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Huawei crackdown

Huawei's Q3 growth slows as 'intense' US pressure hits supplies

China tech titan seeking alternative sources for key smartphone components

Huawei managed to maintain revenue growth this year, albeit at a slower pace than in 2019, despite U.S. pressure.   © Getty Images

TAIPEI -- Huawei Technologies reported a sharp slowdown in growth as the world's biggest telecom equipment maker continues to grapple with the U.S. crackdown.

Huawei said its revenue for the first nine months of 2020 grew 9.9% to 671.3 billion yuan ($95.87 billion), down significantly from a year ago when China's biggest tech company reported a 24.4% sales jump.

For the July-September quarter, revenue grew just 3.7% on the year to 217.3 billion yuan as the latest U.S. export control rule took full effect in mid-September, cutting off the company from its most important global chip and component suppliers. Huawei's profit margin for the first nine months was relatively unchanged at 8%, compared with 8.7% a year ago.

Huawei said the business results "basically met expectations" but warned there could be bigger woes ahead for the smartphone maker, which claimed the global No. 1 spot ahead of Samsung and Apple in the second quarter.

"Huawei's global supply chain was put under intense pressure, and its production and operations saw increasing difficulties," Huawei said in the earnings release. The company added that it will do its best to "find solutions, to survive and forge forward, and to fulfill its obligations to customers and suppliers."

The earnings result came just a day after Huawei launched its flagship Mate 40 series, the company's answer to the long-awaited 5G iPhone 12 range, Apple's first ever 5G smartphones. The Mate 40 range showcases Huawei's tech capability, including the Kirin 9000 5G SOC chipset, which the company described as the world's most powerful chip.

However, the Chinese company is also facing the greatest uncertainty in its history as almost all global chip suppliers, including TSMC, its production partner for the Kirin 9000 5G SOC, have been forced to cut ties to comply with the new U.S. export control regulations.

Analysts mostly expect the company's flagship smartphone business to decline 60-70% in 2021 if Washington does not ease its export restrictions. Market watchers also expect the company's other crown jewel, its telecom equipment business, to face an uncertain future in 2021. This is despite Huawei's rotating Chairman Guo Ping saying the company has secured sufficient inventories for its carrier business, and is still searching for alternative smartphone component supplies.

The company's carrier business also suffered international headwinds as the U.S. continues to pressure allies to exclude Huawei from their 5G infrastructure. Demand for rolling out 5G networks in China, however, could provide strong support for the company.

"China will keep Huawei afloat this year, allowing it to maintain its number one market share position," Stephane Teral, chief analyst with LightCounting Market Research, told Nikkei Asia.

The global outlook for Huawei's carrier business, however, is very murky for 2021 and it could see its market position erode to a certain degree, Teral added, as most major European countries have decided to avoid using Huawei in their 5G mobile networks. "Huawei's largest markets, such as France, Germany, Italy and the U.K., are closed," he said.

Huawei's enterprise business -- which is emerging as another main pillar of the company alongside consumer electronics and its carrier operations -- is also showing signs of resilience. Edwin Diender, chief digital transformation officer of Huawei's global government business unit, the largest unit of the company's enterprise business group, told Nikkei Asia in an interview that his unit can still grow in 2021 and will have enough inventory to meet customers' needs.

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