The Chinese telecommunications giant Huawei Technologies reported a nearly 70 percent plunge in annual profit on Friday, a setback that encapsulated the economic scars brought on by escalating U.S. sanctions, higher commodity prices and lingering pandemic restrictions.
Net profit in 2022 slid 69 percent from the year before to 35.6 billion yuan, or just over $5 billion, Huawei said Friday at an annual conference in Shenzhen, China. But the company was able to eke out a 0.9 percent gain in revenue, to 642.3 billion yuan.
The company blamed the decline on pandemic lockdowns and U.S. sanctions, rising commodity prices set off by supply-chain disruptions, a ramp-up in investment in research and development, and a one-time jump in profit the year prior from the sale of its mobile phone branch Honor.
Huawei has served as a symbol for the tech competition between Washington and Beijing, becoming a bellwether for how China’s tech companies adapted to the United States’ global campaign to cut off China’s access to critical technologies.
American officials have long suspected that Huawei had close ties to the Chinese government, concerned that its technologies, such as 5G telecommunications equipment, could be used as surveillance tools. Huawei, a private company, denies it has any state ties.
The Global Race for Computer Chips
The Trump administration began to restrict semiconductor sales to Huawei in 2019. Last year, the Biden administration expanded those controls, cutting Huawei’s access to both U.S. consumers and suppliers and issuing a punishing freeze on chip-making equipment to large swaths of China’s semiconductor industry.
Those moves amounted to a “near complete embargo of U.S. technology and U.S. goods” to Huawei, said Daniel B. Pickard, a lawyer at Buchanan Ingersoll & Rooney and an expert on U.S. export controls. “I always think about Cuba, stuck in the 1950s and 1960s purely as a result of a unilateral embargo by the United States.”
The steep drop in profit, as well as Huawei’s acknowledgment of its economic challenges, was emblematic of the new economic reality for some Chinese companies. Last week, the chief executive of TikTok, which is owned by the Chinese company ByteDance, withstood five hours of hostile questioning at a hearing before U.S. lawmakers.
On Friday, Huawei executives acknowledged the mounting geopolitical challenges, while striking a tone of defiance. China’s semiconductor industry has gone through a “continuous stream of sanctions,” said Eric Xu, the rotating chairman of Huawei, adding that “China’s semiconductor industry will not sit idly by, but will take efforts around self-saving, self-strengthening and self reliance.”
In recent years, Huawei has diversified its businesses in an effort to wean itself off American parts. After selling off a portion of its smartphone business, the company said, it moved into cloud computing and stepped up integration of software and hardware used in manufacturing systems and smart cars.
Huawei said it had also invested heavily in research and development, including a semiconductor investment fund begun in 2019 as Washington stepped up sanctions. The fund has backed more than 80 Chinese companies.
Mr. Xu said Huawei, together with a number of Chinese firms, had developed chip design tools to enable Chinese companies to make more advanced semiconductors. He heralded it as a boon for China’s chip sector.
But analysts were skeptical of Mr. Xu’s claim, pointing to the challenges of doing so without American parts or American-sponsored machinery.
“There are a lot of questions,” said Douglas Fuller, an associate professor at the Copenhagen Business School and an expert on American export controls. “Is it a one-off for some specific chip involving tools of dubious intellectual property origins?”
Joining Mr. Xu was Huawei’s chief financial officer, Meng Wanzhou, who had returned 18 months earlier from a nearly three-year extradition battle on fraud charges related to Huawei.
Ms. Meng, the daughter of Huawei’s founder, Ren Zhengfei, was set to take on a six-month rotation as the chief executive on Saturday, a sign of her rising role in China’s efforts at technological stardom.
At the conference, she spoke bluntly about the company’s situation. When a reporter asked how Huawei could square its claim of financial stability with an enormous decline in profit, she replied: “Overall, we still exist, and we will continue to exist. That is the best embodiment of financial robustness.”
