Huawei’s revenue for its FY2021 might have been hurt by on-going US restrictions but the company has maintained a steady commitment in research and development.
In 2021, with a total R&D spend of RMB142.7 billion, it represents a R&D to revenue ratio of 22.4%, which marks one of the highest levels in the company’s history. Over the past decade, the company has spent a total of some RMB845 billion in R&D, with a R&D spend to revenue ratio of around 10%.
The company believes that the commitment to R&D is key to delivering value to its customers.
“No matter how our profit changes, we’ve always maintained this principle,” says Huawei’s chief financial officer Meng Wanzhou at a briefing on March 28 to unveil the privately-held company’s 2021 annual report.
Despite the drop in revenue last year, the company has sufficient financial resources to continue funding R&D at this level. For example, Huawei’s cash and near term investments, as at end 2021, was RMB416.3 billion, up, from RMB357.4 billion as at end 2020.
“We will maintain our strong investments in R&D, improve systems architecture, software enhancements so as to provide better quality products,” says Meng.
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In recent weeks, a few of the big China tech companies have reportedly retrenched people as growth is no longer as fast as before. Huawei’s rotating chairman Guo Ping, in response to a question, maintains that Huawei has kept up a steady hiring pace instead.
Over the last two years, the company has hired around 26,000 fresh graduates and this year, there are plans to bring on board another 10,000 or so, he says.
Only with talent, says Guo, can Huawei solve its problems on hand. “R&D and innovation is the foundation of how Huawei will develop. We will enhance this under any circumstances. To solve long term issues, we depend on talent.”
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According to Guo, this year, 2022, is still one where the company is “fighting for survival” with the US restrictions still in place. “We are doubling our efforts in science and cutting-edge technologies. We will not be solving our problems by saving,” he says.
In his address in the annual report, Guo says Huawei is exploring theories and technologies that will bring the capacity of communication channels to closer to what is known as “Shannon’s Limit”, which refers to the maximum rate of error-free data that can theoretically be transferred over the channel if the link is subject to random data transmission errors, for a particular noise level.
“At the same time, we will dive into new theories like semantic communications, trying to go beyond Shannon’s Limit and create new horizons for the development of the communications industry,” he adds.
Guo describes the company’s efforts akin to building a massive stone structure, where the key is not just the selection of individual pieces of stone but also the design of the overall framework.
For example, AI is a growing field but to power this cutting-edge capability, lots of computing capacity will be needed, which requires copious consumption of energy.
According to Guo, Huawei wants to create AI applications that are more efficient, by coming up with chips used in these applications that can be around 88% more efficient.
The company’s revenue for FY2021 ended Dec 2021 was RMB891.4 billion, down 28.6% over the preceding FY2020, partly due to crimped sales of smartphones as well as the general impact of the pandemic across the various market Huawei operates.
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Despite the drop in revenue, Huawei’s earnings for 2021 increased by 75.9% to RMB113.7 billion, partly from gains from disposal of businesses.
According to Guo, the results were in line with its forecast articulated earlier. He notes that the company’s overall financial position remains sound, and is strengthening.
Unsurprisingly, the big drag came from the consumers business, where revenue halved to RMB243.4 billion, given how US has restricted both the sale of chips to Huawei and also the Android operating system.
While sales of smartphones, PCs and tablets declined, there was some offset by other growth in other consumer device types, specifically wearables including smart watches, earbuds, and fitness trackers.
Huawei’s carrier business – which refers mainly to the sale of networks to mobile operators – was down around 7% to RMB281.5 billion.
Its enterprise business, meanwhile, managed a slight gain to end the year with RMB102.4 billion in sales.
China, Huawei’s homeground, remains its largest market by revenue share. For 2021, the company generated a revenue of RMB413.3 billion in China, down 30.9% over 2020, partly as 5G deployment is largely completed.
The second largest market in 2021 was EMEA (Europe and Middle East), which saw revenue of RMB131.5 billion, down 27.3%.
Asia Pacific, which refers to the region outside China, recorded a revenue of RM53.7 billion. With a decline of 16.7% over 2020, the magnitude of the drop was the lowest among the various geographies broken down by Huawei in its annual report.
Guo calls southeast Asia and the broader Asia Pacific region, which is undergoing a rapid digital transformation journey, a “very important strategic market” for Huawei.
The company sees plenty of opportunities ranging from deploying mobile networks in rural areas, to providing smart city solutions for upcoming projects such as Indonesia’s new capital.
“We are in Asia Pacific, for Asia Pacific. We hope Huawei can be a key contributor to southeast Asia’s digital transformation journey,” he says.
Meanwhile, Huawei has been actively looking at winning business opportunities in new industries and products.
For example, it has spent considerable effort, relying on its three decades of experience in the ICT industry, in developing so-called intelligent automotive solutions, which Guo notes is a subject of growing interest.
However, Guo is quick to put to rest speculation that Huawei plans to build its own EVs. “We want to help car making OEMs, home, and abroad, to help them build their vehicles,” he says.
Moving forward, Huawei will advance its journey of digitalization, intelligent transformation, and low carbon, says Guo.
“Relying on talent, scientific research, and an innovative spirit, we will continuously increase investment to reshape our paradigms for fundamental theories, architecture, and software, and build our long-term competitiveness,” he says.
