Huawei hopes cloud computing surge will offset sanctions effect

Chinese telecoms equipment supplier sees revenue fall 16.5% in the first quarter, but its net profit margin rose 3.8 percentage points compared with a year earlier to 11.1%

Huawei hopes cloud computing surge will offset sanctions effect
"This will be a challenging year for us, but 2021 is also the year that our future development strategy will begin to take shape," Huawei's rotating chairman Eric Xu said in a statement. File photo by Reuters.

(ATF) Huawei Technologies saw revenue fall 16.5% in the first quarter compared to a year earlier, as it seeks to offset the divestment of its budget smartphone unit Honor by investing heavily in businesses that are less reliant on US chip technology such as autonomous driving and cloud computing.

The Chinese telecommunications services provider's revenues were 152.2 billion yuan ($23.46 billion) in the first quarter, it said on Wednesday. But its net profit margin rose 3.8 percentage points compared to a year earlier to 11.1%.

The company cut costs and received a boost from $600 million in royalty payments. "This will be a challenging year for us, but 2021 is also the year that our future development strategy will begin to take shape," Huawei's rotating chairman Eric Xu said in a statement.

Huawei was put on an export blacklist by former US president Donald Trump in 2019 and barred from accessing critical technology of American origin, affecting its ability to design its own chips and source components from outside vendors.

The ban put Huawei's once lucrative handset business under immense pressure, prompting the sale of its Honor budget smartphone unit to a group of agents and dealers in November. The loss of sales from Honor contributed to the drop in quarterly revenue, the company said.

In March, Huawei posted a 3.2% rise in profits in 2020, largely driven by its home market. But its business declined elsewhere in 2020, with revenues down 12.2% to 180.8 billion yuan in Europe, the Middle East and Africa, down 8.7% to 64.4 billion yuan in the rest of Asia, and down 24.5% to 39.6 billion yuan in the Americas.

CHALLENGING ALIBABA

Huawei is trying to offset the effects of US sanctions to build a stronger business in cloud computing and associated software.

It recently released six new cloud computing products in a bid to challenge the country’s cloud leader, Alibaba, and improve its position against global heavyweights Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.

The new offerings comprised the Huawei Cloud CCE Turbo cloud container cluster, CloudIDE intelligent programming assistant, GaussDB database, Trusted Intelligent Computing Service, Pangu Chinese natural language processing and infrastructure software for diversified computing.

Huawei has said it wants to raise the amount of revenue that software and cloud computing contributes to its total financial performance. The company claims its infrastructure-as-a-service (IaaS) cloud business is ranked No. 2 in China and No. 5 in the world.

Synergy Research Group said Huawei has been a "big winner" from the rising worldwide spend on data centre hardware and software, thanks to a 22% jump in spending on public cloud infrastructure. 

"Cisco is dominant in the networking segment, while Microsoft features heavily in the rankings due to its position in server OS and virtualisation applications," Synergy's president John Dinsdale said. "Outside of these four, the other leading vendors in the market are HPE, Huawei, VMware, Lenovo and IBM."

“By 2025, 100% of enterprises around the globe will be utilising cloud technology,” Richard Yu, executive director of Huawei, said.

“Cloud is the foundation for enterprises’ digital transformation," he added. "Huawei will continue to open its technological innovation capabilities and work with developers and partners to accelerate the cloud and intelligent transformation of business.”

With reporting by Reuters

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