In recent years, the Huawei company has been at the center of controversy due to its ties with the Chinese Communist Party. The international community found Huwaei to be a tool of the CCP for obtaining classified information, technology theft, and spying on officials of different governments.
As a result, the telecommunications company was financially sanctioned and now faces an uncontrolled profit reduction and a scenario of low profitability.
Since 2020, the company has seen its revenues fall drastically. Washington’s punitive measures that made it impossible for Huawei to import necessary components from the U.S. resulted in a 30% loss in sales.
These restrictions hindered the company’s participation in the smartphone and other electronics business because it did not have essential semiconductors. For these reasons, Huawei had to divest Honor, a sub-brand intended to compete in the low-budget handset market.
Shifting course to secure revenue in an unstable market.
According to a report by Yicai Global, the company held a meeting on Aug. 22. It released a meeting report titled “The business policy of the entire company should shift from the pursuit of expansion to the pursuit of profit and cash.”
In the report, Ren Zhengfei, founder of Huawei, said that the next ten years will be difficult for the global economy due to the deepening recession and that this will hit the company’s business hard.
“Our overly optimistic expectations about the future went up in smoke. In 2023 or even 2025, we should take the company’s survival as the main goal,” Ren Zhengfei said.
In this regard, in an email sent to all company employees, Ren expressed that “with survival as the main goal, marginal businesses will shrink and close, and everyone will feel the impact.”
Ren did not clarify which businesses will be considered marginal; however, he said that “surplus” staff will be moved to “reserve teams,” indicating that there will soon be a significant restructuring of Huawei’s workforce. He also said that the company would focus on information technology and cloud data storage.
According to Reuters, Huawei’s first-half results showed a 52% drop with earnings of $2.2 billion.
“Although our smartphone business was hit hard, our ICT infrastructure business maintained steady growth,” said Ken Hu, Huawei’s foresight president, referring to the B2B unit.
Second-quarter sales in China’s overall smartphone sector fell 14.2% year-on-year, while volumes hit the lowest level in a decade, a market research firm, Counterpoint Research, said last month.
Since the U.S. imposed the export ban on Huawei in 2019, the company has lost access to U.S.-origin electronic components. In doing so, the blockade devastated the Chinese company’s business worldwide.
To counter these measures, Huawei is developing new business areas, such as components for smart cars and energy systems and cloud data storage services for SaaS (software as a service).
“We will take advantage of digitalization and decarbonization trends to continue to create value for our customers and partners, and ensure quality development,” said Ken Hu.
Company’s ties to the CCP
According to a report from The Institute for Strategic Research of France, Huawei collaborated with the CCP in Africa, Central Asia, and South America to build surveillance and geolocation systems. It also installed a telephone communication system for the Afghanistan Taliban regime and telecommunications technology for the Iranian government to monitor the Iranian people. “Weekly Today” reported in 2019 that the U.S. sanctions list against Huawei covers 92 supply chains.
In May this year, the Canadian government banned Huawei and ZTE from participating in infrastructure for 5G antennas across Canada. Under this new rule, Canadian companies cannot use equipment from these two Chinese companies and must replace existing ones with others.
“There are many hostile actors who are ready to exploit vulnerabilities in our defenses. We must redouble our efforts,” said Canadian Public Safety Minister Marco Mendicino.
Mendicino added, “That’s why our government conducted a broad and comprehensive security review of 5G wireless telecommunications technologies, including service providers that pose a high risk to the integrity of our telecommunications sector.”
Canadian carriers must remove all existing 5G equipment from Huawei and ZTE by the June 2024 deadline and 4G equipment by December 2027. The use of new Huawei or ZTE equipment will be banned entirely from September 2022.
Christopher Johnson, a former senior China analyst at the CIA, told CBS that the Chinese military has always had a close relationship with the telecommunications industry and invested thousands of dollars in creating Huawei. Still, this claim was repeatedly questioned and denied by the company. However, Chinese laws oblige the country’s companies to collaborate with internal intelligence efforts to strengthen national security.
According to publicly available information, Huawei was established in 1987, and its business scope encompasses telecommunications networks, enterprise networks, and cloud computing. Its telecommunications network products mainly include switching networks, transmission networks, fixed wireless and wired access networks, data communication networks, and wireless terminal products in communications networks. Since 2012, Huawei has become the world’s largest telecommunications equipment manufacturer.
The founder of Huawei, Ren Zhengfei, was originally an engineer in the CCP army. He joined the Communist Party in 1978 and then attended the National Science Conference as a military science and technology representative before leaving the military in 1983.