Chinese Tech Giant Huawei Admits Trump-Era Policies Hurt Profits

Huawei founder Ren Zhengfei reportedly circulated a memo last month asking employees of the gigantic telecom company to “speak freely” and volunteer their ideas for helping the company adjust to a law passed during the Trump administration that largely banned Huawei from U.S. markets.

The South China Morning Post (SCMP) described the memo on Wednesday, along with the observation that Huawei has not been able to find an adequate substitute for lost American revenues in the four years since it was banned:

Despite venturing into multiple business fronts from coal mining to car systems, the Shenzhen-based company with its 195,000-strong staff worldwide has yet to find a steady revenue source that can match the profitability of its once-lucrative smartphone unit.

Huawei’s sales last year shrank by nearly a third from 2020, although profits surged by 76 per cent thanks mostly to the one-off income from disposing of its Honor budget smartphone business.

…

Huawei’s consumer business, which includes smartphones, has borne the brunt of the sanctions, with last year’s revenue down by half from a year earlier to 243.4 billion yuan (US$38.24 billion).

Huawei began sliding out of the American market in early 2018 when the U.S. intelligence community advised Americans to avoid using smartphones from Huawei and another Chinese company, ZTE, because their equipment posed security risks. 

In May 2018, the Pentagon banned the sale of Huawei and ZTE phones on military bases. Federal agencies and their contractors were banned from buying the phones in 2019. In 2020, a lawsuit from Huawei challenging the Pentagon ban was dismissed by a U.S. district court.

Canada banned Huawei equipment from its 5G wireless networks in May 2022, becoming the last member of the “Five Eyes” intelligence-sharing network to do so. Besides the U.S. and Canada, the other Five Eyes members are the United Kingdom, Australia, and New Zealand.

Huawei claims it has no ties to Chinese military intelligence, but as a matter of Chinese law, it is required to instantly and quietly obey any demands for information or surveillance assistance from the People’s Liberation Army. Western analysts have provided compelling reasons to be concerned about the security of Huawei’s products.

Lost sales to the American market were only one of Huawei’s problems during the Trump administration. The Chinese company was also blacklisted from buying billions of dollars of U.S.-made computer chips. The Biden administration partially reversed this ban last summer, a move the Chinese government said was made under heavy pressure from American corporations eager to sell their wares to Huawei.

Huawei’s deep ties to the Chinese Communist Party were illustrated by the saga of company CFO Meng Wanzhou, who was arrested by Canada in 2018 and held for extradition to the United States on fraud and sanctions violation charges. The Chinese government demanded her immediate release and took several Canadians hostage when the Canadian government did not comply. 

The Biden Justice Department dropped the charges against Meng in September 2021, and China released its Canadian hostages shortly thereafter. 

Huawei is also at the center of human rights controversies and the debate over pervasive electronic surveillance. In December 2020, documents were uncovered by independent researchers that showed Huawei helped to develop a facial recognition system that could determine the ethnicity of everyone in a crowd — a system meant to help the monstrous Chinese government track the movements of oppressed minorities like the Uyghur Muslims.

Huawei has developed and deployed a huge amount of surveillance technology, within China and around the world, creating much skepticism about the company’s claims to be completely independent of the tyrannical Chinese government.

The SCMP and other outlets have chronicled Huawei’s efforts to find new business opportunities, seemingly with a good deal of success, especially in the Middle East. Ren’s all-hands memo, on the other hand, implied the company has never really recovered from the Trump administration bans and is desperately looking for ideas to reinvent itself.

“Huawei’s strategy should not be decided by a handful of people … it should come from tens of thousands of experts who study our future direction and the path to get there,” Ren told the company’s massive roster of employees.

“The transformation from ideas to projects and products will depend on the review by decision makers, and I hope everything the company does is within boundaries and creates short or long term value. Your innovation should have business value, rather than just being an idea,” he said.

The SCMP noted that Huawei’s once-dominant position in the Chinese smartphone market has eroded considerably, making the company “increasingly irrelevant.” The brand is still regarded as valuable, but it increasingly finds itself taking second-banana partnership positions, such as providing electronics to automakers.

Huawei CEO Richard Yu made some lively comments on the company’s fortunes in a Thursday interview, asserting that his company and Apple would now be “the world’s major mobile phone manufacturers” if Huawei had not been blocked from the U.S. market. 

Yu thought South Korean smartphone giant Samsung would have been pushed aside under that scenario because its flagship product at the time, the Galaxy S20, was not well-received.