Huawei’s sales and profits are showing signs of recovery after more than three years of US sanctions while its industrial 5G is taking it far beyond smartphones as a shaper of the global economy.
On October 27, the company announced business results for the first nine months of 2022, reporting sales of 445.8 billion Chinese yuan (US$61.0 billion) and a profit margin of 6.1% on its “main business” based on “unaudited figures compiled in compliance with the International Financial Reporting Standards.”
According to Rotating Chairman Eric Xu, “Overall performance was in line with forecast.” The decline in the company’s device business – smartphones and other consumer products – “continued to slow down, and our ICT infrastructure business [telecommunications equipment] maintained steady growth.” ICT stands for information and communications technology.
Calculations based on Huawei’s 1Q and 1H results announcements show 3Q sales down 15% from 2Q, but profit up 27%, the profit margin rising to 8.4% in 3Q from 5.6% in 2Q and 4.3% in 1Q. But the 1Q and 1H profit figures were “net profit,” not profit on the company’s “main business,” which was not defined.
This, of course, reduces the value of the comparison. In all likelihood, 3Q net profit was less than profit on the company’s core businesses, but without complete, audited financial statements it is impossible to know. On the positive side, an 8% margin on core businesses would indicate a recovery from the sanctions imposed so far.
When compared with last year, 3Q sales were up 6.5% but net profit appears to have dropped by at least 20%. According to a report in Technode, management attributes this to “greater investment in new industries, software, and other fields, such as the new generation of MIMO [multiple-input, multiple-output] wireless technology and the rebuilding of tech stacks centered with AI [artificial intelligence].”
New industries at Huawei include private 5G networks for industrial facilities, electric vehicles, autonomous driving and cloud computing.
According to AI expert Ayush Patel, writing in Towards Data Science, “The modern AI stack is a collection of tools, services, and processes imbibed with MLOps [machine learning operations] practices that allow [software] developers and operations teams to build ML pipelines efficiently in terms of resource utilization, team efforts, end-user experience, and maintenance activities.”
In short, Huawei is becoming considerably more sophisticated than the 5G smartphone and network equipment maker that incurred the wrath of Donald Trump.
This sophistication was on display at the company’s 13th annual Global Mobile Broadband Forum, which was held in Bangkok on October 25 and 26. The event gathered “mobile network carriers, vertical industry leaders, and ecosystem partners from around the world to discuss how to make 5G a commercial success, as well as other high-priority industry topics like green development, intelligence, and 5G evolution.” It was co-hosted by mobile industry associations GSMA and GTI.
The Day 1 keynote address, delivered by Rotating Chairman Ken Hu, pointed out that while consumer services still generate the largest share of telecom revenue, “B2B 5G applications are also becoming a new engine for carrier revenue growth, producing considerable value in industries like oil and gas, manufacturing, and transportation.”
“These applications are not only innovative – they’re generating real commercial value for carriers. In 2021, for example, Chinese carriers brought in over CNY3.4 billion (roughly USD500 million) in new revenue from more than 3,000 industrial 5G projects. What’s more, these projects also generated 10 times that amount from related data and integrated ICT services.”
“With large bandwidth and low latency, 5G can be integrated with cloud [computing] and AI to provide entirely new services for consumers and businesses alike … presenting an opportunity for carriers to go beyond connectivity and move into cloud services and system integration.”
Peng Song, President of ICT Strategy and Marketing, added that the 5G business service revenues of Chinese carriers are up more than 200% this year while “the 5G private network scale of carriers outside China has increased by more than 100%. Carriers can leverage the advantages of extensive networks to quickly provide 5G private lines and 5G WAN (Wide-Area Network) virtual private networks to adapt to industries requiring extensive coverage, such as energy, logistics, and smart cities. Local private networks … are widely used in smart factories, ports, and mines.”
On Day 2 of the Forum, Executive Director David Wang spoke about 5.5G, which he called “The foundation of the future.” 5.5G is an upgraded version of 5G that should prove particularly useful for industrial applications.
“The next milestone we must hit on the path to the intelligent world,” he said, “is 5.5G. 5.5G will deliver 10 Gbit/s experiences, support hundreds of billions of connections, and help us achieve native intelligence.”
According to Wang, 5.5G has made great progress over the past two years: “and three things have become clear:
“First, the standardization of 5.5G has been initiated and is right on track, making it more than just a vision.
“Second, the industry has made breakthroughs in key technologies for 5.5G, and ultra-large bandwidth and ELAA [Enhanced Licensed Assistance Access] can now deliver 10 Gbit/s experience.
“Third, the industry has a clear vision for the IoT landscape.
“Looking ahead, our task is to tackle these five new areas – standards, spectrum, products, ecosystems, and applications. That, he noted, will require the promotion of technological research; the development of 5.5G networks, devices, and chips; and cooperation “to build a thriving 5.5G ecosystem.”
He did not mention an ecosystem safe from attempted sabotage by the US government, but the Forum was an optimistic, technology-oriented event.
In conclusion, Wang said, “As our standards, spectrum, products, and ecosystem mature, 5.5G will become a reality, allowing even more applications to emerge. Multi-sensory interactions will transform the way we communicate. Intelligently connected vehicles are set to become a third mobile space and see wide adoption, while intelligent connections across industries will lead to the dissolution of information silos, driving industrial upgrade.
“A new generation of innovative applications is now emerging, and our vision for the intelligent world is becoming clearer. That’s why all industry players need to work together towards the exploration and creation of these applications.”
Progress on the technology is underway. Last May, Huawei and China Telecom launched “Super TimeFreq Folding, a new innovative 5G-Advanced technology,” noting in their press release that:
“5G industry applications, like machine motion control, multi-machine collaboration, and machine vision AI inspection, have become increasingly essential in core production processes as they mature, increasing company requirements for network latency, reliability, and uplink bandwidth. A latency of 1 ms [millisecond], 4 ms, and 10 ms, for example, is now required for about 15%, 35%, and 30% of industrial control protocols, respectively. This makes meeting these new network requirements for core production processes an increasingly urgent technical challenge the ICT industry must tackle.”
Super TimeFreq Folding shortens latency from 10 ms to less than 4 ms and “The use of mmWave [millimeter wave, or extremely high frequency] in the future will further slash latency to less than 1 ms.”
This is an industry-wide trend. For example, a report on the Ericsson blog by Reiner Ludwig, Strategic Product Manager for Business Area Neworks, shows 25% – 30% of 5G latency in the U.S. below 10 ms.
During the Forum, Huawei, China Mobile and Chinese appliance maker Midea launched what they call the first fully-connected 5G smart factory in 3C industry (Computers, Communications, and Consumer Electronics). The factory, which is equipped with Kuka robots, can assemble a washing machine in 15 seconds, doubling shipment capacity while cutting inventory in half and reducing labor costs by 30%. Watch the 3 minute video here.
Midea acquired German industrial robot maker Kuka at the end of December 2016 after the deal was approved by the German and U.S. governments. Kuka has since built a factory in China. The transaction would probably not be approved today.
China is leading the rollout of 5G by a wide margin. According to industry and market research sources, China has installed about 60% of the world’s 5G base stations and now has more than one billion 5G users. China also leads the world in private 5G networks with a revenue-based market share of more than 30% last year according to ABI Research.
Earlier this year, GlobalData, a data analytics and consulting company headquartered in the UK, released a report that rated Huawei’s 5G mobile core portfolio the strongest in the world for the fourth year in a row. What does that say about the effectiveness of US sanctions and China’s determination to overcome them?
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