Huawei says US ban hurting more than expected, to wipe $ 30 b off revenue

Wednesday, 19 June 2019 00:14 - - {{hitsCtrl.values.hits}}

CEO Ren Zhengfei

HONG KONG (Reuters): China’s Huawei Technologies Co. Ltd. has taken a harder-than-expected hit from a US ban, the company’s founder and CEO Ren Zhengfei said, and slashed revenue expectations for the year.

Ren’s downbeat assessment that the ban will hit revenue by $ 30 billion, the first time Huawei has quantified the impact of the US action, comes as a surprise after weeks of defiant comments from company executives who maintained Huawei was technologically self-sufficient.

The US has put Huawei on an export blacklist citing national security issues, barring US suppliers from selling to the world’s largest telecommunications equipment maker and number two maker of smartphones, without special approval.

The firm has denied its products pose a security threat.

The ban has forced companies, including Alphabet Inc’s Google and British chip designer ARM to limit or cease their relationships with the Chinese company.

Huawei had not expected that US determination to “crack” the company would be “so strong and so pervasive”, Ren said, speaking at the company’s Shenzhen headquarters yesterday.

Two US tech experts, George Gilder and Nicholas Negroponte, also joined the session.

“We did not expect they would attack us on so many aspects,” Ren said, adding he expects a revival in business in 2021.

“We cannot get components supply, cannot participate in many international organisations, cannot work closely with many universities, cannot use anything with US components, and cannot even establish connection with networks that use such components.”

Huawei, which turned in a revenue of 721.2 billion yuan ($ 104 billion) last year, expects revenue of around $ 100 billion this year and the next, Ren said. This compares to an initial target for a growth in 2019 to between $ 125 billion and $ 130 billion depending on foreign exchange fluctuations.

Trade war

The Trump administration slapped sanctions on Huawei at a time when US-China trade talks hit rough waters, prompting assertions from China’s leaders about the country’s progress in achieving self-sufficiency in the key semiconductor business.

Huawei has also said it could roll out its Hongmeng operating system (OS), which is being tested, within nine months if needed, as its phones face being cut off from updates of Google’s Android OS in the wake of the ban.

But industry insiders have remained sceptical that Chinese chip makers can quickly meet the challenge of supplying Huawei’s needs and those of other domestic technology firms.

Massachusetts Institute of Technology Media Lab Founder Negroponte said the US ban was a mistake.

“Our President has already said publicly that he would reconsider Huawei if we can make a trade deal. So clearly that is not about national security,” he said.

“It is about something else,” Negroponte added.

Huawei’s smartphone sales have, however, been hit by the uncertainty. Ren said the firm’s international smartphone shipments plunged 40%. While he did not give the time period, a spokesman clarified the CEO was referring to the past month.

Bloomberg reported on Sunday that Huawei was preparing for a 40-60% drop in international smartphone shipments.

The CEO, however, said Huawei will not cut research and development spending despite the expected hit from the ban to the company’s finances and would not have large-scale layoffs.