HUAWEI'S Net Profit Increased 5.6% In 2019, 2020 Will Be "The Most Difficult Year".

Every year, HUAWEI's earnings will receive much attention. This year, we are much more concerned because this is the first annual report under the weight of the US entity list.

On the afternoon of March 31st, HUAWEI released its annual report on 2019. Last year, HUAWEI's sales revenue increased by 858 billion 800 million yuan, an increase of 19.1% over the same period last year. Net profit was 62 billion 700 million yuan, up 5.6% over the same period last year.

In the eyes of the outside world, the growth of key indicators is not easy, but HUAWEI will face greater challenges in 2020. Because the business in the first half of last year was stable, business inertia also hedged the sanctions in the second half of the year. In 2020, HUAWEI will survive completely under the US entity list.

Therefore, HUAWEI's rotating chairman Xu Zhijun told the media in twenty-first Century, including the twenty-first Century economic report, that "2020 is the hardest year for HUAWEI."

"2019 is a challenging year. We have plenty of reserves to meet our customers' needs. This year, the industry predicts that our reserves will soon be used up, and it is also a test of whether continuity is the key year. The new crown epidemic is another situation we have not predicted, which has brought the global recession and turbulence, and the slowdown in demand is the new challenge we have not predicted. Xu Zhijun said.

When the external strike changed from black swan to grey rhinoceros, is HUAWEI ready? From the first three months of 2020, the US comprehensive attack never stopped: prosecuting HUAWEI, dismissing HUAWEI's lawsuit, and pressing 5G in the name of security. The most serious is the media report. The White House is considering a new export control measure, which will change the technical target of sanctions to a more stringent 10%, which may limit the supply of HUAWEI to the chip manufacturers including TSMC.

In response, Xu also responded directly. HUAWEI would not be a leader. HUAWEI could also buy chips from Samsung, Taiwan MTK and exhibition. At the same time, he also pointed out: "I expect this information to be false, or else there will be endless troubles." It is hard for any player in the global industrial chain to be independent. Once Pandora's box is opened, it may be a devastating chain damage to the globalized industrial ecosystem. It may destroy more than a HUAWEI enterprise. We hope that the global industrial chain will cooperate.

Performance growth is not easy, and architecture continues to change.

Xu Zhijun said at the communication conference: "(we) strive to survive in 2020 and publish the results next year." This is the sense of crisis that HUAWEI has been living for a long time.

In 2019, HUAWEI's total revenue still maintained a two digit growth rate (19.1%), which was almost flat compared with the 19.5% growth in 2018, and it has taken the first external blow. But no impact is also unrealistic. In terms of net profit, HUAWEI's growth slowed down. In 2018, HUAWEI's net profit increased by 25.1% over the same period last year, and in 2019 it came to a single digit growth rate (5.6%).

From the region, we can see the affected areas. In 2019, HUAWEI's revenue in China increased by 36.2% over the same period last year, while that in the Americas increased by 9.6%, while that in Europe and the Middle East increased by 0.7%, while that in the Asia Pacific region dropped by 13.9%. For the decline in the Asia Pacific region, HUAWEI said it had been affected by the fluctuation of investment cycle in some countries' operators' markets and the failure of consumers to use GMS ecosystem.

Look at the three main businesses, namely, carrier business, enterprise business and consumer business. In the field of carrier business, HUAWEI achieved sales revenue of 296 billion 700 million yuan, an increase of 3.8% over the same period last year, and the sales revenue of enterprise business reached 89 billion 700 million yuan, up 8.6% over the same period last year. Consumer business has maintained steady growth, with more than 240 million smart phone shipments, and sales revenue of 467 billion 300 million yuan, an increase of 34% over the same period last year.

Among them, HUAWEI mobile shipped more than apple in 2019 to become the second largest mobile phone manufacturer in the world. Gartner's report shows that HUAWEI's global growth rate reached 18.6% in 2019. In addition, although the United States has extended the ban on HUAWEI, HUAWEI has actively implemented its smartphone strategy in China, which has increased its market share in China by 37% in 2019.

On the whole, the revenue of the three major businesses has maintained a growth trend, and the earnings report does not disclose their profits. However, since the first half of 2019, the gross profit margin has been relatively stable. In the first 6 months, the gross profit margin of HUAWEI operators was 54.71%, business was 43.68%, and consumer business was 30.24%.

It should be noted that when the earnings report was released in 2020, HUAWEI's main business became the four largest sector and joined the Cloud&AI business, which was upgraded from the original cloud business. This is the transformation of HUAWEI at the beginning of this year, which has promoted Cloud&AI to HUAWEI's fourth largest BG. Prior to that, "Cloud&AI products and services" belong to the BU (business unit) department within HUAWEI, but now it is officially upgraded to an independent BG, which forms the four largest BG of HUAWEI with operators BG, enterprise BG and consumer BG.

Meanwhile, in twenty-first Century, the business reporter also noted that HUAWEI's long-standing smart car business was first reflected in its earnings report. In the second half of 2019, the smart car solution BU was formally established as part of HUAWEI ICT business organization.

In 2020, HUAWEI continued to seek development, carry out organizational change, and continue to invest in R & D. In 2019, the R & D cost of HUAWEI reached 131 billion 700 million yuan, accounting for 15.3% of the annual sales revenue. In the past ten years, the total R & D expenses amounted to more than 600 billion yuan. According to reports, HUAWEI founder Ren Zhengfei recently said in an interview that this year HUAWEI increased investment in R & D, and R & D spending will increase to more than 20 billion US dollars in 2020, higher than last year's US $15 billion.

The black swan becomes a grey rhinoceros, and the way to the summit is more difficult.

There is no doubt that the US blockade will continue, especially against the HUAWEI chip supply chain.

Gu Wenjun, chief analyst at ICwise, said: "the threat of Damour and Chris's sword is suspended. If the United States now completely cut off the supply to HUAWEI, the impact on HUAWEI will not be so great, especially the psychological panic period has passed. It is estimated that the United States is still doing this to HUAWEI this year: on the one hand, it is blocking the high profile and allowing supply on the one hand, especially in this year's economic situation.

Gu Wenjun told the twenty-first Century economic news reporter that this "sword" should not fall this year, because this year is the election year of the United States, the business performance and the outbreak of the outbreak are more pressing for business. It is expected that more stringent requirements will be made next year.

The most important ones are HUAWEI terminal and 5G two key businesses.

First of all, the terminal is facing the challenge of shrinking overseas market. Xu also pointed out that, after being included in the entity list in May 16th last year, it is increasing its R & D efforts to make up the hole, and is committed to reconstructing the supply chain. Last year, its overseas influence on the consumer business reached at least $10 billion.

Since last May, we have no way to pre install GMS for overseas sales of new machines. In order to protect the interests and user experience of HUAWEI smartphone users worldwide, HUAWEI launched HMS. But we also look forward to the application of Google to the APP Gallery market in the HUAWEI application market. We hope that HUAWEI's 5G phones can sell more overseas, but we can not make a more accurate prediction now, which in fact depends on the construction of our HMS. " Xu Zhijun told reporters.

Now HUAWEI's newly launched P40 flagship has already equipped with HMS system, becoming the key to expand overseas market models, and the flagship of the Mate Series in the second half is also crucial. However, the construction of mobile terminal ecosystem is a protracted war, and it needs more developers and software partners to join.

According to Counterpoint's latest report, the top three mobile phone sales in the world were Samsung, apple and HUAWEI in February 2020. According to the report, HUAWEI, which is most affected by China's supply and demand, is far better than expected. In February, its sales of smartphones exceeded 12 million, and its market share in the world dropped by only 1%.

Looking at 5G again, Xu Zhijun said, "to speak truthfully, the impact of the US has had a great impact on our global 5G business. At least it has added a lot of work to us. We need to spend a lot of time explaining with customers, partners and relevant government regulators. In addition, we have a few customers who chose HUAWEI 2G, 3G and 4G technology, but we did not continue to choose our 5G technology, or some areas did not continue to choose HUAWEI technology. "

However, in the industry view, 5G will get considerable development. From the epidemic situation, we can see the demand for communication technology. Even for the future, it is a great good. The next outbreak will probably come, but we will fight in addition to medicine and communication science. Human conquest of nature is not necessarily achieved through direct confrontation. It may be achieved through other civilizations. For example, we can all work on the Internet without going out, and the epidemic has nothing to do with us. The progress of 5G may slow down, but in the short term, long-term 5-10 years will change our lives dramatically and fiercely.

Last year, HUAWEI founder Ren Zhengfei once said: "American companies rush up from the south slope, we rush from the north slope, and when we join the summit, we do not fight bayonets. We want to hug and cheer. We cheer for the digital information service of mankind is a major trend, and a variety of standards will finally win."

Now it seems that this road to join forces becomes more difficult. There is no fundamental change in the attitude of the United States towards HUAWEI, and there is no possibility of hugging.