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Huawei’s first global flagship store, in Shenzhen, on October 30, 2019. Photo: Reuters

Huawei under no ‘illusion’ about US lifting sanctions but will keep chip-making unit as it fights for survival

  • Huawei deputy Chairman Eric Xu said Huawei is planning its future based on the assumption that it will not be removed from the US Entity List
  • The telecoms equipment maker has been moving into new businesses in search of revenue growth, but without access to US chip technology, its future looks bleak
Huawei Technologies Co, the Chinese telecoms equipment giant struggling under US sanctions, is under no illusion about US President Joe Biden removing the telecoms equipment giant from the US Entity List, company deputy chairman Eric Xu Zhijun said on Monday at an analyst summit in Shenzhen.

Huawei currently has enough chip inventory to support its enterprises, Xu said, but added that the situation cannot last indefinitely, suggesting the company is depleting its stockpiles.

However, Huawei will keep its fabless HiSilicon chip unit for as long as it can, Xu noted, despite the fact that it cannot find any manufacturer willing to make its chips. HiSilicon designs the Kirin processors that Huawei uses in its smartphones, but the company has no chip manufacturing capacity of its own.

“All our strategies and detailed plans are made with the assumption that we have to survive and grow [while being on the] Entity List, and we can’t make strategies and plans under illusion or fantasy – we will be dead by doing that,” Xu said.

Huawei deputy chairman Eric Xu Zhijun said the company is operating under the assumption that it will stay on the US Entity List under President Joe Biden. Photo: Huawei

The US government tightened sanctions on Huawei last summer when it barred chip makers from supplying the Shenzhen-based company with chips made using US technology without prior approval, cutting Huawei off from the most advanced chip technology in the world.

Huawei’s chip purchase volume from Japan dropped to US$8 billion in 2020, down from US$10 billion the year before, as a result of this restriction, according to Xu.

“Our target for 2021 is to survive, but of course we hope that we can live a bit better,” Xu said.

He added that Huawei will invest more in businesses less reliant on advanced chips and strengthen its software business development. Huawei has already started pursuing this strategy in search of new revenue sources, including forays into  electric cars and  pig farming using artificial intelligence.

Huawei launches 5G autonomous car system to be installed in new sedan

Dan Wang, an analyst with Gavekal, wrote in a research note that the sanctions are not likely to kill Huawei, but it might lead to a transformation of the company.

“If there is no change to current US restrictions, then Huawei will quickly run out of inventory to maintain production of smartphones; the carrier business will last longer, but not indefinitely,” he wrote. “There’s no way that Huawei would dissolve as a corporate concern: the company is pivoting to new business lines like automotives, but a Huawei that does not make smartphones and base stations would be a fundamentally different company.”

With no end in sight to the US-China tech war, Huawei’s future had dimmed. The company reported year-on-year revenue of 891.4 billion yuan (US$136 billion) in 2020, just 3.8 per cent higher than the previous year, marking its slowest annual revenue growth in the past decade. With its smartphones facing the brunt of US sanctions, the company sold its budget handset brand Honor last November to a consortium organised by the Shenzhen government.