Huawei in the first quarter grew revenue 1.4% year over year, a stark slowdown from the 39% spike it reported in the first quarter of 2019, as the Chinese tech giant faced challenges from the global coronavirus pandemic along with continued U.S. restrictions.
As a private company, Huawei only reported limited financial metrics, including CNY182.2 billion (or about $25.76 billion) in revenue for Q1. In Q1 2019, Huawei reported CNY179.7 billion in revenue. The telecom equipment and smartphone maker on Tuesday reported a net profit margin of 7.3%, compared to 8% in the same quarter a year ago.
Huawei didn’t parse out its different business segments and unlike last year, didn’t disclose figures of smartphone shipments. Still, the vendor maintained that its business is continuing as usual and Q1 results were in line with expectations. Huawei in a press release said it's working with its supplier network “to address the tough challenges facing production and resume operations” related to the COVID-19 pandemic.
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Huawei’s Vice President Victor Zhang in a statement acknowledged the growth rate has slowed, but said the results were “a resilient performance” in the face of both the novel coronavirus outbreak and placement on the United States’ Entity List last May.
In March, Huawei reported financial results for 2019, recording a $12 billion revenue shortfall that it attributed to the entity listing, which effectively blacklisted Huawei and numerous affiliates by restricting sales of certain products from U.S. suppliers to the vendor.
Huawei’s consumer segment was particularly hit by the U.S restrictions in the second half of last year. As one of the world’s largest smartphone makers, Huawei was unable to access Google’s proprietary Android operating system and was forced to launch new devices without access to the popular Google Play store.
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In a statement today Huawei stressed that its business continuity plan has been working. “While restrictions have posed significant challenges, our strategy of dual-sourcing key components from multiple suppliers has allowed us to continue supporting our customers world-wide.”
On the infrastructure side, the U.S. has campaigned for global allies to exclude Huawei from their next-generation 5G networks, citing security concerns over ties to the Chinese government. The U.S. has argued that Huawei could be used for activities like state-sponsored espionage - claims that Huawei repeatedly denies. Within the U.S., smaller and regional carriers are working to implement a “rip and replace” approach to remove existing Huawei and ZTE gear from communications networks, but still require funding.
Still, Huawei boasted Tuesday that it’s signed over 90 commercial 5G contracts and said it’s a supplier in 45 of the 70 commercial 5G networks that have launched around the world. The company also reiterated that it's on track to meet its increased R&D investment of $20 billion in 2020.
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In terms of COVID-19, Huawei’s Zhang speaking about Q1 results, said it would be difficult to gauge what the impact of the coronavirus would be on the tech company in the short- or long-term, according to Reuters. China earlier in April eased strict controls on movement in Wuhan, following a lockdown on businesses and residents in an effort to contain the virus outbreak that surfaced late last year.
Huawei’s rotating CEO Eric Xu last month said 2019 had been one of the vendor’s most challenging years yet, but warned that 2020 would be even more difficult.
“It’s going to be the most difficult year for Huawei, because we will be subject to entity listing throughout the year,” Xu said at the March briefing. “Therefore 2020 is going to be a very crucial year to test whether Huawei’s supply continuity program can really work. On top of that the outbreak of coronavirus is something unexpected. It brings about new unexpected challenges.”