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Huawei's profit halved as it researches ways to circumvent blacklisting

April 28, 2023
minute read

While revenue barely grew in the first quarter, Huawei Technologies Co.'s profit plunged 46 percent in the first quarter as the Chinese telecom equipment maker spent heavily on research in order to bypass US technology sanctions.

In the first three months of 2023, Trade Algo calculated that the company's net income dropped from 6.3 billion yuan ($436 million) to 3 billion yuan ($434 million) as a result of a profit margin of 2.3%. Since years of US sanctions obliterated Huawei's once-thriving smartphone division, which competed with Apple Inc. and Samsung Electronics Co., it has witnessed its profit decline for the first time in a decade.

Huawei executives made a commitment to keep their investment in R&D at a high level in order to remain competitive in the market. Earlier this year, the Shenzhen-based company revealed it is planning to devote 161.5 billion yuan to research spending in 2022, or roughly one-quarter of its annual revenue.

There are some signs that Huawei is making progress in finding alternatives to US technology, such as chip design software and business solutions that it is no longer able to buy from American suppliers like Synopsys Inc. and Oracle Corp. The company considers 2023 to be a "crucial year" for its survival, with the company intending to pursue more technological breakthroughs while tapping into emerging demand from new markets such as ports and industrial parks.

It is the first time in three years that sales have been up in the first quarter, increasing by 0.8% to 132.1 billion yuan.

Over the long term, Huawei remains vulnerable to tensions between the US and China. In an attempt to restrict the growth of the country's tech industry, Washington has imposed a series of restrictions, as well as blacklisting companies such as Huawei and Semiconductor Manufacturing International Corp., that are considered to be national champions in their respective fields.

Aside from that, the US has also enacted strict controls on the export of chips and chipmaking equipment to China, effectively preventing the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co., from producing cutting-edge silicon for Chinese clients such as Huawei.

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Cathy Hills
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