Chinese tech behemoth, Huawei Technologies, posted its first-ever decline in quarterly revenues last week. Once the world's largest smartphone maker, U.S. sanctions have left Huawei starved for silicon, forcing the company to pivot into other areas to offset losses in its handset business.
Under former President Donald Trump, the Commerce Department blocked U.S. companies from selling to Huawei. Taiwan Semiconductor Manufacturing Co (NYSE: TSM), a major chip foundry, even had to apply for special licenses to sell to Huawei simply because they use American gear to design and produce their chips.
By the end of last September, Trump had effectively cut off Huawei's access to American technology. Previously it had purchased $10 to $20 billion in components from U.S. suppliers. But, starved for parts, Huawei was forced to sell its line of budget smartphones to a government-backed concern.
During the final stretch of 2020, the companies consumer electronics division missed sales targets, revenues fell by 11%, and new smartphone shipments declined by 42%. According to International Data Corp, Huawei now lags behind Apple (NASDAQ: AAPL) , Samsung, and domestic electronics companies like Xiamoi Corp (OTC: XIACF), Bloomberg reports.
Worse for Huawei, the Biden Administration shows no signs of easing up on sanctions. The White House recently tightened export controls on semiconductors and other key components to prevent their use in Huawei's 5G devices. Biden also recently went ahead with plans to give the Commerce Department even more authority to prevent the sale of U.S. technology to "foreign adversaries," like Huawei, according to Bloomberg.
"It's very unlikely that the U.S. will remove us from the Entity List," said Huawei's billionaire founder Ren Zhengfei back in February, quoted by Bloomberg. "Right now, we just want to work harder and keep looking for new opportunities to survive."
Huawei is currently looking to build out technologies whose components can be easily sourced from Chinese suppliers. Huawei is currently the largest producer of solar inverters, hopes that increased sales can help the company weather the current storm.
The company also hopes to grow its cloud services and data analytics divisions, recently launching its "5GtoB Solution." These initiatives aim to use China's extensive 5G network to power the countries' modernization through increased connectivity. Huawei currently has 1,000 5GtoB deals in place, according to rotating chairman Ken Hu, Bloomberg reports.
Huawei also has a treasure trove of 5G patents, giving the company the chance to cut cross-licensing deals with the likes of Apple and Samsung. The company plans to cap per phone royalties at $2.50 per phone; for context, Apple currently pays Qualcomm (NASDAQ: QCOM) $7.50 per phone.
Huawei's founder, the aforementioned Ren Zhengfei, claims that these and other initiatives should help the company regain its footing "more or less within this year."
But there remain questions about Huawei's future ability to continue to power China's 5G future. The company claims it has enough chips to keep base with 5G base station construction through 2021.
But beyond that- things are less certain.