People pass a Huawei booth is seen at the IFA consumer technology fair in Berlin on Sept. 3, 2020.MICHELE TANTUSSI/Reuters
Huawei Technologies Co. Ltd. this year will likely see slower 5G business and push further into software, while hoping its smartphones get a reprieve from U.S. sanctions, which last year struck the chip-reliant heart of its group, analysts said.
Limited access to high-end semi-conductors means rationing during China’s network upgrade, they said, while the dissection of its mobile arm will send Huawei tumbling down rankings while it continues to develop a proprietary operating system.
China’s leading telecommunications equipment maker found itself on a U.S. trade blacklist in May, 2019, because of national security concerns. Huawei has repeatedly denied it is a risk.
That effectively banned U.S.-based firms from selling Huawei essential U.S. technology. Last August, the ban was extended to foreign firms with U.S. business, reaching chief suppliers such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).
The change hit an Achilles heel as Huawei depends on TSMC to make advanced chips for its handsets, 5G network base stations, servers, cloud computing and artificial intelligence products, said Paul Triolo, head of global tech policy at Eurasia Group. Stockpiles only last so long, he said.
“Passage of this death sentence does not involve a swift execution,” technology analyst Dan Wang said in a client note. “Instead, the process is much more like a slow strangulation.”
Huawei declined to comment.
Mr. Wang said Huawei will feel the impact most acutely in its consumer business, which brought in 54 per cent of revenue in 2019.
In November, Huawei spun off budget smartphone line Honor in a sale founder Ren Zhengfei said would allow the brand to regain access to chips. Huawei could look to do the same with its premium lines this year, Mr. Triolo said.
Huawei was the world’s biggest smartphone maker as recent as the second quarter of 2020, but the Honor sale and chip shortage will likely take it out of the top six this year, data firm Trendforce said.
Its luck may change with the U.S. presidential inauguration of Joe Biden, from whom analysts expect more leniency toward Huawei’s smartphone business. The inauguration this month comes as chief financial officer Meng Wangzhou discusses a deal with U.S. prosecutors over allegations of doing business with Iran.
In the meantime, Huawei will likely focus on the Harmony operating system it is developing for its smartphones after being cut off from Alphabet Inc.’s Android, said Nicole Peng, vice-president of mobility at consultancy Canalys.
Elsewhere in software, Huawei will likely pivot more toward services such as cloud computing and Internet of Things devices, although these are unlikely to offset slowdown in smartphones and telecommunication infrastructure, analysts said.
Huawei’s network business does have bright prospects, but with major markets such as Britain and Japan banning its equipment, it will likely focus on China, analysts said.
The company has enough chips to make around 500,000 5G base stations, Jefferies analyst Edison Lee said. Yet rather than use up that supply, the government will likely slow 5G introduction, taking “a middle-of-the-road approach to balance between expanding coverage and waiting for Huawei to catch up,” he said.
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