BEIJING -- Huawei Technologies, the Chinese tech giant, looks set to record strong growth again this year despite the efforts of President Donald Trump's administration to shut it out of international markets because of security concerns.
The Shenzhen-based company has steadily ramped up the smartphone side of its business, an area that is much harder for the Trump administration to hobble, but it has also apparently managed to double the number of contracts it has won for 5G technology.
"They are on track to do far better than in 2017 or 2018," Mark Natkin, managing director of Marbridge Consulting in Beijing, said after reviewing Huawei's latest financial report.
"As long as they can continue to grow their consumer business and continue to convince operators outside the U.S. that their equipment is safe and high-quality and cost-effective, they will keep recording strong results," he said.
Huawei, which is not a publicly listed company and thus is not required to publish its accounts, releases a selection of figures each quarter in an gesture toward transparency. However, the figures are not audited and are not complete.
In Wednesday's release of third-quarter figures, the company did not give stand-alone numbers for the three-month period but instead rolled them in with figures from the first half of the year, making it difficult to discern quarterly trends.
The figures showed that Huawei's revenue was 24.4% higher in the nine months ending with September than they were in the same period last year, growing to $86 billion. Given that the company reported revenue growth of 39% in the first three months, this suggests that earnings have slowed sharply over the course of this year.
Still, Huawei appears to be faring better than in the past two years, when it recorded 16% revenue growth for 2017 and 20% last year.
This performance comes despite Washington's global campaign to stop governments and telecommunications companies from buying Huawei's next-generation equipment, citing concerns that it could be used by the Chinese government to collect intelligence and otherwise conduct surveillance.
Founded in 1987 by former People's Liberation Army engineer Ren Zhengfei, Huawei has grown into a corporate behemoth that exemplifies the Communist Party's vision for the country's future: advanced high tech and entirely Chinese.
But its emergence has been met with growing suspicions about its links to the ruling party and whether the company might be acting on the party's behalf.
The Trump administration has been trying to shut Huawei out of its telecommunications market and persuade other governments around the world to do the same.
The administration has turned up the heat on Huawei in other ways, as well. In May, President Donald Trump signed an executive order essentially prohibiting U.S. companies from buying telecommunications equipment from Huawei.
It also placed Huawei and 70 of its affiliates on a blacklist, banning them from buying parts and components from American companies without U.S. government approval. However, the United States has granted two reprieves to allow limited sales to continue until Nov. 19.
Huawei nevertheless has been stockpiling American parts and funding other supply chains. In August, it unveiled its own operating system, HarmonyOS, which it plans to put in its smartphones if it loses the ability to use Google's Android system.
Huawei founder Ren has said he expects these efforts to shave about $10 billion off annual revenue.
Separately, Meng Wanzhou, Ren's daughter and Huawei's chief financial officer, is fighting extradition from Canada to the United States, where she is wanted on allegations of breaching American sanctions against trading with Iran. She has been under house arrest in Vancouver since December.
Extradition proceedings against her are due to start in January and are expected to take the better part of a year.
Even the bare-bones financial numbers Huawei releases offer some insights into its strategy for weathering this campaign. It appears to be boosting its smartphone business in an apparent attempt to limit the United States' ability to cripple it by targeting its 5G technology.
Huawei, the second-largest smartphone maker in the world since it overtook Apple earlier this year, said it shipped more than 185 million smartphones in the first nine months of this year.
That means it has shipped 26% more handsets so far this year than in the first nine months of last year.
"In the consumer business, Huawei's smartphone business has grown steadily," said the company, which is now launching its Mate 30 series.
At this rate, it is on course to reach its target of selling 250 million smartphones this year, up considerably from the 206 million sold in 2018.
"The company also saw rapid growth in other new businesses like PCs, tablets, wearables, and smart audio products," it said in a statement announcing the selected financial data.
But it was the composition of Huawei's business that caught the attention of Natkin, the tech analyst.
In 2017, 49% of Huawei's revenue came from its sales of equipment to telecommunications companies around the world. That fell to 41% last year and then to 36.5% in the first half of this year.
Conversely, the proportion of revenue coming from its consumer business, which includes phones, rose from 40% to 48% to 55% over the same period.
This appears designed to limit the U.S. campaign's effect on its bottom line. "It's much easier for the U.S. government to push and prevent [telecommunications] carriers from buying Huawei equipment than to stop consumers from buying handsets," Natkin said.
Business on 10/17/2019