Chinese local media reported on 8th that telecommunications equipment maker Huawei will sell its server business to the Chinese government because of cash flow issues.
Chinese telecom equipment manufacturer, Huawei, which is subject to all kind of American sanctions, is expected to sell its server business. After the semiconductor supply was cut off by the U.S. government, the company began diversifying its survival strategies, such as developing an autonomous vehicle platform, setting up its own smartphone operating system (OS), and entering the mobile payment market, but liquidity issues have been raised in the background.
It remains unclear whether it can be considered as a restructuration of the company. In any case, this strategy will lead to an end to U.S. sanctions while indirectly helping China deal with Huawei deficits in the future, according to analysts.
Huawei sales are dominated by telecom equipment and smartphones. 10% of the income comes from servers, storage, etc. sold through corporate divisions.
As a result of supply problems from Intel, Huawei is no longer producing x86 servers. It will cease operating the server business using the Kunpeng central processing unit (CPU) based on the independently developed ARM processor.
“Huawei will not abandon the server business, but production is blocked,” said an official of Huawei’s server division.
Although U.S. sanctions tightened up on Huawei, the company reported higher sales and operating profit in 2020. However, cash flow dropped 61.5 percent compared to 2019. Likewise, total sales in the first half of this year fell by 29.5% compared with the same period last year, and the consumer goods sector, including smartphones, fell by 47%.
A SV Investment advisor, Koh Young-hwa, said, “Some of Huawei’s businesses are temporarily run by the state, which avoids U.S. sanctions but indirectly embraces Huawei’s future deficit. This clearly indicates there is a liquidity issue.”
A server industry official said, “Before the U.S. sanctions, Huawei’s server business had annual revenue of 30 billion to 40 billion yuan, but after that it dropped sharply, to less than the current 10 billion yuan. If this is the case, it will be possible to cross the 50 billion yuan mark.”
Huawei has been successful in winning bids in central supply projects from large industrial banks in the financial sector and oil giants in the energy sector. However, the company is known to have been dropped when it was unable to supply goods due to a shortage of semiconductors.