Huawei, which lost its mobile phone story, has embarked on the old path of Nokia

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play Huawei has passed through the "black block area", and its net profit has hit a new record under pressure

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Literature/tide awareness

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In the long years of fighting, as long as there are vast grasslands in the north, it is difficult for the Central Plains ethnic groups to exterminate nomads. Every time they fail, they can return to the north and wait for recuperation, waiting for an opportunity to go south.

The broadsword of sanctions can drive Huawei out of the most valuable mobile phone market, but Huawei has 30 years of communication business behind it, which is Huawei's most solid base.

The latest 2021 annual report shows that Huawei's annual revenue is 636.8 billion yuan, down 28.6% year on year; The net profit was 113.7 billion yuan, up 75.9% year on year. Of course, this data includes one-time income such as sales of Glory, which is 57.431 billion yuan. After deducting, Huawei's net profit fell by about 13% compared with last year's net profit.

Among them, the consumer business most affected by the sanctions dropped 49.6% year on year, falling back to the level five years ago. The operator business has become Huawei's highest revenue business again.

As an enterprise that started from communication, Huawei, which lost its terminal market, is now "returning to the bank". This reminds us of Nokia's experience of restructuring its communications business after selling its mobile phone business, which once again gave birth to its second spring.

However, Huawei's ambition is not just to become the second Nokia. In the case of a sharp decline in revenue, Huawei still maintains a high R&D investment of 22.4%. Huawei is investing extensively in enterprise services, car manufacturing and other fields to find the next explosive point.

　　 Huawei retreats to the base

"Huawei reiterates that it will not build cars."

Guo Ping, Huawei's rotating chairman, made a speech at the annual report conference, which showed the basic quality of a To B enterprise "not competing with customers", and also showed Huawei's true gene.

In 2010, terminals accounted for only 16.6% of Huawei's total revenue, less than a fraction of the telecom network. Since then, as Huawei's mobile phones have sold well all over the world, the consumer business has gradually replaced the telecom business, becoming the highest part of Huawei's revenue. However, after several rounds of sanctions, Huawei, like Nokia, has returned to its B-end business.

The annual report shows that in 2021, Huawei's consumer business will almost halve from 482.916 billion yuan last year to 243.431 billion yuan, slightly lower than the level in 2017. The proportion of consumer business has also dropped from 50% in the past few years to 38.28%.

This is the first decline in Huawei's consumer business in recent years. Even during the period of sanctions in 2020, Huawei still maintained a weak growth of 3.3%.

At present, the global shipments of Huawei mobile phones have dropped out of the top five, and have been classified as "others" by major data institutions, which will not be counted separately. In the domestic market, counter point data shows that in 2021, Huawei's domestic market share will be only 10%, down 78% year on year. According to Omdia, Huawei's total shipments in 2021 will decline by about 81% compared with the previous year.

In terms of tablets, Huawei's tablet market share in 2021 will be 9.7%, down 32.1% year on year.

In terms of notebook computers, Huawei's market share in the second quarter of 2021 fell 64% year on year, leaving only 0.5%. At present, Huawei has fallen out of the top five in the market.

Since September 15, 2020, TSMC can no longer supply chips to Huawei. Huawei has installed Snapdragon 888 processor in P50, but can only use 4G network. With the depletion of chips in stock and the further popularization of 5G, the competitiveness of Huawei's terminal products will be further weakened.

With the shrinking of terminal sales, Huawei's business structure is also changing. Guo Ping, the rotating chairman, said that after the mobile phone business was blocked, Huawei had to expand new areas such as wearability, sports health, and all room intelligence.

In the flagship store of Huawei Tmall, digital accessories contributed to the main sales volume. Among the top 20 products sold, only one tablet computer was a digital terminal, and the others were selfie sticks, headsets, routers, children's watches, bracelets and chargers.

Figure: Top 10 products in sales volume

In the 2021 annual report, the consumer business ranked from the first to the third, even behind the enterprise business with lower revenue. The annual report mentioned "consumer business" 22 times, while in 2020 and 2019, the number was 29 and 42 times respectively. The number of "cars" is as high as 77. From these signals, it is clear that Huawei's future development focus is no longer on consumer business.

After the arm was broken, the B-end business became Huawei's focus again. In 2021, the business revenue of Huawei operators will reach 281.469 billion yuan, accounting for 44.2% of the total business revenue, again becoming the highest business revenue.

In the late 1980s, Huawei transformed from a telecom equipment agent to a telecom equipment manufacturer. Starting from the rural market, it gradually moved to Hong Kong, Russia, Europe and other markets. By the end of the 1990s, Huawei's annual sales had exceeded 10 billion yuan.

Since then, Huawei has gradually become a world leading communication enterprise. According to third-party data, in the global communication equipment market in 2021, Huawei will occupy 28.70% of the market share, with a year-on-year growth of 7%, ranking first in the world over Ericsson and Nokia.

Today, Huawei is only returning to its "old line" again.

However, in 2021, the revenue of operator business will still decline, with a year-on-year decline of 7%. Meng Wanzhou explained at the financial report meeting: "The construction of China's 5G base station has been basically completed in 2020, so there is not so much customer demand for 5G deployment business in China."

Enterprise business is the only main business of Huawei that will grow positively in 2021, with revenue reaching 102.444 billion yuan, up 2.1% year on year. It is worth mentioning that although the revenue contribution of enterprise business is lower than that of consumer business, Huawei still ranks it ahead of consumer business in its annual report.

"Use AI, cloud, big data, Internet of Things, video, data communication and other technologies to build ICT infrastructure supporting digitalization, and provide products and solutions such as intelligent cloud network, intelligent and simple all-optical network, data center, data storage, 5GtoB, and trusted services for customers in key industries such as smart cities, finance, energy, transportation, and manufacturing."

This is Huawei's introduction to enterprise business. In just 100 words, almost every word is popular today. After the growth of consumer Internet peaked, enterprise services have become a new outlet in the Internet world in recent years, and all major factories are located here.

In the financial report meeting, Meng Wanzhou disclosed the sales data of Huawei Cloud for the first time. In 2021, Huawei Cloud's sales revenue will reach 20.1 billion yuan, an increase of 34% year on year. IDC data shows that Alibaba Cloud is the leading brand in China's public cloud market, with a market share of nearly 40%, followed by Huawei Cloud and Tencent Cloud, with a market share of about 10%, with little difference between them.

As early as 1998, Huawei listed IBM, a leading enterprise service company, as an example in its internal document, Huawei Basic Law. Today, 24 years later, after the prospect of terminal business has been very bleak, I wonder whether Huawei will take IBM as an example again.

　　 Will Huawei become the next Nokia?

On November 17, 2020, Huawei reached an agreement with Shenzhen Zhixin New Information Technology Co., Ltd., which is controlled by the State owned Assets Supervision and Administration Commission of Shenzhen, to formally sell all assets of Glory Business.

Seven years ago, on September 2, 2013, another mobile phone giant Nokia announced that it would sell its mobile phone business to Microsoft at a price of 5.44 billion euros.

In that year, Nokia lost 500 million euros and its mobile phone market share fell from 40% in 2008 to less than 4%. Among the global mobile phone brands, Nokia has fallen out of the top six, and its share price is less than one tenth of its peak.

In 2021, the market share of Huawei's mobile phones will also shrink by more than ten times, falling out of the top five. Of course, the reasons for their encounters are not the same. Nokia bet on the wrong direction of smart phone development, while Huawei was forced out of the market by external forces.

Having lost 90% of its mobile phones, Nokia needs to find a new main business. Their choice is to return to the telecommunications business.

Nokia has a history of 150 years. From rubber, paper making, to gas masks and televisions, its business has been expanding and changing for hundreds of years. In the 1960s, Nokia set up an electronics department and began to set foot in the telecommunications business, which opened the telecommunications era of Nokia for nearly 30 years. Until the mid-1990s, Nokia gradually focused on mobile terminals.

When the mobile phone business was at its peak, Nokia merged the telecom equipment business with Siemens to form "Nokia Siemens". After losing mobile phones, Nokia began to rebuild its telecommunications sector. In 2013, Nokia bought the other half of Siemens' shares in Nokia Siemens Networks. In 2015, Nokia acquired Alcatel Lucent, a telecom giant, with another 15.6 billion euros, thus taking Bell Labs, which has the highest position in the communications industry, into account.

After two acquisitions, Nokia's restructuring was basically completed. Nokia, which has been defeated in the mobile phone market, is eager to return to this old business to stage a "return of the king".

Nokia's restructuring was extremely successful. After transformation, Nokia has ranked among the top three communication equipment and solution providers in the world for many years. In 2017, Nokia returned to the Fortune 500 with an annual revenue of 185 billion yuan, becoming the world's second largest communication equipment manufacturer after Huawei.

From 2013 to 2018, there were 2133 patent applications for Nokia 5G technology in the world, accounting for about 10.5% of patents among telecom network equipment suppliers, ranking second only to Huawei. In May 2021, Nokia unilaterally announced that, according to a research report of a third-party organization, the number of Nokia 5G patents ranked first in the world.

On February 2, Nokia released its latest financial year results. In 2021, the company's net sales will be 22.202 billion euros, up 2% year on year; The net profit was 1.645 billion euros, compared with a net loss of 2.516 billion euros in the same period of the previous year, turning loss into profit. Although it is far from its peak, Nokia is still a powerful giant enterprise.

After the loss of mobile phone business, the business structure of Nokia and Huawei is very similar: the consumer business with the highest revenue is cut by half, the main business returns to the telecommunications business, and both take enterprise services as an important development direction. In the 5G field, Huawei and Nokia have been competing fiercely for many years, and they are the main competitors of each other. In addition, Nokia has been trying to enter the domestic enterprise service market.

The wave of global 5G infrastructure construction is an important foundation for Nokia to complete its renaissance. At present, Huawei is also trying to grasp the trend of digital transformation of enterprises and the rapid popularization of new energy vehicles.

However, compared with Nokia's situation in 2013, Huawei's brand is even better: Nokia almost lost its consumer business, while Huawei's declining consumer business still exceeded 240 billion yuan. Nokia needs to spend a lot of money to reorganize its telecommunications sector and re-enter as a challenger. Huawei's telecommunications business itself has the world's first market share.

In addition, Huawei is also very competitive in new energy vehicles and Huawei Cloud. Financial data such as revenue, cash flow and profit are also far better than Nokia.

It can be said that Nokia has worked hard for 8 years to get what Huawei has now, and more.

In its financial reports and press conferences, Huawei has repeatedly mentioned that "surviving" is the company's current goal. However, as far as Huawei's chips are concerned, it seems modest to "survive": Huawei is still the world's largest provider of telecommunications equipment and solutions, with an annual net profit of 100 billion yuan and cash and short-term investment of more than 400 billion yuan.

Perhaps the investment in R&D is the manifestation of Huawei's true ambition. In the case of a sharp decline in revenue, the annual R&D investment in 2021 will reach 142.7 billion yuan, accounting for 22.4% of the annual revenue, exceeding 15.9% in 2020.

Similarly, Nokia has also been developed. In March 2021, Nokia announced that it plans to lay off 5000-10000 employees in the next two years. By the end of 2023, it will save about 600 million euros to invest in 5G research and development. In another announcement, Nokia mentioned that it would win the 5G radio market "at all costs".

Toughness is the common feature of Huawei and Nokia in their development history. They have experienced many ups and downs in their development history. Now the two enterprises that have "survived" are like nomads who are ready to "move south" again and win a broader world again, just waiting for "changes in the Central Plains".