US Sanctions Cut Huawei Profits By Half In First Quarter

US Sanctions Cut Huawei Profits By Half In First Quarter
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The Chinese tech giant is "further increasing R&D investment" to offset technology losses.

The first quarter of 2023 will not be an easy quarter for the Chinese technology company Huawei. While the penalties were primarily due to a decline in sales, they were up 0.8 percent compared to the same quarter last year.

Despite being a private company, Huawei has long published important financial reports. Sharing only the previous figures for this quarter, it posted a 2.3 percent gain on revenue of 132.1 billion yuan in China. That's about 3 billion yuan, or about $434 million.

Compared to Huawei's 2022 year-end report, the picture becomes bleaker. In the first quarter of 2023, profit was down 46% compared to year-end statistics.

Watching the ups and downs of a company from quarter to quarter is common practice when you know a company is struggling.

Huawei didn't say much in its first-quarter announcement, aside from sharing that its results were in line with forecasts and that the company is once again increasing R&D investment to "keep innovating into the future," or perhaps to innovate specifically: On US sanctions.

Earlier this year, the US banned all technology exports to Huawei due to a ban on the Chinese company selling American products. That would allow Huawei to get rid of parts made by companies like Qualcomm, with which Huawei had an export license for smartphone chips before the ban.

The ban forced Huawei to produce its own electronic design automation (EDA) software for chips up to 14nm, as well as its own enterprise resource planning (ERP) software, which the company said last week had been developed three times. years. . . It's been years since Oracle stopped serving as an ERP customer due to US sanctions.

Huawei's troubles aren't over either. German authorities have asked the country's telecommunications companies to remove Huawei and ZTE equipment from their networks, Chinese officials have warned, as 60 percent of Germany's 5G network is powered by Huawei equipment. .

Huawei said in a statement last month that Germany's move was an abuse of power by the government to interfere in the market and that it operates "in accordance with the law and guidelines" in Germany, otherwise a campaign of defamation.

The US may not even be able to hit Huawei once it's down. nine Republican senators recently sent a letter to the Biden administration asking the Commerce, State and Treasury departments to also impose sanctions on Huawei's cloud products.

The declassified letter, previously seen by Reuters, said Huawei Cloud had begun working with the Changsha Tian Space Science and Technology Research Institute, which senators had previously approved for the Treasury Department to provide satellite imagery to Russia. Senators have called on the Biden administration to block Alibaba's cloud products.

It is not clear if the ban will be effective. Alibaba Cloud and Huawei Cloud are the largest cloud providers in China, accounting for 36 and 19 percent of the country's market in the third quarter.

However, the sanctions are unfair. China has long banned US-based tech companies like Google and DraboBop and many others. Amazon, which operates AWS in China, does so through local companies to "provide a platform for technology services similar to other Amazon Web Services regions around the world."

The US isn't exactly building its own Great Firewall, but it should come as no surprise if Huawei loses other entry points into the US economy or if economic woes continue to buy into this bolstered R&D budget. . ®

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