Domestic contract wins help Huawei ride out sanctions

Domestic contract wins help Huawei ride out sanctions

Chinese enthusiasm for 5G rollouts has helped Huawei to weather the first quarter of 2020 despite the Covid-19 pandemic and trade blocks in the US.

Since the start of 2020, China Mobile has awarded Huawei CNY28.4 billion ($4.01 billion) worth of contracts as it increases capex to push 5G deployments. The operator is the world’s largest, and this year plans to deploy 300,000 5G sites across China.

In order to achieve this objective, China Mobile has boosted its capex by 8.3% to CNY180 billion, in line with the two other major Chinese players. Collectively, the three have significantly increased their projected capex for 2020 over 2019, with an expected collective total of CNY 335 billion between them.

Huawei has been the main beneficiary of this spending drive, winning 57.3% of China Mobile’s phase two 5G tender in late March this year – granting it CNY21.3 billion to deploy around 132,000 base stations – as well as 56% of the operator’s data transmission network contract, worth CNY5.6 billion.

China Mobile has split a CNY1 billion data management deal between Huawei and fellow vendor ZTE, and already this year the operator has put in an order for 70,000 5G smartphones and 140,000 5G Wi-Fi devices from Huawei. With China Unicom and China Telecom due to announce the results of their 5G tenders imminently, Huawei may stand to benefit from these as well.

The vendor’s CEO and founder Ren Zhengfei said last month that the ongoing pandemic had not deterred Huawei’s bid to become less reliant on US imports, with the vendor increasing its R&D budget for this year by $5 billion to $20 billion in order to create new technologies.

Nonetheless, the current circumstances have forced Huawei to take a hit. Revenue growth for the first quarter this year was just 1.4% compared to 39% for the same period in 2019, despite the vendor winning 91 commercial 5G deals and selling over 600,000 5G antennas.

Huawei’s chief domestic rival ZTE has also benefited from China Mobile’s trend towards increased reliance on local vendors. ZTE won 28.7% of the operator’s phase two 5G contracts, having received less than 10% of two 5G core network contracts issues in June 2019.

At the time, Finland’s Nokia was still a supplier for China Mobile, and the operator claimed that it would continue working with overseas as well as Chinese vendors despite the US placing trade sanctions on Huawei. However, it has now dropped Nokia from its partners list and granted larger contracts to the major Chinese vendors, suggesting that the operator may be looking to work more closely with its compatriots.

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