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Huawei to pack less punch after a bruising 2020, analysts say

They expect its 5G business to slow down, and the company to pivot towards software instead

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Analysts say that with major markets such as Britain and Japan banning its equipment, Huawei will likely focus on China.

Shenzhen

HUAWEI Technologies Co Ltd will likely see slower business in 5G this year and push further into software, even as it hopes that its smartphones get a reprieve from US sanctions, which struck the chip-reliant heart of its group last year, analysts said.

Limited access to high-end semiconductors means rationing during China's network upgrade, they said; meanwhile, the dissection of its mobile arm will send Huawei tumbling down rankings as it continues to develop a proprietary operating system.

China's leading telecommunications equipment maker found itself on a US trade blacklist in May 2019 on the back of national-security concerns. Huawei has repeatedly denied it is a risk.

The blacklisting effectively banned US-based firms from selling Huawei essential US technology. Last August, the ban was extended to foreign firms with US business, reaching chief suppliers such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC).

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The change hit an Achilles heel as Huawei depends on TSMC to make advanced chips for its handsets, fifth-generation (5G) network base stations, servers, cloud computing and artificial intelligence products, said Paul Triolo, head of global tech policy at Eurasia Group. Stockpiles only last so long, he said.

Technology analyst Dan Wang said in a client note: "Passage of this death sentence does not involve a swift execution. Instead, the process is much more like a slow strangulation." Huawei declined comment.

Mr Wang said Huawei will feel the impact most acutely in its consumer business, which brought in 54 per cent of its revenue in 2019.

In November, Huawei spun off budget smartphone line Honor in a sale founder Ren Zhengfei said would enable the brand to regain access to chips. Huawei could look to do the same with its premium lines this year, Mr Triolo said.

Huawei was the world's biggest smartphone maker as recently as the second quarter of 2020, but the Honor sale and chip shortage will likely take it out of the top six this year, said data firm Trendforce.

Its luck may change with the US presidential inauguration of Joe Biden, from whom analysts expect more leniency towards Huawei's smartphone business. The inauguration this month comes as the company's chief financial officer Meng Wangzhou discusses a deal with US prosecutors over allegations of doing business with Iran.

In the meantime, Huawei will likely focus on the Harmony operating system it is developing for its smartphones, after being cut off from Alphabet Inc's Android, said Nicole Peng, vice-president of Mobility at consultancy Canalys.

Elsewhere in software, Huawei will likely pivot more towards services such as cloud computing and Internet-of-Things devices, though these are unlikely to offset slowdown in smartphones and telecommunication infrastructure, analysts said.

Huawei's network business has bright prospects, but with major markets such as Britain and Japan banning its equipment, it will likely focus on China, analysts said. REUTERS

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