2 ways Huawei could overtake competitors after addressing setbacks in 2020

2 ways Huawei could overtake competitors after addressing setbacks in 2020

Huawei warned that 2020 would be the firm's most difficult year yet, as it looks to revamp operations against the backdrop of the coronavirus pandemic and the prospect of further US restrictions, according to Light Reading.

China is Huawei's predominant source of revenue

In discussing Huawei's annual earnings release, Chairman Eric Xu contrasted the 5G deployments in Europe, which he expects "will certainly be delayed to when the pandemic is brought under control," with those in China, where deployments have already accelerated. In addressing the prospect of additional US restrictions - believed to involve barring Taiwan Semiconductor Manufacturing Co from supplying chips to Huawei - Xu suggested China's government would take countermeasures.

Huawei's plan to address setbacks in 2020 could see the telecommunications giant emerge with several long-term advantages over competitors. Here are two ways Huawei could come out on top:

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  • Achieve further supply chain independence. Xu mentioned that increased R&D expenditures were crucial in bolstering the company's supply chain amid US trade restrictions. In late 2019, Huawei was able to release its Mate 30 smartphone without any components from its US suppliers, just months after the US ban went into effect. The company plans to further increase its R&D budget by $5.8 billion, to a total of more than $20 billion - only two other companies, Amazon and Alphabet, spent more on R&D in 2019. Huawei's ability to increase spending in a time of crisis reflects its access to cheap capital, which will help it gain an edge over competitors that are chiefly concerned with weathering an economic downturn.
  • Capitalize on 5G investments with access to Chinese markets. Huawei's concentrated market share in China, which accounted for 59% of Huawei's total revenue in 2019, will help sustain cash flows in 2020. Last Thursday, China reported fewer than 100 new daily cases of coronavirus, suggesting transmission could be slowing in the region while most other countries are still bracing for the pandemic's peak impact. Though there is still great uncertainty surrounding the recovery of China's economy, smartphone-maker Xiaomi said its sales had already returned to 80-90% of normal levels.

Huawei's success in navigating the challenges of 2020 would increase pressure for the US to champion a competitor. After the UK balked at US requests to bar Huawei networking equipment for 5G, US officials were said to have considered taking a controlling stake in a competitor, such as Ericsson or Nokia. While this still seems like a remote possibility, moves by Huawei to attain more favorable positioning in a tough economic situation could help make the case for some form of increased state support of competitors.

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