenzhen headquarters on Monday.

Two US tech experts, George Gilder and Nicholas Negroponte, also joined the session.

"We did not expect they would attack us on so many aspects," Mr Ren said, adding he expects a revival in business in 2021.

"We cannot get components supply, cannot participate in many international organisations, cannot work closely with many universities, cannot use anything with US components, and cannot even establish connection with networks that use such components."

Huawei, which turned in a revenue of 721.2bn yuan (Dh382.44bn) last year, expects revenue of about $100bn this year and the next, Mr Ren said. This compares to an initial target for a growth in 2019 to between $125bn and $130bn, depending on foreign exchange fluctuations.

The Trump administration slapped sanctions on Huawei at a time when US-China trade talks hit rough waters, prompting assertions from China's leaders about the country's progress in achieving self-sufficiency in the key semiconductor business.

Huawei has also said it could roll out its Hongmeng operating system, which is being tested, within nine months if needed, as its phones face being cut off from updates of Google's Android OS following the ban.

But industry insiders have remained sceptical that Chinese chip makers can quickly meet the challenge of supplying Huawei's needs and those of other domestic technology companies.

Mr Negroponte, founder of the Massachusetts Institute of Technology Media Lab, said the US ban was a mistake.

"Our president has already said publicly that he would reconsider Huawei if we can make a trade deal. So clearly that is not about national security," he said. "It is about something else."

Huawei's smartphone sales have, however, been hit by the uncertainty. Mr Ren said the company's international smartphone shipments plunged 40 per cent. While he did not give the time period, a spokesman clarified he was referring to the past month.

Huawei is preparing for a 40 to 60 per cent drop in international smartphone shipments.

But Mr Ren said Huawei will not cut research and development spending despite the expected hit from the ban to the company's finances and would not have large-scale layoffs.

Updated: June 18, 2019 12:12 PM

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