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The United States–China ‘tech war’ - Decoupling and the case of Huawei – Part 3 of 4

Maria Ryan and Stephen Burman. Global Policy, Wiley. 29 February 2024.

3 Impact

As a result of the second round of sanctions in 2020, a decoupling between Huawei and 5G-related US tech is well underway, if not already complete. The immediate casualty was the company's smartphone business. In August 2021, new Huawei smartphones were launched with only 4G capability and did not use the Android Operating System, in contrast to its 2019 Mate 30 series which featured a 5G chipset and built in 5G modem. Huawei's share of the global smartphone market dropped from a high of 18.4% in the second quarter of 2020 to 8.9% by the fourth quarter and was 3.6% in November 2023. In 2021, Huawei's Consumer Business revenue fell by 49.6% with a further drop of 11.9% in 2022. The company experienced its biggest fall in operating profit in 2021. This appears to be the result of the damage to its smartphone business caused by the sanctions.

Huawei's ICT infrastructure business appears to have weathered the sanctions better. According to a leading market research firm, by the end of 2022 the company retained a 29% share in the global 5G base station market, with Ericsson at 24% and Nokia on 21.5%. Huawei does not provide data on 5G base stations but reports annually on the performance of its Carrier Business, which includes most of its ICT infrastructure business. In 2020, the Carrier Business performed marginally better than in 2019 with a 0.2% increase in revenue. In 2021, it generated 7% less revenue but was the best performing arm of Huawei's business. In 2022, revenue from the Carrier Business increased marginally by 0.9% and it remained Huawei's largest income stream.

Notably, this small improvement was driven by a 13.5% increase in revenue from ‘Europe, the Middle East and Africa’ (areas which are not disaggregated in the reports) and a 9.1% increase from the Americas. Revenue from China and Asia Pacific declined by 2.3% and 10.5%, respectively, in 2022. Therefore Huawei's survival is not based purely on the expansion of the 5G infrastructure market in China – where it had installed 2.2 m base stations by November 2022 – but on the performance of its infrastructure business globally. In the first half of 2023, the company reported a year-on-year profit increase of 3.1% and a net profit margin of 15%, driven by its ICT infrastructure business, which remained the highest earning portion of its portfolio. This suggests the consequences of sanctions have not been as Washington intended or hoped, given that the goal was to constrain Huawei's 5G infrastructure activity.

Despite the drop in income from its Consumer Business, Huawei has increased its spending on R&D. From 2019 to 2022, R&D spending rose from 15.3% of revenue to 25.1% – a rise of ¥29,835 m. The EU Industrial R&D Investment Scorecard listed Huawei as the fourth largest R&D investor in the world in 2022. This helps explain why Huawei has remained the world's leading innovator in 5G technology. In 2023, the World Intellectual Property Organisation (WIPO) stated that Huawei was ‘by far the most prolific patent filer in 2022, with well over 7600 patents to its name’. In 2021, it was number one in the world for 5G standard essential patents (SEPs), according to two independent reports. In 2022, Huawei and other global data carriers initiated technical verification and network deployment of ‘5.5G’ – a more robust connection designed to offer 10-fold improved performance over 5G. Huawei has partnered with Bahraini network stc to launch a 5.5G network.

In August 2023, Huawei re-entered the 5G smartphone market when it launched the Mate 60 pro phone featuring semiconductors designed in-house and produced by China's Semiconductor Manufacturing International Corporation (SMIC). Although a United States–Dutch-Japanese trilateral sanction deal in 2023 banned SMIC from obtaining advanced the chip-making equipment it