HUAWEI´S RETURN IS CASE STUDY IN U.S. POWER -- AND ITS LIMITS / THE WALL STREET JOURNAL

Huawei’s Return Is Case Study in U.S. Power—and Its Limits

Washington has severely damaged, but not destroyed, China’s telecom champion. Its return to growth may be a sign of things to come.

By Jacky Wong

Huawei’s smartphones have proved resilient in the face of U.S. sanctions. PHOTO: CFOTO/ZUMA PRESS

Huawei, China’s telecom and mobile-technology champion, is a poster child for the country’s high-tech ambitions—and a symbol of Washington’s determination to cut them down to size. 

Its surprising resilience, with important caveats, in the face of U.S. sanctions therefore says a lot about how the tech war is likely to unfold in the years ahead.

America’s stranglehold on key upstream technologies gives it enormous power to damage China’s national champions, and dramatically raise the cost of China’s technological advancement. 

But as long as Beijing is willing to subsidize its domestic chip industry at essentially any cost, and buyers in large parts of the world—especially China itself, developing countries and Russia—remain avid buyers of Chinese wares, it will be hard to halt that progress entirely.

Creating a truly bifurcated global technology ecosystem also entails other risks—namely that local Chinese competitors start to succeed further up the value chain.

U.S. sanctions, which limited Huawei’s ability to source components for its phones and other gadgets, have indeed been devastating. 

Revenue at Huawei’s consumer division, mainly smartphones, more than halved between 2020 and 2022. 

That’s partly because it sold its budget Honor brand to save the business from sanctions. 

But its sales overseas and in the premium segment have also plummeted.

That hasn’t been enough, however, to deliver a knockout punch. 

Huawei said in December that it expects revenue for 2023 to grow around 9% to around 700 billion yuan, equivalent to $97 billion. 

That would be around 21% lower than the peak in 2020, but is still impressive for a firm that, just three years ago, seemed to be facing a death sentence.

The launch of Huawei’s premium Mate 60 Pro smartphone last year caught Washington by surprise. 

The phone is made using chip technology comparable to the so-called 7-nanometer process, thought to be impossible given current sanctions. 

A breakthrough by China’s semiconductor industry appears to be the reason, although it still isn’t clear how economic the process is, or how easy it will be to scale.

Nonetheless, the phone is a smash hit in China. 

Despite a weak start to the year, Huawei’s smartphone unit sales in China grew 64% year on year in the first six weeks of 2024, according to Counterpoint Research. 

That likely came at the expense of Apple, whose sales dropped 24%. 

Apple was the No. 1 player in China last year, with around 18% of the market, according to Counterpoint.

Huawei’s telecom-equipment business has withstood sanctions much better. 

Revenue there only dropped 6% between 2020 and 2022. Huawei’s share of the global telecom-equipment market was 30% in 2023, according to research firm Dell’Oro. 

That is roughly stable over the past few years.

That’s partly because the component volumes needed for making equipment such as base stations is much smaller than for shipping hundreds of millions of smartphones. 

So it’s easier for the company to work around supply issues by using stockpiled components or replacing them with Chinese suppliers. 

For the West, swapping out network gear takes much longer than just buying a new smartphone. 

And China and other developing countries are sticking with Huawei.

Washington seems likely to respond with new restrictions on component sales to some Chinese component suppliers. 

That may succeed in slowing down further advances and would ensure that Huawei, and China’s advanced chip-making industry more broadly, continue to face an uphill battle. 

But the further down the technological ladder sanctions extend, the more difficult they are to enforce—as the West has discovered with Russia since 2022.

Even so, Huawei—and China—still face real limits. Its phones may struggle to regain market share outside China without access to Google’s Android operating system.

And while Washington may not succeed in knocking Huawei, and China’s chip industry, completely out of the game, it could force China to spend vast sums over long periods to create second-best solutions. 

Reinventing the wheel will be extremely costly and time-consuming.