Huawei reports biggest ever revenue drop as consumer growth engine stutters

US sanctions drove company to sell chunk of its once-dominant handset business

By David Kirton

SHENZHEN, China (Reuters) -Chinese telecommunications giant Huawei Technologies reported its biggest ever revenue drop in the first half of 2021, after U.S. sanctions drove it to sell a chunk of its once-dominant handset business and before new growth areas have fully matured.

The company generated revenue of 320.4 billion yuan ($49.56 billion), it said on Friday.

The biggest decline came from Huawei's consumer business group, which includes handsets, where revenue fell 47% to 135.7 billion yuan.

It eked out a 0.6 percentage point rise in its net profit margin to 9.8%, largely due to efficiency improvements, a company spokesperson said.

In 2019 former U.S. President Donald Trump put Huawei on an export blacklist and barred it from accessing critical technology of U.S. origin, affecting its ability to design its own chips and source components from outside vendors.

The sanctions hobbled Huawei's handset business, with Huawei dropping out of the top five vendors in China for the first time in more than seven years in the second quarter, shipping 6.4 million units, according to consultancy Canalys.

That compares with 27.4 million handsets shipped in China in Q2 2020, excluding shipments of Honor budget handsets. Huawei sold the brand in November.

The consumer business brought in over half of the company's revenue in 2019.

Revenue also fell 14% in the first half from Huawei's telecoms equipment business, which a spokesperson said was partially down to the slowdown in China's 5G rollout.

Huawei is trying to pivot towards software and business areas not at risk of U.S. pressure, according to an internal memo from founder and CEO Ren Zhengfei seen by Reuters in May.

"Our aim is to survive, and to do so sustainably," said Eric Xu, Huawei's rotating chairman, in a statement on the results. "We've set our strategic goals for the next five years."

The company started rolling out its Harmony operating system in June, meaning it is no longer wholly reliant on Google's Android platform.

U.S. sanctions barred Google from providing technical support to new phone models.

First-half revenue from Huawei's enterprise business group grew 18% to 42.9 billion yuan, as the COVID-19 outbreak spurred industry demand for ICT connectivity, a spokesperson said.

Huawei is also seeing strong growth in its cloud services business, more than doubling in size in the first quarter to take a 20% market share in China, according to Canalys.

(Reporting by David Kirton; editing by Jason Neely and David Evans)