Huawei’s Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

“In 2020 we will strive to survive and hope to publish our annual report next year. “At the launch of the 2019 annual report on March 31st, Xu Zhijun, Huawei’s rotating chairman, said jokingly. But in 2019, despite the impact of the physical inventory event, Huawei still delivered a good answer: revenue continued to grow at a high rate, while net profit growth declined.

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

Sina Technology Zhang Jun

After one of the most challenging years of 2019, Xu zhili admits that 2020 will be the most difficult year. There will also be high growth until May 16 in 2019, while 2020 will be completely below the physical list, with the adverse effects of the global outbreak of new coronary pneumonia.

Perhaps the most variable is Huawei’s consumer business, which already accounts for 54.4% of Huawei’s total revenue in 2019. But with google GMS missing and HMS ecology not yet taking shape on a large scale, the global development of Huawei’s mobile phone business in 2020 is challenging.

Domestic market into growth engine Asia-Pacific Europe is not optimistic

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

In 2019, Huawei’s global sales revenue was RMB858.8 billion, up 19.1% YoY, while its net profit was RMB62.7 billion, up 5.6% YoY, and its cash flow from operating activities was RMB91.4 billion, up 22.4% YoY.

In terms of core financial indicators, Huawei’s revenue growth in 2019 continued to grow at a high rate, although it was heavily affected by the list of entities, and the growth rate remained stable overall with 2018. However, growth slowed in the second half of the year compared with the 23.2% growth rate in 2019.

Huawei’s net profit for the full year 2019 grew by 5.6%, well below the 20% growth rate in 2017 and 2018, and its operating margin also fell from 10.2% in 2018 to 9.1% this year. Xu Explained that Huawei will have to restructure its supply chain in 2019 to take survival as its first goal, so it does not have a greater pursuit of profit growth.

In addition, from the regional revenue situation, Huawei in 2019 in overseas markets, the development pressure is greater.

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

The Chinese market is undoubtedly Huawei’s fundamental. In 2019, the Chinese market achieved sales revenue of RMB506.733 billion, up 36.2% YoY, and the share of the Market increased from 51.6% in 2018 to 59%. Huawei said it mainly benefited from the construction of 5G networks, the continued growth of consumer mobile phone sales, channel subsidence, and the enterprise business to seize the digital and intelligent transformation opportunities, enhance the ability to improve the scene of solutions.

Outside the Chinese market, the share of revenue in the Americas, Europe, the Middle East and Africa, and the Asia-Pacific region declined.

Among them, the Americas region achieved sales revenue of 52.478 billion yuan, up 9.6% YoY, a sharp decline from 2018, the revenue ratio decreased from 6.6% in 2018 to 6.1%;

Europe, the Middle East and Africa region achieved sales revenue of RMB206,07 billion, up 0.7% YoY, compared with 24.3% growth in 2018, and revenue ratio decreased to 24% from 28.4% in 2018;

Sales revenue in the Asia-Pacific region was RMB70,533 million, down 13.9% YoY, compared with 15.1% growth in 2018, and revenue as a percentage of revenue decreased to 8.2% from 11.4% in 2018. Huawei said the decline in revenue in the Asia-Pacific region was mainly due to fluctuations in the investment cycle of some operators’ markets and the inability of consumers to use the GMS ecology.

Consumer business is a halo, growth pressure sincreasings

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

Huawei’s consumer business has grown rapidly in recent years, and for the first time in 2018 it has overtaken the carrier business as Huawei’s largest revenue source. For the first time in 2019, the share of consumer revenue exceeded 50%, rising to 55% from 48.4% in 2018. For the full year 2019, revenue accounted for 54.4%.

Compared with operator sitories and corporate businesses, the revenue growth rate for consumer businesses in 2019 was impressive, by 34%. In terms of specific business, Huawei’s (including glory) smartphone shipments exceeded 240 million units in 2019, up more than 16% YoY, with a market share of 17.6%, ranking in the world’s top two ;PC shipments, up more than 200% YoY; Intelligent audio shipments increased by more than 200% year-on-year.

In the IoT business, by the end of 2019, Huawei’s HiLink platform had accumulated more than 50 million users, accessed more than 100 categories, covered more than 1000 models, and shipped more than 150 million IoT connected devices.

In fact, Huawei’s high growth in consumer business in 2019 is also inextricably linked to the Chinese market.

Since May 2019, Huawei’s mobile phone products will not be able to pre-install Google’s GMS service, which has had a huge impact on huawei’s overseas sales.

Huawei has adopted two internal and external response stakes.

On the one hand is to increase investment in the domestic market, Yu Chengdong once set a domestic market share target of 50%. In the second quarter of 2019, OPPO, vivo, Xiaomi and Apple all saw shipments in China decline by more than 10%, or even close to 20%, according to Research Institute Canalys. However, Huawei’s shipments increased 31% year-on-year to 38.2% of its market share, while IDC reported that Huawei shipped 41.5 million units in the third quarter of 2019, up 64.6% year-on-year and a 42% share, a record high.

By the fourth quarter of 2019, however, Huawei’s domestic market share had fallen to 38.5 per cent. In global markets, Huawei’s shipments also fell by a rare 7.1 per cent.

On the other hand, it is to create HMS to replace Google GMS, which is a key step in solving the problem of Huawei’s mobile phone survival overseas. After months of emergency development and preparation, in February, Huawei officially pre-installed Huawei AppGallery and HMS services on the Mate Xs and Glory V30 and X9 for overseas releases.

According to Yu Chengdong, CEO of Huawei’s consumer business, Huawei now has more than 1.3 million registered developers worldwide and more than 55,000 applications connected to HMS Core worldwide. Huawei HMS has done well in a few months, but it’s still a challenge to completely change the usage habits of overseas users.

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

According to IDC, 100 million of Huawei’s 240 million global shipments in 2019 came from overseas markets, accounting for more than 40%. Huawei’s position as the world’s second-largest smartphone will also be under threat if GMS services continue to be missing in 2020 and Huawei’s HMS ecosystem does not effectively attract overseas users.

In an interview, Mr. Xu revealed that Huawei’s overseas revenue from its consumer business will be affected by at least $10 billion in 2019.

Huawei expects annual smartphone shipments to fall by about 20 percent by 2020 due to U.S. sanctions, the First annual decline, The Information reported.

There is also a risk that the United States is considering a new export control measure that could restrict chipmakers, including TSMC, from continuing to supply China. Although Mr Xu said that even if the policy were implemented, Huawei would be able to buy chips from Samsung in South Korea, MediaTek in Taiwan and China Showcom to make mobile phones. But Huawei’s handsets will lose their long-standing self-study chip advantages, coupled with the lack of GMS services, consumer business will face a more serious situation.

Cloud Computing, Smart Cars: Looking for New Growth Poles

While consumer business escloses loopholes, operators’ business escloses with the development of 5G. However, Mr Xu said global 5G deployments were still in their infancy in 2019, so 5G contributions were limited.

In fact, in addition to the three pillars of consumer, carrier and enterprise business, Huawei has been looking for and supporting new growth points. This has to be mentioned in 2019 with the new Smart Car Solution BU, as well as the cloud and computing BG, which was newly established earlier this year.

In its 2019 annual report, Huawei detailed the strategic positioning of the Smart Car Solution BU.

Huawei’s idea is to make use of its technological accumulation and leading edge in the ICT industry, to transform with the automotive industry, and to promote the traditional automotive industry to intelligent networked cars. Instead of building cars, Huawei is focusing on ICT technology, as an incremental component supplier of smart networked cars and car companies to build good cars.

Huawei's Weight Forward: Overseas Losses of 10 Billion Mobile Phone Business Faces Trials

Specifically, Huawei will create five solutions: Smart Car Cloud, Smart Net Link, Smart Driving, Smart Cockpit, Smart Electric. Introduce Moore’s Law into the automotive industry, work with automakers to simplify vehicle design, enable software-defined cars, and enhance the consumer experience through hardware and software upgrades.

Huawei’s prediction of future smart net-connected electric vehicles is to create trillions of growth opportunities for the industry.

Another focus is cloud and computing BG, which was newly established earlier this year.

In fact, Huawei’s cloud presence has a long history. Huawei set up the Cloud BU division in 2017, and Huawei executives said at the time that it would invest 2,000 more in 2017, surpassing Alibaba Cloud in three years.

However, due to the relatively late entry time, as well as the public cloud market competition is extremely fierce, Huawei Cloud BU’s development has not met internal expectations. In 2019, Huawei restructured its Cloud and AI product line, saying it wanted to build a hybrid cloud solution, and later merged IoT, private cloud, etc. into BU Cloud, and earlier this year, Huawei further integrated its previously established intelligent computing division with Cloud BU, and set up a new Cloud and AI. BG, that is, cloud and computing BG, so that this business is also officially and the status of the three BG really side by side.

In its annual report, Huawei says the core goal of the cloud and computing industry is to provide the world with the strongest computing power through the “one cloud, two-winged, two-engine” industrial layout. On the one hand to provide public cloud services and hybrid cloud solutions, on the other hand to promote heterogeneous, diversified computing evolution on the basis of the focus on aI technology changes, to create a full stack of full-scene AI solutions.

Throughout 2019, Huawei will be in full swing in the lupe-and-yuteng ecology. Established the computing industry strategy of hardware opening, software open source, enable partner, and released the server chip Lupeng 920, AI processor Teng 910, open source server operating system, GauSSDB OLTP stand-alone database, and MindSpore AI computing framework.

Hou Jinlong, president of Huawei Cloud and Computing BG, has said it will take three years to get 90 percent of its applications to run on The Peng. However, he also admitted that compared with the x86 camp, the current development of The Epeng ecology has just begun, in the market share of the proportion is still relatively low. Huawei plans to invest $1.5 billion to support 5 million developers.

Conclusion:

Similar to building its own HMS ecology in consumer business, It is also extremely difficult for Huawei to build the Lupeng ecology. Whether consumer business estos will hold off overseas markets in 2020 and whether cloud and computing business estos will become a new growth engine will be key to China’s survival problems and continued business growth.

In addition to the impact of the physical list, Xu admitted that the outbreak of new coronapneumonia was a factor that Huawei had not anticipated. The global recession and slowing demand caused by the outbreak are a new challenge for Huawei in 2020.

It is reported that Huawei’s production activities in the Chinese market have resumed, but can only meet the short-term global demand for products. If the global outbreak is not under control, It is difficult to predict whether the supply of products will be guaranteed in the long term, Xu said. Huawei’s business development in the Americas, Europe, Middle East and Africa, and Asia Pacific will continue to face uncertainty in 2020.