VIEWPOINT
I attended Huawei’s 2022 monetary outcomes assembly in Shenzhen and it was principally a narrative of “again to regular”. As CFO and now rotating Chairperson Sabrina Meng stated:
“In 2022, Huawei steadily pulled itself out of disaster mode. US restrictions are actually our new regular, and we’re again to enterprise as ordinary.”
The ending title for Eric Xu’s presentation was “sustainable survival and improvement”. Word: That is in distinction to their 2021 report which was beneath the title “Stable Operations, Investing within the Future”.
Right here had been my take-aways:
1. Huawei’s Technique Has All the time Been About Lengthy-Time period Survival – And That Means Continuity, Resilience, and High quality
Twenty plus years in the past, Huawei founder Ren Zhengfei started writing and talking about find out how to survive long-term as a know-how firm. That’s a very good query as a result of it’s truly fairly uncommon. Most main tech firms don’t final past one or two know-how cycles. Possibly they get disrupted by the brand new know-how. Or possibly they lose focus, because the now wealthy founders transfer on. Or possibly the tradition simply turns into lazy and non-innovative.
So, Mr. Ren studied tech firms that did final, like Hewlett Packard. And he explicitly set Huawei on a strategic course to deal with long-term survival. And that implies that the important thing query for Huawei for the previous 2 years has been the retention of its worldwide provider prospects.
Huawei must have worldwide scale in its ICT enterprise. You can not win as a telecommunications tools firm with just one nation, whatever the dimension of the US or China. You want to be worldwide to have the size to compete in manufacturing value and analysis spending. So Huawei’s core enterprise has at all times been China plus worldwide telecommunications (ICT).
Huawei actually started once they began design and manufacturing their very own easy telecommunications tools (like PBX switches) within the early 1990’s. And that was when additionally they actually started investing in R&D. This started what would develop into a +30-year march in rising manufacturing and R&D scale. R&D spending elevated (but once more), reaching 161B RMB. This was 25% of income, a really large improve from their typical 15% of income. And it was up from 142B (22%) in 2021, which was already very excessive.
This march took them from mounted into wi-fi tools. From 3G to 4G after which 5G. And into all of the applied sciences surrounding ICT (similar to client gadgets and cloud). This march additionally took them from China to +170 markets. To +$100B in income. And finally to surpass Ericsson as the biggest telecommunications producer on this planet.
However this all depends upon profitable internationally. Not simply in China.
So, you’ll be able to see Huawei bending over backwards to make sure worldwide carriers are getting the very best high quality tools now and sooner or later. You’ll be able to see the corporate going above and past to keep up the belief of those prospects. The important thing quantity I take a look at is the share of Huawei’s ICT income coming from worldwide (i.e., non-China) sources. In 2021, it was +50% of provider income.
That is what I heard all through the presentation by Eric Xu and Sabrina Meng.
- There was numerous speak about having the very best “high quality” tools.
- There was numerous speak about making certain the “continuity” of provide.
- There was numerous speak about “resilience”. Which means diversifying the availability chains and redesigning elements to keep away from any potential future dangers.
- There was particulars about Huawei’s capital construction and large money reserves. They’re sitting on numerous money versus debt.
2. Cloud Income Extra Than Doubled to +45B RMB in 2022. That is Now Huawei’s Largest Progress Alternative.
This was the primary yr that cloud was damaged out as a enterprise unit. It was beneath Enterprise in 2021, which totaled 102B RMB in income for that yr. For 2022, cloud income reached 45B RMB. It’s now a big enterprise, though nonetheless small in comparison with ICT and Client.
However cloud income seems have greater than doubled in 2022. The presentation didn’t have an actual progress quantity, however they did use the phrase “sustaining quick progress”. This is a rise from the +30% progress in 2021.
Cloud is essential as a result of it’s now important in dimension – and since it’s a enterprise that has the potential to develop 10x sooner or later.
- Evaluate Huawei Cloud to Alibaba Cloud, which had $11B in income in 2022. Matching Alibaba would imply one other doubling of Huawei Cloud income.
- Have a look at Amazon’s AWS as a comparable. Cloud in China does have considerably slower progress and adoption than we see within the US. However the total markets might be comparable in dimension at some point. If Huawei Cloud had been to at some point simply match the 2022 income for AWS, that may imply over 350B RMB in income, surpassing ICT in income.
For China cloud, Alibaba Cloud continues to be the market chief. However in 2021, Huawei Cloud was #2 or #3, about tied with Tencent at 17%. And take into account, Western cloud firms won’t ever be allowed in a lot of China, and particularly not in areas like authorities and monetary providers.
Total, cloud’s high line progress in 2022 appeared fairly good (from the skin). It’s Huawei’s largest potential income progress alternative. Earnings and ROIC are one other query.
3. The Laborious Hit Client Enterprise Income Stabilized at 214B RMB in 2022. This Was Stunning.
Through the China-US “tech conflict”, Huawei discovered itself on the heart of a political storm not of their making. And in 2020-2021 it impacted fairly a little bit of their enterprise.
Their ICT enterprise was politically pushed out of a number of developed markets (UK, Japan, and many others.). Both partly or fully.
Their tech provide chain was hit throughout the board. The buyer enterprise unit subsequently fell by 50% to 243B RMB in 2021, with worldwide smartphone gross sales being the toughest hit. And in contrast to in ICT the place the elements and provide chain might be restructured, it was not apparent find out how to overcome limitations on excessive finish chipsets and working methods.
And but, the buyer income in 2022 was 214B RMB (vs. 243B in 2021). I believed it might be fairly a bit decrease. But, the buyer enterprise seems to have stabilized its earlier decline.
I assume that is principally coming from smartphones in China (their foldable smartphones are superior) and their “1 + 8 + N” technique. They had been already transferring from promoting smartphones to promoting smartphones plus a set of 8 ancillary merchandise (earbuds, sensible dwelling, and many others.). These ancillary merchandise don’t require the identical chipsets and are suitable with telephones all over the place. I used Huawei earbuds that are fairly nice.
Total, Huawei’s Client Enterprise seems to have efficiently shifted its product combine and stabilized its income. If this continues, it’s going to defy numerous analyst expectations.
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Total, the corporate seems to be prefer it has come out of the political storm fairly nicely. I count on the dialog to shift extra from resilience to progress in 2023.
