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Huawei reports 16.5% drop in revenues in first quarter, warns of ‘another challenging year’ ahead

The R&D center on cloud computing and intelligence technology of Huawei, located at China-Singapore Eco-City in Tianjin Binhai new area.

Zhang Peng | LightRocket | Getty Images

LONDON — Chinese tech giant Huawei said Wednesday that its revenues dropped sharply in the first quarter as U.S. sanctions took a toll on its business.

Huawei’s revenues fell 16.5% year-on-year to 152.2 billion Chinese yuan ($23.5 billion) in the three months ending March 31, according to unaudited financial results revealed by the company on Wednesday. It marks the second consecutive quarter in which Huawei’s revenues declined.

This was largely down to pain in Huawei’s consumer business, which includes smartphones and other devices. Huawei hasn’t been able to ship its phones with Google’s licensed Android operating system since the companies parted ways in 2019. Huawei’s smartphone shipments plunged 41% in the fourth quarter of 2020. The company sold its Honor budget smartphone brand to a consortium of investors last year.

U.S. sanctions

In 2019, Huawei was added to a U.S. trade blacklist called the Entity List which restricts American firms from exporting technologies to certain foreign entities. And in 2020, the U.S. moved to cut Huawei off from key chip supplies it needs for its smartphones.

“2021 will be another challenging year for us, but it’s also the year that our future development strategy will begin to take shape,” Eric Xu, Huawei’s rotating chairman, said in a statement.

“We thank our customers and partners for their ongoing trust. No matter what challenges come our way, we will continue to maintain our business resilience. Not just to survive, but do so sustainably.”

Pivoting to software

Huawei said it actually managed to increase its profit margin by about 3.8 percentage points year-on-year to 11.1%. This was in part down to the $600 million Huawei received in patent royalties in the quarter.

In March, Huawei said it would begin charging smartphone makers a royalty to use its patented 5G technology. Huawei has thousands of declared 5G patent families, and the company is hoping this part of its business can provide it with a new revenue stream as other parts of its business falter.

Huawei said Wednesday that it would ramp up investment in software going forward to incorporate software and services in its revenue mix. The company has been boosting its efforts in software, including areas like cloud computing and smart cars, as U.S. sanctions hurt its hardware unit.

– CNBC’s Arjun Kharpal contributed to this report.

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