Huawei tightens its grip on global telecom markets in another failure of Western sanctions
Huawei tightens its grip on global telecom markets in another failure of Western sanctions
Summary:
Huawei is China's largest electronics company, and is specifically targeted by Western sanctions. The sanctions are intended to both deny Huawei access to the fastest semiconductors, and to prevent Huawei from selling products in American and European markets.
While most of the recent headlines involving Huawei relate to their introduction of smartphones that were thought to be impossible for them, Huawei is first and foremost a telecommunications hardware company. And recent developments in those market segments have only strengthened Huawei across the world.
Perhaps most ironically of all, Huawei has benefited from being locked out of the North American telecommunications market, as the United States has seen major declines in investment and upgrades.
Huawei is far ahead of global rivals in the telecom space, and is doubling down on its efforts to roll out 5.5G technology across the Global South countries. As the company does so, it is a boon to thousands of other Chinese manufacturers, and producers of electronics and other gear that runs on Huawei networks.
Report:
Good morning. Economic sanctions and export curbs which were designed to put companies like Huawei out of business, and instead they’ve had the opposite effect—Huawei and other Chinese tech companies are stronger than ever.
In 2023, Huawei’s profits were up 140% year over year, and it’s the biggest profit rise in their company history. Revenues were up 10% last year, and so far in 2024 they’re way up again. In the first six months of 2024, Huawei’s revenues are up 34% over 2023.
We’ll look today at an industry segment where Huawei is indisputably a global leader. Lots of the news coverage of Huawei involves smartphones and semiconductors. But Huawei’s real competitive advantage is in telecom equipment. And it’s Huawei’s dominance of telecom gear that is driving a lot of China’s successes across other industries, because so much of today’s technology relies on the internet to work well.
This analysis comes from Dell’Oro, who surveyed global telecom equipment investment in six major categories, Broadband, Microwave and Optical, and so on. They found a 5% decline, year over year, in 2023 in investment. This is worse than what was forecast. The decline was driven by a slow transition toward 5G in the largest population centers.
But it was the big decline in North America which pushed global telecom investment down. The total telecom market in North America dropped by about a fifth—down 205%--in North America. But outside the US, revenues were up in 2023, driven by Asia Pacific.
Dell Oro says that the collapse in North American telecom investment was a BENEFIT to Huawei. Huawei maintained its lead as the top global equipment company, and Huawei’s lead got even bigger in 2023, because Huawei was banned from operating in the American market. The fact that Huawei was NOT allowed to compete in North America helped Huawei. Here’s a chart of global market share across those 6 major telecom segments, for 2023.
The number in parentheses shows the companies’ market share in 2022. Huawei finished 2023 with 30% of the world’s market share, up from 28% in 2022. Huawei at 30% is twice as much as the next biggest company, Nokia. ZTE, there in dark blue, is 11%, unchanged since 2022, and they’re another Chinese telecommunications company under sanction. These are two companies, Huawei and ZTE, that we are trying to put out of business, and they’re making more money than ever.
Bloomberg’s got a sobering assessment of how this is all going. We have heavy sanctions and high tariffs on Chinese manufactured products and technology, and in many ways North America is closed off to China. Everywhere else, it’s a different story. And it’s a bipartisan effort—Republicans and Democrats actually agree on something—to stop China’s economic growth.
We’re more than 6 years in, and it’s not working. China is making steady progress to dominate all the industries that matter. The Made in 2025 industrial policy started 10 years ago, and it’s been mostly successful. In 13 key technologies, China now leads the world in five of the them, is competitive in 7 others, and trails in only one:
In 2015, the small inner circle, China was behind in drugs, big tractors, machine tools, robots, AI, and semiconductors. Now—2024, the middle circle-- they’re competitive in all those industries. They’re only behind, today, in commercial aircraft, and they’ll be competitive in that space by 2030. We’ve had the heavy sanctions on for over six years, we’ve been successful in making our allies play along too, and these dots on the chart keep changing colors from red, to yellow, and gray.
Outside the United States, the world is driving Chinese cars, using Chinese phones and Chinese solar panels, along with all the other electronics and tools and appliances that are made here. The policies that were intended to contain China has isolated the United States instead, and they’re hurting our own businesses and consumers.
Going back to Huawei and telecoms. Huawei is locked out of the North American market, so they’re taking markets everywhere else. The next generation of technology will be driven by AI, and for consumers to use those devices, broadband and telecom infrastructure needs to be upgraded.
Mobile AI will require superfast uplink speed, and superlow latency, which is the time lag for users, while the signal is traveling through the networks. Huawei is the global market leader for that next-generation 5.5G equipment, which is 10 times faster than 5G. Carriers that switch to 5.5 will be able to monetize new features, like AI search, gaming, live streaming, and can even charge more for the faster speed and lower latency.
Over half of Huawei’s total revenue comes from telecom sales, and that segment contributed $51 billion in sales last year.
The semiconductor bans aren’t working, our efforts to slow China’s race to be competitive and dominant in these key sectors—those aren’t working either. But suppose they had worked better—in the long run, it would not have mattered. Huawei builds the plumbing, we might say, for the telecom and internet industries, across the developing world. What’s more, Chinese diplomatic efforts in the BRICS countries, and in the Global South, are going to ensure that Huawei continues to grow markets in the parts of the world where the economic growth is the strongest.
China’s also able to offer far lower cost financing to developing countries, and to telecom providers there, compared to investment banks in London or on Wall Street. When the cell phone towers and broadband systems and microwave transmitters are all made in China, by Huawei, that is an enduring, and deep competitive advantage. It means that the devices that rely on those same networks to run, will need to be in accordance with Huawei standards. More devices on those networks mean more sales for Chinese tech firms. Huawei doesn’t actually need to sell more smart phones. What they built, instead, is a monopolistic advantage in the hardware and infrastructure for all the smart phones in the world. For a billion Chinese, right now, plus the over two billion people, across the Global South who will be joining the middle class over the next 20 years, they’re all going to Huawei.
Resources and links:
China’s Huawei pushes network gear upgrades in friendly nations, touting AI boost https://www.scmp.com/tech/big-tech/article/3285281/chinas-huawei-pushes-network-gear-upgrades-friendly-nations-touting-ai-boost?
Huawei is back – net profits more than doubled in 2023 https://techblog.comsoc.org/2024/03/30/huawei-is-back-net-profits-more-than-doubled-in-2023/
Dell’Oro: 2023 global telecom equipment revenues declined 5% YoY; Huawei increases its #1 position
Bloomberg, US Efforts to Contain Xi’s Push for Tech Supremacy Are Faltering
https://www.bloomberg.com/graphics/2024-us-china-containment/
Huawei Announces 2024 H1 Business Results https://www.huawei.com/en/news/2024/8/h1-business-result
Reuters, U.S. bans new Huawei, ZTE equipment sales, citing national security risk https://www.reuters.com/business/media-telecom/us-fcc-bans-equipment-sales-imports-zte-huawei-over-national-security-risk-2022-11-25/
How economic statecraft shaped Huawei’s global FDI footprint https://www.hinrichfoundation.com/research/wp/trade-and-geopolitics/how-economic-statecraft-shaped-huawei-global-fdi-footprint/