Where is huawei's "running in the rain" staying power?

Reporter Jia Li

After four years of black clothes and simple makeup, Meng Wanzhou, vice chairman and chief financial officer of Huawei, once again stood on the stage of Huawei's financial report. According to the financial report, Huawei's revenue declined for the first time in a decade, and the scale of consumer business that once occupied half of the country was reduced by nearly half.

In the face of the challenge of the epidemic and the pressure of supply cuts, the past year has indeed not been easy for Huawei, but Meng Wanzhou said: "In 2021, for Huawei, it may have passed through the 'black barrier area' of this disaster. ”

Huawei is working to improve profitability and cash flow acquisition capabilities to invest in the future in R&D.

However, there is no way to obtain the continuous guarantee of advanced processes such as chips, sanctions are still there, and the demand for 5G deployment is gradually decreasing... "Continue to survive in 2022!" Meng Wanzhou and the Huawei team behind her are still facing huge challenges.

Running through the "black barrier area" in the rain

"When the storm came, we chose to run in the rain." Huawei described its situation at the beginning of its earnings report.

Three years of sanctions, the impact on Huawei is undoubtedly huge. In 2021, Huawei achieved revenue of 636.8 billion yuan, down 28.6% year-on-year, and revenue fell for the first time in nearly a decade, falling to the level of five years ago.

In the case of limited chip supply, the scale of mobile phone and PC business was affected, Huawei's consumer business fell by 49.6% to 243.4 billion yuan, and the operator business surpassed the consumer business as the company's largest revenue pillar. In 2021, Huawei's carrier business accounted for 44.2% of the total revenue, ranking first. However, in 2018, Huawei's consumer business revenue once exceeded that of operators, and even accounted for half of Huawei's total revenue.

By region, Huawei China achieved business revenue of 413.3 billion yuan in 2021, down 30.9% year-on-year. Although it contributed 65% of Huawei's total revenue, it was also the main region that led to its decline in performance.

In the case of revenue decline, Huawei has achieved a significant increase in profit level. In 2021, Huawei achieved a net profit of 113.7 billion yuan, an increase of 75.9% year-on-year. To this end, Huawei has made a number of efforts. By optimizing the management process, Huawei saved 10 billion yuan in management expenses, and through the sale of assets such as Honor, Huawei achieved a net income of up to 57.4 billion yuan in 2021, and the profit level was greatly improved.

At the same time, in order to enhance profitability and cash flow acquisition capabilities, Huawei coordinated management of the entire supply plan to improve the cycle from orders to revenue, and operating cash flow increased by 69.4% year-on-year to 59.7 billion yuan.

However, this does not mean that Huawei has fully survived the crisis, such as excluding the proceeds from the sale of assets such as Glory, Huawei's net profit last year actually fell by 13% compared with 2020 to about 56.2 billion yuan, which is equivalent to its net profit level in 2017.

Although revenue has fallen sharply, Huawei's cash reserves have increased, and the current asset-liability ratio is 57.8%, down 4.5 percentage points from the previous year, and its financial resilience continues to strengthen.

Judging from Huawei's 2021 financial report, Huawei has passed through the darkest moment, but the risks still exist.

How to survive still "missing core"?

The reduction in the scale of consumer business is the main reason for Huawei's revenue decline, so how to solve the chip "card neck" problem?

"From the 2021 financial report, it can be seen that Huawei's sales revenue in EMEA (Europe, the Middle East, and Africa) has dropped from 180.8 billion yuan to 131.5 billion yuan. In addition to the strategic abandonment of some projects, it is clear that it is affected by the sanctions factor. It can be said that if Huawei does not solve the chip supply problem, Huawei's risks still exist. Communications engineer Yuan Bo thinks.

Solving the entire semiconductor problem requires a very complex and lengthy investment that requires patience.

In the case of unavailable advanced technology, it is difficult for Huawei to maintain its leading position, but it will actively seek system breakthroughs, so that the main communication products in the future can have multi-core structural support, software architecture reconstruction, and performance competition.

In the view of Guo Ping, Huawei's rotating chairman, Huawei plans to use chip stacking technology to continue to promote system architecture reconstruction, such as exchanging area for performance, stacking for performance, and using less advanced processes to have the competitiveness of future products.

Huawei is not prepared to blindly carry out chip manufacturing, but will participate more in the industrial chain in the form of investment.

In addition, Huawei's ToC business, especially the scale of mobile phone business, has suffered a very large decline in 2021, but the continuity of The ToB business is still guaranteed, and it will focus on expanding new areas such as wearables, whole house intelligence, and voice products in the consumer business. At present, Huawei's wearable watch bracelet products have more than 100 million users.

"Strategically, Huawei has changed. In the consumer market, Huawei gave up the strategy of all-round efforts and began to gradually shift to segmentation to ensure profit levels as much as possible. For example, the focus on mobile phone terminals is to turn to folding screens to ensure the profit margin of high-end chip models; expand ink screens in tablets to find exports for low-end chips; use Hongmeng advantages to exert whole-house intelligence in the Internet of Things and expand scale. This strategy will continue in 2022. HUAWEI CLOUD MVP Ma Chao said.

In Huawei's view, HUAWEI CLOUD is currently its most promising new business, and it is also one of the guarantees for it to "survive". Huawei announced huawei cloud performance for the first time, and it achieved revenue of 20.1 billion yuan in 2021, an increase of 37% year-on-year, ranking second in China's cloud business field. Guo Ping said that Huawei will continue to expand its cloud business.

Huawei's strategy of fighting for survival will continue, after all, technology investment is not achieved overnight, it needs to be gradual, which is undoubtedly a long process. Whether Huawei can achieve breakthroughs in key areas still needs to be tested by time.

Where is the initial momentum of the ecological model?

Huawei plans to exchange R&D investment for the future. In 2021, its R&D investment is 142.7 billion yuan, so in the future business outlook, the company will continue to maintain high investment in talent and R&D. Continuous strong investment, which is also the hope that Huawei can survive in the future.

Meng Wanzhou said that Huawei's investment will focus on promoting the reconstruction of basic theory, architecture and software.

From an industrial perspective, Huawei will focus on cloud computing, smart terminals, and the ecosystem of smart cars.

In the field of communications, Huawei has introduced opto-electronic fusion technology. With the outbreak of AI and the sharp increase in the demand for computing power, Huawei plans to more effectively exert the computing power potential of diversified hardware through Hongmeng and Euler, and plan the future in China's "East Number West Computing" industry.

In the terminal field, Huawei's Hongmeng OS device sales reached 220 million units last year, and third-party ecological devices shipped more than 115 million. Among the products equipped with Hongmeng system, automobiles have become one of Huawei's most important business segments. In 2021, Huawei will invest about US$1 billion in smart car solutions.

"As the Hongmeng, Euler and Shengsi ecosystems become more and more prosperous, Huawei continues to increase the Hongmeng ecology and automobile business, and the scale effect of this system extension is expected to become Huawei's new stamina in the future." Wang Haoyu, managing director of Junshan, thinks.

From the perspective of the investment in the IT ecology, the ecological model of IT basic products such as Euler, Hongmeng and Gauss has begun to appear. In the future, the "legion" formed in the fields of mines and ports through the penetration and application of related technologies is expected to become a new performance growth point for Huawei.

Obviously, in 2022, Huawei still faces huge challenges. After more than two years of high-intensity investment, China's 5G investment is about to enter a contraction stage, which has a greater impact on Huawei, which is heavily deployed in this market; at the same time, in Huawei's 1+8+N strategy for terminals, the most important 1 is still not solved, and N growth still has a large space; its investment in new businesses such as smart cars is huge, and it has not yet made a profit. From this point of view, Huawei is still in the eve of dawn.

(Editing by Shangguan Monroe)