Biggest decline in profit since 2011, turnover flat

Huawei on Friday reported its biggest annual drop in profit on record as US sanctions continue to hit its business and strict pandemic controls in China weigh on the company.

The Chinese telecommunications giant said net profit for 2022 was 35.6 billion yuan ($5.18 billion), down 69% year-on-year. That’s bigger than the 54% annual decline in 2011, according to CNBC calculations.

However, in 2021 the company made a big profit after it sold the Honor smartphone brand to a consortium of buyers, making the comparison with 2022 quite large. Huawei also cited rising commodity prices, China’s strict pandemic controls last year and the increase in research and development costs as reasons for the profit drop.

“In 2022, a challenging external environment and non-market factors continued to take a toll on Huawei’s operations,” Eric Xu, rotating chairman of Huawei, said in a press release.

Huawei said revenue rose 0.9% to 642.3 billion yuan in 2022 as the company stabilized its business after a more than 28% drop in sales in 2021. The Shenzhen, China-headquartered company has sought to diversify into new areas including cloud computing and the automotive industry after a few tough years where US sanctions have hampered the company.

“In the midst of this storm, we continued to run forward, doing everything in our power to maintain business continuity and serve our customers,” Xu said.

Throughout 2019 and 2020, the Chinese tech giant was cut off from key American technology, such as Google’s Android operating system and components it required such as semiconductors. It crippled Huawei’s smartphone business, which was once number one in the world. Huawei’s consumer business, which houses the smartphone unit, fell more than 11% to 214.5 billion yuan in 2022, a significantly less sharp decline than in 2021.

Huawei has continued to launch devices from smartphones to smartwatches. But the company has struggled to sell devices outside of China since it is unable to use Android, an operating system widely used overseas. Huawei launched its own operating system, HarmonyOS, which it says was installed on 330 million devices by the end of 2022, up 113% year-on-year. But that operating system has failed to gain traction outside of China.

Huawei’s carrier business, which includes the equipment it sells to telecommunications companies, generated 284 billion yuan in revenue, up 0.9% year-on-year, compared with a fall in 2021. The United States has urged countries in recent years to ban Huawei from their the next generation 5G network. Countries like the UK have already done so, while Germany is reportedly considering banning some Huawei equipment from its 5G networks.

With challenges in both the operator and consumer industries, Huawei has tried to diversify the company into new areas. Huawei’s enterprise business, which includes some of its cloud computing revenue, rose 30% year-on-year to 133.2 billion yuan.

Huawei has sought to take its products, including cloud computing, to specific industries such as finance and mining in an effort to help companies digitize their operations. The company broke out figures for its cloud computing business alone for the first time, saying it generated revenue of 45.3 billion yuan in 2022.

Huawei has also jumped on China’s electric car boom and launched vehicles in collaboration with car manufacturer Seres. Huawei said its fledgling “Intelligent Automotive Solutions” unit brought in 2.1 billion yuan in 2022. The company said it has invested $3 billion in the unit since it was established in 2019, and it now has 7,000 research and development employees.

Meng Wanzhou, chief financial officer of Huawei, which returned to China in 2021 after being detained in Canada in 2018 at the request of the United States, said the company’s results were “in line with the forecast,” adding that the tech giant’s financial position “remains solid.”