Why 2023 may be the year for Huawei – despite the ongoing US ban

• 2022 and 2023 are turning out to be the years Huawei finds ways to compensate for lost sales.
• The company may have found a way around the US technology ban.
• It appears to have signed a long-term patents deal to boost its revenue.

Years after Washington imposed restrictions that dragged down Huawei Technologies’ business for a couple of years, the Chinese tech major finally pulled itself out of a “crisis” in 2022. That year’s gradual growth was enough for Huawei’s rotating chair, Eric Xu, to be sure that 2023 would be “the first year” of a return to “business as usual,” even though the US export controls on high-end technology are still in place.

After being added to Washington’s trade blacklist in 2019, Huawei rapidly lost its global and domestic consumer electronics market share. Counterpoint Research said it even ran out of advanced in-house designed chips by 2022. But Huawei did not slow down — the Chinese telecommunication giant has been attempting to explore new markets and businesses. 

At the end of last year, even though Huawei recorded a nearly 70% decline in profit amid sanctions and pandemic challenges, its enterprise sales rose as it sought to pivot into digital industries and reduce its vulnerabilities to US sanctions.

Fast forward to the first six months of 2023, when Huawei saw its total revenue grow 3.1%, reaching 310.9 billion yuan (US$43.1 billion), higher than the 0.8% revenue growth seen in the first quarter and the 0.9% growth for 2022.

The company’s performance signals that it has gradually found ways to survive despite US sanctions. Therefore, rumors from research institutions and industry sources about Huawei returning to the 5G smartphone market in the latter half of 2023 are feasible.

But there were more indicators to prove that in the face of the technological crackdown launched by the US, Huawei will not be defeated. After all, if Huawei can overcome the stranglehold of the US crackdown and relaunch its 5G phones, it will be possible for the tech giant to return to the forefront of the global smartphone market.

To top it off, Huawei is also putting a foot back in the smartphone market, despite lacking 5G in the newest flagship devices. According to data from Counterpoint Research, Huawei has achieved 41% year-over-year growth in smartphone sales in the first three months of 2023. 

Meanwhile, the company was operating at 6.2% in Q1 of 2022 – significant progress made within a year. Moreover, Huawei is also said to be selling the most foldable smartphones in China, with over 50% of the market share in the first half of this year.

Richard Yu Chengdong, chief executive of the company’s consumer business group and its car unit, declared that Huawei’s flagship smartphones are “making a comeback” as he unveiled the latest update of its own Harmony operating system. Even in the second quarter of this year, Huawei resurfaced as a top-five smartphone vendor in mainland China, according to data from research firm IDC, following the launch of high-end handsets, including its P60 series and foldable Mate X3 model.

Huawei shipped 14.3 million smartphones in China in the first half of 2023, up nearly 40% compared to the same period last year, IDC data showed. Notably, the smartphone market is one of many spaces in which Huawei has progressed since the US ban.

Huawei circumventing the US ban with new revenue streams in 2023?

So far, Huawei’s improved results are the results of its efforts to survive US sanctions by resurrecting the company’s handset business and diversifying into new industries, including cloud computing and electric cars. For instance, revenue from intelligent automotive solutions, another segment that Huawei has been banking on to diversify its business, reached 1 billion yuan in the first half of 2023.

Cloud computing and digital power generated 24.1 billion yuan and 24.2 billion yuan in sales, respectively, posting “strong growth,” according to Chief Financial Officer Meng Wanzhou. Huawei has also been stepping up efforts to serve enterprise clients, hoping to upgrade its operations in traditional businesses. 

Last month, Huawei joined the heated artificial intelligence race with the third generation of its Pangu model that focuses on industrial uses in coal mining, finance, and government sectors. “Huawei has been investing heavily in foundational technologies to harness trends in digitalization, intelligence, and decarbonization, focusing on creating value for our customers and partners,” Meng added.

From January to June, the company said revenue from Huawei’s information and communications technology business – its key segment, including 5G network gear – reached 167.2 billion yuan. As the Chinese group searches for ways to generate revenue after being banned from telecom networks or subjected to curbs in several countries, Huawei, last week, sealed a multiyear patent cross-licensing deal with Ericsson for 5G and other technologies.

The plan is to develop and monetize patents for Huawei to make up for lost sales and seek growth after being squeezed by Western sanctions. With the agreement, the rival equipment makers can access each other’s patents essential for the “3G, 4G and 5G cellular technologies” used in network infrastructure and consumer devices, Huawei announced on Friday. 

Huawei and the Swedish company already had a patent license, but this is the first long-term agreement between the two, Huawei said without disclosing further details. Huawei is the world’s largest 5G patent owner, with 20% of global patents. In 2021, the company began charging smartphone makers a royalty to use its patented 5G and other technologies. 

The company disclosed that the royalty rate cap for 5G handsets is US$2.5 per unit, which, according to legal experts who spoke with the Financial Times, is significantly lower than the industry average. Huawei’s licensing revenue was US$560 million last year, meaning it brought in more patent income than it paid out in fees to other companies to use its patents for a second year.

Huawei and chip plants in 2023?

On August 25, the Semiconductor Industry Association (SIA) reportedly informed its members that Huawei has acquired two existing plants and is building three more. It has also received some US$30 billion in government subsidies to help. As Bloomberg reported, it is “a shadow manufacturing network that would let the blacklisted company skirt US sanctions and further the nation’s technology ambitions.”

Simply put, the move into chip fabrication makes sense for Huawei, given its difficulty selling networking gear and its government’s desire to build more chips at home. According to the Washington-based SIA, the controversial telecommunications gear maker, which sits at the heart of US-China tensions, moved into chip production last year and is receiving an estimated US$30 billion in state funding from the government and its hometown of Shenzhen. 

In a presentation to SIA members seen by Bloomberg, Huawei did not disclosed its role in this expansion. The US Commerce Department put Huawei on its entity list in 2019, prohibiting it from working with American companies in almost all circumstances. 

“But if Huawei is constructing and buying facilities under the names of other companies without disclosing its involvement, as the SIA contends, the telecom giant may be able to circumvent those restrictions to indirectly purchase American chipmaking equipment and other supplies that would otherwise be prohibited,” Bloomberg’s report reads.