April 21—Huawei reported generating 182.2 billion yuan ($25.8 billion) in revenue during the first quarter, up 1.4 percent year-over-year. However, the firm’s growth is down significantly from 2019, when its sales increased by 39 percent annually. The company also announced a Q1 profit margin of 7.3 percent, down 8 percent from last year.
Nevertheless, changing global health conditions and the firm’s appealing fourth-quarter offering suggest it will recover by year’s end.
Why Huawei’s Sales Are Down
Although the Chinese conglomerate did not offer a segment by segment breakdown of its first-quarter results, the reasons for its recent downturn are clear. The coronavirus pandemic had a deleterious impact on both Sino consumer demand after Beijing instituted widespread lockdown orders. Indeed, Bloomberg noted the region’s handset market contracted by 22 percent in March.
As Huawei garners the bulk of its revenue from its domestic market, COVID-19 would have had an outsized impact on its mobile device sales.
The corporation’s telecommunications equipment business has also taken a hit due to the spread of the coronavirus. Before the outbreak, the firm announced it had secured contracts to establish 5G networks in more than 50 international locales. However, Britain and Europe have paused their deployments to protect gear installers from the respiratory disease.
Because of international sanctions, the firm doesn’t have access to American-made parts or software in its smartphones. Huawei has compensated by diversifying its supply chain, ramping up its silicon manufacturing, and developing its own mobile operating system. But doing so increased the firm’s capital expenditure, which took a bite out of its bottom line.
How Huawei Will Bounce Back From COVID-19
Despite its underwhelming Q1 results, Huawei can recover from its coronavirus related losses in the near-term.
For one thing, the U.K. and European Union will inevitably continue their fifth-generation mobile data network deployments once the pandemic is contained. When they do, those regions will utilize the firm’s networking gear because of its quality and affordability. As Huawei vice president Victor Zhang told Forbes, 5G can play a crucial role in supplementing the area’s data infrastructure.
Furthermore, millions of newly transitioned remote workers and students have shown the area has a pressing need for more bandwidth.
Huawei reportedly sold 200,000 Mate X foldable smartphones in the last two months of 2019. Consequently, the corporation can probably increase its Chinese smartphone sales by putting out more atypical premium handsets. The company is aware of consumer interest in unusual hardware as it is preparing to launch a Mate X successor in the fall.
The corporation is also planning to launch a new narrowband Internet of Things (IoT) chipset through its HiSilicon subsidiary. The firm claims its Boudica 200 can connect microcontrollers, power amplifiers, memory modules, and radiofrequency components with 50 percent less energy consumption than current-generation processors. Demand for the company’s new CPUs should be strong as it can replace hardware that is not compatible with 4G and 5G networks.
Although Huawei’s had a weak first quarter, its Q4 smartphone and component offerings will help the company return to growth by the end of 2020.