Huawei reports biggest profit decline ever as U.S. sanctions, pandemic controls hit Chinese giant

Huawei reported on Friday its biggest annual decline in profit on record as U.S. sanctions continue to hit its business and strict pandemic controls in China weighed on the company.

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

However, in 2021, the company got a big bump in profit after it sold off its Honor smartphone brand to a consortium of buyers, making the comparison with 2022 quite large. Huawei also named rising commodity prices, China’s strict pandemic controls last year and the rise in its research and development spend, as reasons for the profit plunge.

“In 2022, a challenging external environment and non-market factors continued to take a toll on Huawei’s operations,” Eric Xu, rotating chairman at 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 following a more than 28% plunge in sales in 2021. The Shenzhen, China-headquartered firm has sought to diversify its business into new areas including cloud computing and automotive after a rough few years in which U.S. sanctions have hampered the company.

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

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

Huawei has continued to launch devices from smartphones to smartwatches. But the company has struggled to sell devices outside of China as it is unable to use Android, an operating system that is well-used overseas. Huawei launched its own operating system, HarmonyOS, which it says was installed on 330 million devices at 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, a 0.9% year-on-year rise, compared with a fall in 2021. The U.S. has been urging countries over the past few years to ban Huawei from their next-generation 5G networks. Countries like the U.K. have already done so, while Germany is reportedly considering banning some Huawei equipment in its 5G networks.

With challenges in both the carrier and consumer business, Huawei has sought 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 looked to take its products, including cloud computing, to specific industries such as finance and mining in a bid to help companies digitize their business. The company broke out figures for the cloud computing business alone for the first time and said it generated revenue of 45.3 billion yuan in 2022.

Huawei has also jumped in on China’s electric car boom and launched vehicles in partnership with automaker Seres. Huawei said its nascent “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 staff.

Meng Wanzhou, the CFO of Huawei, who returned to China in 2021 after being detained in Canada in 2018 on the request of the U.S., said the company’s results were “in line with forecast,” adding the tech giant’s financial position “remains solid.”