Huawei warns on U.S. ban after China smartphone sales drive first-half revenue

[July 30, 2019]  By Sijia Jiang and Brenda Goh

HONG KONG/SHANGHAI (Reuters) - Chinese tech giant Huawei Technologies warned on Tuesday a U.S. trade blacklisting will impact short-term revenue growth, even as its half-year revenue surged 23% thanks to soaring smartphone sales at home.

In its first results since Washington placed it on a so-called entity list in May that effectively banned U.S. firms from supplying to it, Huawei also said it remained focused on improving the global smartphone business which bore the brunt of supply chain disruptions caused by the U.S. action.

"Revenue grew fast up through May," Huawei Chairman Liang Hua told reporters at an earnings briefing.

"Given the foundation we laid in the first half of the year, we continue to see growth even after we were added to the entity list. That's not to say we don't have difficulties ahead. We do, and they may affect the pace of our growth in the short term," he said.

The U.S. government alleges the Chinese firm is a national security risk as its equipment could be used by Beijing to spy, which Huawei has repeatedly denied.

It has since been given a three-month reprieve till August 19, and U.S. President Trump signaled Washington would be relaxing the sanctions on Huawei, though details are unknown.

Huawei's founder and CEO Ren Zhengfei told reporters last month that the impact of the blacklisting was worse than expected. It could cost the company $30 billion in revenue, and that Huawei's revenue this year and in 2020 could stay roughly the same as 2018 at around $100 billion, he said.

Liang said on Tuesday Huawei remained confident in its ability to cope with the blacklisting and its 5G product roll-out had not been affected. The company has won 11 5G contracts since the blacklist was put in place out of a total of 50 bagged so far, he said.

Workers sit at the Huawei stand at the Mobile Expo in Bangkok, Thailand May 31, 2019. REUTERS/Jorge Silva

Analysts said strong domestic smartphone sales and new 5G carrier contracts were helping to offset the impact from the export ban that threatens to cut Huawei's access to advanced U.S. components and software such as Google Android apps.

Unlisted Huawei, which only started disclosing quarterly results this year, said revenue in the first half rose to 401.3 billion yuan ($58.28 billion), faster than the 15% growth of a year earlier.

Shipments of its smartphones jumped 24% to 118 million units, as robust sales in China more than offset a global sales drop.

According to data from Canalys, Huawei expanded its lead in China's smartphone market in the second quarter by more than 10 percentage points to nearly 40 percent of the market, while overseas smartphones sales had a slight drop year-on-year.

Liang said that the company's proprietary Hongmeng mobile operating system was still under development for connected devices, and that its preference was to continue to use Google's Android operating system for mobile.

Huawei has given little information about Hongmeng, its own back-up operating system under development in case it was cut off from U.S.-made software.

"Hongmeng is part of our long-term strategy...we are definitely not bluffing," Liang said.

(Reporting by Sijia Jiang and Brenda Goh; Editing by Miyoung Kim and Muralikumar Anantharaman

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