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08/06/2021 Source:  Wall Street Journal
Author: Dan Strumpf 3 min read

China’s Huawei Reports 38% Revenue Drop as U.S. Sanctions Bite Revenue declines deepen amid U.S. restrictions on chip supply, pressure on buyers

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China’s Huawei Reports 38% Revenue Drop as U.S. Sanctions Bite Revenue declines deepen amid U.S. restrictions on chip supply, pressure on buyers
A man takes a picture in front of a Huawei company booth at an expo in Guiyang, China, in May. PHOTO: ALEX PLAVEVSKI

HONG KONG—China’s Huawei Technologies Co. reported a 38% fall in quarterly revenue Friday, as the damage U.S. sanctions have done to its sales of smartphones and telecommunications equipment worsened.

The drop marks the third straight decline in quarterly revenue for Huawei, the world’s largest maker of telecom equipment and formerly one of the world’s biggest smartphone sellers, and the declines have accelerated since the end of 2020.

Huawei’s smartphone sales, once a top revenue driver for the company, have fallen dramatically since the Trump administration imposed restrictions last year blocking the company from buying most advanced semiconductors. Revenue from telecommunications equipment sales have also dropped, although less dramatically, amid a U.S. campaign pressuring allied countries to drop the Chinese company as a supplier of 5G equipment.

Second-quarter revenue fell to 168.2 billion yuan, about $26 billion, from 271.8 billion yuan in the same quarter a year ago, according to calculations based on figures disclosed by the Shenzhen-based company Friday. The decline marked a sharp acceleration from the 16.5% revenue drop in the first quarter and an 11.2% drop in the fourth quarter of 2020.

The privately held company provides a limited financial snapshot every three months. It didn’t report profits for the period but said its net profit margin rose to 9.8% during the first half of the year from 9.2% a year earlier.

Eric Xu, a Huawei deputy chairman, acknowledged the impact of Washington’s sanctions. “We’ve set our strategic goals for the next five years,” Mr. Xu said. “Our aim is to survive and to do so sustainably.”

The company’s smartphone business has been damaged by “external factors,” he said, but he predicted business lines aimed at telecom companies and big businesses will grow steadily.

Analysts said sales of the company’s telecom equipment could improve later in the year as China accelerates rollout of its 5G network, with Huawei likely getting a large share of the work. Smartphone sales, however, are likely to worsen due to the company’s restrictions on chips.

“Handset sales fell dramatically,” said Edison Lee, a telecom analyst at investment bank Jefferies. “I don’t think handsets will recover much in the second half. I think telecom-equipment revenue should recover.”

Huawei has been hit by a number of U.S. actions in recent years, part of Washington’s efforts to curb the dominance of the Chinese telecom giant, which it regards as an espionage threat. Huawei has repeatedly denied its products pose national-security risks.

Most damaging were last August’s restrictions by the Commerce Department barring Huawei from accessing any chips made using U.S. technology, barring it from critical components used widely across its products.

The Biden administration has kept the Trump administration’s sanctions on Huawei in place and has given little indication it will be more accommodative to the Chinese tech giant.

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