China-based technology giant faces anemic sales and revenue as it grapples with slack demand, supply-chain challenges
China-based Huawei Technologies suffered a significant growth setback in the first quarter as the COVID-19 pandemic cut into sales of its smartphones and U.S. sanctions squeezed supply chains and sales opportunities.
The Lowdown: According to published reports, Huawei’s first-quarter revenue growth slowed to just 1.4%. In the same quarter in 2019, the telecom and networking manufacturer reported revenue growth of 39%.
The Details: Huawei is grappling with multiple factors hindering its performance. The COVID-19 pandemic has sapped demand for its smartphones, which are best-sellers in China and Asia. Smartphone sales in China plummeted 38% in the first quarter as the country went into lockdown to stem the spread of the virus.
The pandemic is also stalling 5G network rollouts around the world. Huawei is a leading provider of 5G network equipment, particularly in Asia, Africa, and Europe. The slowdown in deployments is delaying revenue recognition of equipment orders.
Prior to the pandemic, Huawei was feeling a revenue and growth pinch as sanctions imposed by the United States took hold. Washington regulators labeled Huawei a national security threat, barring the sales of its products in the U.S. and prohibiting American companies from selling its components. As a result, Huawei has seen markets around the world close to its products. The sanctions are forcing it to shift supply chains away from the United States.
The Impact: Other smartphone and networking equipment manufacturers will likely see the same sales slump as Huawei as a result of the COVID-19 pandemic. Analysts, though, expect a rebound in the second half of the year as demand for new devices returns and telecom service providers upgrade their networks to support work-from-home employees’ need for bandwidth.
Background: For years, Huawei faced criticism by the U.S. government for its ties to the government of China and suspected corporate espionage. The Trump administration stepped up regulatory efforts to put more pressure on the company by banning sales in the United States and pushing European countries to follow suit.