Huawei's operating pressure mainly comes from the weak consumer electronics market recovery as well as overseas sanctions, especially in Europe and the United States. Huawei's revenue has declined, especially the consumer end product business, by 12% in 2022, seriously affecting its cash inflow. Therefore, Huawei has strived to crack technical barriers, invested in independent R&D and patent layout, and is now using its 5G and 6G intellectual properties to overcome constraints.
Recently, Meng Wanzhou, the founder's daughter and the rotating chairman of the board of directors of Huawei, made her debut for the first time at the MWC Shanghai forum. She may have disclosed the key strategy of Huawei: from "quantitative change" to "qualitative change."
In the 2022 annual report, Huawei's consumer product business revenue amounted to CNY214.5 billion, accounting for 33% of annual revenue, but it is also the business with the biggest decline of 12% annually; and then look at Huawei's revenue of CNY132.1 billion in the first quarter of 2023, with an annual growth of 0.8%, and the net profit margin of only 2.3%. This is also a record-low net profit margin for Huawei since the start of sanctions in 2019.
Figures show that Huawei's operating pressure is still significant, with revenue growth of only 0.8% per year, and net profit continues to decline. Striving to maintain continuous investment in research and development and employee bonus expenses, Huawei's cash flow in 2023 will continue to face great pressure, and it will also be a relatively difficult year.
That's why Ren Zhengfei, founder of Huawei, has positioned 2023-2024 as Huawei's "respite period" and extended the timeline for a "breakthrough" in the blockade and hardship to 2025.
Meng Wanzhou has returned to China for 600 days to take over as Huawei's rotating chairperson of the board, and she is well aware that the next two years will be a critical turning point in Huawei's fate. She constantly mentioned Huawei cloud, 5G and 5.5G, digital transformation, etc. in public speeches, pointing out that Huawei will no longer rely solely on the sales of terminal consumer products to support growth, but rather will focus on IP licensing revenues, symbolizing a strategic change from the quantitative side towards qualitative transformation.
Huawei will leverage its dense network of patents in the face of stringent scrutiny overseas, especially in the United States and the European market. Huawei holds the largest number of 5G patents in the world. Since IP licensing royalties are not restricted by sanctions, it is not surprising that Huawei decides to seek revenue growth from this avenue and add bargaining chips to its desk.
For example, Huawei's recent disclosure of royalty rates for 4G and Wi-Fi 6 technologies, as well as license fees for the use of Huawei's Internet of things (IoT) devices, are all ways to increase revenue through its large patent pool.
A few weeks ago, Huawei also attracted widespread attention in the industry with the news that it was charging 30 Japanese companies a "5G patent license fee." This action shows that Huawei is no longer passively subject to others, but has started to "pull the net in" by collecting 5G technology patents license fees.
This action is also sending a message to the outside world that "if you want to ban our technology, go ahead; but let's see in whose hands these patents are held."
However, Huawei's patent revenue in 2022 was only US$560 million, while Qualcomm received US$7 billion in 2022 from licensing fees, contributing 16% of its total revenues. But Huawei is not without its strength. In China's domestic market, Huawei, as a leading 5G technology provider, actively participates in the layout and construction of 5G network infrastructure under the support and promotion of government policies. As of May 2023, China has built 2.84 million 5G base stations. Huawei is the major bid winner in those government procurement tenders.
