Huawei group announced its CY2019 annual result on 31 Mar 2020. Despite the restrictions imposed by the Entity list from the U.S. government since 16 May 2019, total revenue of Huawei group grew by over 19% YoY to near US$123 billion, and its net profit was up by 5.6% YoY to near US$9 billion.

Here, we will analyze the business performance of Huawei in 2019 and its future development outlook under critical external challenges, with a focus on the Consumer Business Unit.

Huawei’s business performance 2019

• Impact of the U.S. trade ban on Huawei is clearly mirrored in the company’s business result. The growth momentum of Huawei, although still vigorous in 2019, moderated from what it had achieved in 2018. Annual revenue growth of Huawei slightly declined from 19.5% in 2018 to 19.1%, while growth of the net profit fell from over 25% to just 6%.
• Huawei explained that the slowing net profit growth was dragged by a mix of factors, including sharp decline in revenue from overseas markets, and significant increase in R&D expenses to develop its in-house chips, the Harmony Operating System(OS) and Huawei Mobile Service (HMS) in order to survive under the U.S. trade ban. The R&D expenses of Huawei were up by about 30% YoY to US$18.8billion in 2019. Huawei also had to spend extra efforts and resources to reconstruct its supply chain as unable to continue the cooperation with various suppliers.
• As for performances of different business segments, in 2019, revenue of the Consumers Business Group (CBG) outperformed with the strongest growth momentum of 34%, reaching close to US$66.8 billion. The share of CBG in Huawei’s total revenue jumped from 40% in 2017 to 54% in 2019.
• Nevertheless, under the U.S. trade restriction, YoY growth of consumer business revenue also suffered downtick, declining from 45% in 2018 to 34% in 2019. Huawei believes that the U.S. export restrictions has reduced annual revenue at its consumer business by US$10 billion at minimum.

Source: Huawei 2019 Annual Report, Huawei 2018 Annual Report

Source: Huawei 2019 Annual Report, Huawei 2018 Annual Report

Huawei did not disclose revenue by product category in its annual report. According to Counterpoint’s Market Monitor- Smartphone Vendor Revenue & ASP Tracking Service, revenue of Huawei smartphones grew by over 30% YoY in 2019, steadily accounting for over 80% of Huawei’s consumer business, and the ASP (Average Selling Price) of Huawei smartphones grew by 17% YoY. This aligns with Huawei’s announcement about the shipment growth of its Mate and P series flagship smartphones (grew by 53% YoY to account for about 18% of Huawei’s total smartphone shipments in 2019).

• Apart from smartphones, Huawei highlighted the robust growth of its IoT (Internet of Things) products including PCs, tablets, smart watches, TWS, and new product categories it released in 2019. We believe some of these products registered over 100% YoY growth from a relatively small base.
• IoT has become a key investment area for Huawei under its “1+8+N” ecosystem development strategy. Following the growing global demands for IoT products in the next 5-10 years, we expect Huawei to benefit from this strategy with the integration of its chip, device and cloud capabilities. This is the core strength of Huawei over its competitors, as it will be challenging for any other Chinese OEM to develop such integrated solutions covering chips, devices, cloud, OS and software in the short term.
• Expansion of Huawei to the IoT sector will also bring benefits to the smart device ODM and EMS companies, with whom Huawei has been partnering over a long term to develop smartphone, PC and smart watch products.
• In terms of geographical performance, the China market was the highlight achieving strong YoY growth of 36%, whereas revenue from overseas markets saw only 1% growth – but still growth. The share of revenue from China grew from 52% in 2018 to 59% in 2019. This goes in line with our expectation as Huawei’s smartphone shipments echo this trend.

Source: Huawei 2019 Annual Report, Huawei 2018 Annual Report

Source: Huawei 2019 Annual Report, Huawei 2018 Annual Report

Source: Huawei 2019 Annual Report, Huawei 2018 Annual Report

• According to Counterpoint’s Market Monitor - Smartphone Vendor Shipment Tracking Service, the China market has accounted for over 70% of Huawei’s total shipments in 2019, up from about 50% in 2018. Huawei smartphones market share in China has grown to near 40%. However, in overseas markets, Huawei smartphone sales have suffered steep declines since Q2 2019. As of to date, Huawei sales have recovered in LATAM and MEA but struggled in other overseas regions.

Huawei’s Business Outlook Under Critical External Challenges

According to Mr. Eric Xu, the Rotating Chairman of Huawei group, CY2019 is the most challenging year in Huawei’s development history, and CY2020 could be the most difficult year on record. Faced with the tightening U.S. sanctions and the deteriorating COVID-19 pandemic, “survival” will be the foremost goal for Huawei in 2020.

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