Huawei is back, but how long can it last?

Huawei is definitely back, handing down a spectacular 564% increase in first quarter net profit this week on the back of its revived handset business and growing enterprise demand.

It reported earnings of 19.7 billion Chinese yuan (US$2.7 billion) on 37% higher revenue of RMB178.5 billion, according to a filing to the National Interbank Funding Center.

The stellar quarterly numbers follow its 144% leap in profit and 10% gain in revenue for 2023 – its best growth in four years.

The filing did not break out the details for Huawei's internal segments, but the short-term outlook is strong despite the drop in its core operator business.

The handset market, both global and China, is on the rebound. Research firm Counterpoint said Huawei's China smartphone shipments grew 70% in the first quarter, putting it just behind Apple.

The enterprise business is also in a good place thanks to its cloud capabilities and strengths in key verticals. The head of Huawei's enterprise business, Wu Hui, has said the unit has a 30% growth target in 2024 and expects to hit RMB260 billion ($35.9 billion) in revenue in 2025.

Research access

Still, the biggest factor in Huawei's revived fortunes has been the 7-nanometer handset chip it developed in partnership with chip fab SMIC, using mature chipmaking equipment and aided by the covert acquisition of some US technology.

Huawei seems confident it has enough chip supply to support its growing 5G range, but the question is can it sustain it?

Despite the chip breakthrough, its chips are still some generations behind the most advanced products, and it will need to acquire or somehow build new chipmaking gear to prevent it from falling further behind.

The other big challenge is access to talent and research.

The vendor has far and away China's biggest R&D team and, most likely, the biggest share of China's expertise in many of its priority research areas.

But it needs to be able to access the latest global research in critical areas like AI, 6G and optical, so the severing of links with North American universities must hit hard.

We shouldn't be surprised then at the news that Huawei has been secretly funding a US optical research scholarship. Reportedly, Huawei's agreement with the Optica Foundation stipulates that its sponsorship remain confidential, even though the backers of other programs are disclosed.

Huawei has denied the arrangement is secret, and in any case, it breaks no law because the research is to be published. 

But it potentially gives Huawei early access to advanced research and possibly to researchers at universities it has been excluded from. 

After this disclosure, though, it could be another door that will close.

Huawei's striking reversal of fortune virtually takes it back to where it was five years ago, with a dominant handset business powering growth.

But it is far from certain whether it can overcome the long-term exclusion from advanced technology and from significant portions of leading industry research.