How Huawei diversified business to defy the effects of US sanctions

You probably remember the Huawei handsets from recent years dominating the market. They seemed to be everywhere. In fact, it grew so popular that it grabbed more than 30% market share in Bangladesh. 

But almost suddenly the brand vanished. 

In May 2019, citing national security concerns, former US President Donald Trump's administration announced sanctions — after which, Google suspended Huawei's access to Android; meaning users could not access Gmail, YouTube, Google Drive and even the Google Play Store on new  Huawei products. 

Sales plummeted and these "imposed restrictions" were behind the Chinese giant telecom Huawei's disappearing act in Bangladesh. In 2020, Bangladesh's well-paid Huawei employees lost their jobs due to the company closing its operation in the local market. 

At the time, it was widely believed that US sanctions would hinder Huawei's global business. But the company's 2023 annual report says otherwise. And a recent visit to Huawei's headquarters in Shenzhen city in China changed my impression as well. 

Ground zero

Entering the Huawei headquarters compound in Shenzhen, China, I felt like I was stepping inside a very different world. Instead of high-rise buildings and metropolitan elements that make up the major cities in China, the headquarters of the multibillion-dollar firm resembled a resort. Its green, quiet and calm environment took me by pleasant surprise. 

The Chinese Embassy's Dhaka office recently organised a trip for a group of journalists to visit Huawei headquarters. I was one of the visitors. 

We crossed a garden stretching nearly one kilometre by bus, inside the compound, to reach the main building where journalists were welcomed into a big hall. This hall is used for meeting with business clients. The building compound looked like a small forest. 

A Huawei executive explained how founder Ren Zhengfei envisioned building the headquarters on a vast land like a resort, as he likes to work in a calm and peaceful environment. Thus, he also wanted his employees to work in a quiet and natural environment, said the executive.

Zhengfei, who still holds the CEO title at the age of 80, regularly comes to the office and walks around the compound for physical exercise, we were told. I could see why; for one, the black swans on a big lake inside the compound were reason enough.  

Outside the headquarters, when I visited smartphone shops in two cities - Guangzhou and Shenzhen - I could see Huawei still holds a special place in the hearts of Chinese people despite Google restrictions. Understandable, since the local users rely on an alternate search engine developed by Huawei. 

However, on the global stage, business is different. Though sales of Huawei smartphones declined, it made little impact on the company as major revenue comes from its diversified business segments, including ICT infrastructure (accounting for 55%) and digital service segment (accounting for 30%), a senior Huawei executive told the delegation of visiting journalists.

Product diversification and research as the antidote 

The presentation conducted by the Huawei executive explained how the firm diversified its business to grab the international market. 

Citing its engagement with bKash, the largest mobile financial service provider in Bangladesh, the executive explained how the firm continued to expand business in the global market through diversified digital solutions. 

The Huawei authority said they signed an MoU with bKash in 2023 to develop a digital payment ecosystem for the company. 

Huawei diversified its businesses across ICT infrastructure, new energy, automotive solutions, cloud services, digital financial solutions and carbon eliminations, shifting from smartphone businesses. This was a strategic move to grab international markets by defying the effects of US sanctions imposed in 2019.

Additionally, the company heavily invested in research and innovation to explore new businesses, which enabled the company to continue business growth in the international market. 

In 2023, the company invested 23.4% of its total revenue in research and innovation, the highest in 36 years since its inception. Usually, the company invests a maximum of 10%. 

A total of 114,000 employees, which was 55% of the workforce, worked in research and innovation in the year 2023, according to the firm's annual report. 

Huawei's annual report for 2023 shows that its share of consumer business, including sales, dropped to 35.7% of total revenue. In 2019, when US sanctions were imposed, it was 54.4%.

Though the share of consumer business dropped, new business shares including ICT infrastructure and other new business segments led the revenue with a 60% share in the year 2023, according to the annual report. 

Moreover, Huawei authorities said they have digital money management solutions for banks. The firm has been providing core banking solutions, digital infrastructure and data centre services to global banks.  

Cloud network services is a new business segment, which is steadily growing, registering 17.3% revenue growth in the year 2023, according to the annual report. 

The share of cloud computing, including servers, storage, databases, networking, software, analytics and intelligence—over the internet, accounted for 7.8% of the total revenue of the telecom firm in the year 2023. 

Founder Ren Zhengfei envisioned building the headquarters on a vast land like a resort, as he likes to work in a calm and peaceful environment. Photo: Jebun Nesa Alo

Towards a green future? 

Huawei now focuses on new business segments, including smart cities, smart transportation, smart industries and renewable energy, according to the presentation.

The authorities said that they are now building super-speed charging stations for electric vehicles across China, in line with the government's road map of carbon emission.

Electric vehicles are slowly catching up to the traditional car market as the government subsidises users for using electric cars in Shenzhen city, they said.  

The firm also developed carbon neutrality solutions to reduce carbon emissions.  

The Chinese market accounted for 67% of the total revenue of the company, higher than 59% in the year 2019, according to Huawei's annual report. 

The firm also provides smart household solutions – a whole system to generate power for a household. It has the second-largest solar power system, the world's largest single-site PV plant, plus a solar power supply system. 

The firm also had success in the 5G business thanks to innovative applications, even after the UK government vowed to remove Huawei from 5G infrastructure by 2027 due to similar concerns raised by the US. 

By the end of 2023, the number of 5G users across the globe had exceeded 1.5 billion, and 5G networks built by Huawei had continued to deliver leading experiences. The firm provides 46% of the world's 5G network, said the Huawei authority. 

Despite a slowdown in consumer business after the US sanctions, the profit of the company steadily grew thanks to diversified businesses. 

The firm saw a startling 144% growth in net profit, bagging CNY 86,950 million in 2023. This came after two years of suffering from a decline in profits after US restrictions.

In the annual report for 2023, Huawei quoted its chairman Hu Houkun saying: "We've been through a lot over the past few years. But through one challenge after another, we've managed to grow. 

We rounded off 2023 with CNY704.2 billion in revenue. Our ICT infrastructure business remained solid, and our consumer business met expectations. Both our cloud computing and digital power businesses grew steadily and our intelligent automotive solution business began large-scale delivery."