Five years ago, Washington sanctioned Huawei, cutting off the Chinese company’s access to advanced U.S. technologies because it feared the telecommunications giant would spy on Americans and their allies. Many in the industry thought it would ring the death knell for one of China’s most vital tech players.
Huawei struggled at first—but now it’s come roaring back.
Bolstered by billions of dollars in state support, Huawei has expanded into new businesses, boosted its profitability and found fresh ways to curb its dependence on U.S. suppliers. It has held on to its leading position in the global telecom-equipment market, despite American efforts to squeeze Huawei out of its allies’ networks. And it’s making a big comeback in high-end smartphones, using sophisticated new chips developed in-house to take buyers from Apple.
Along the way, a company that portrayed itself as independent from Beijing has morphed into something more like a national champion, helping China wean itself off foreign suppliers—part of a broader campaign to eliminate U.S. technology in China, dubbed “Delete A,” for Delete America. Its resurgence shows why it’s so hard for America to contain China’s technological ambitions.
“The U.S. government’s campaign against Huawei is inadvertently bolstering the company’s resilience, echoing the age-old adage that what doesn’t kill you makes you stronger,” said Sameh Boujelbene, an analyst at research firm Dell’Oro Group.
State money was critical. While China’s government has backed Huawei since its earliest days, government support ramped up in recent years. Huawei’s profit more than doubled last year, the largest jump in at least two decades. Roughly two-thirds of its revenue comes from domestic clients.
Government contracts and company registration records, as well as interviews with former and current employees, reveal that billions of dollars flowed from the Chinese government to Huawei through preferential buying contracts and subsidies. State-owned enterprises, government agencies and Communist Party bodies sought Huawei chips, smartphones, cloud services and software, with some procurement contracts calling for Huawei gear by name.
Local governments have bought Huawei businesses, providing cash injections. Once reliant on Google’s Android for its consumer devices, Huawei built its own operating system. It has even made a foray into electric vehicles, a task that Apple gave up on, and developed its own version of Bluetooth.
Huawei still faces challenges. Its most advanced semiconductors remain a step behind industry leaders such as Nvidia, and some sector experts believe it will be hard for Huawei to keep innovating without access to more advanced Western technologies.
“We’ve been through a lot over the past few years. But through one challenge after another, we’ve managed to grow,” Huawei said in a written statement, adding that the company owed its survival and development to the trust and support of global customers, partners and “all sectors of society.” Sustaining R&D investment will be crucial going forward, the company said.
China’s Ministry of Industry and Information Technology and its Ministry of Finance, which leads government procurement, didn’t respond to requests for comment.
In the U.S., supporters of restrictions on Huawei say they achieved their primary goal: reducing the amount of Huawei equipment in networks in the U.S. and its military allies.
“The goal wasn’t to drive Huawei out of business,” said Matt Pottinger, who was deputy national security adviser in the Trump administration and now chairs the China program at the Foundation for Defense of Democracies think tank. “It was to protect our alliances and protect our data, and if it made life harder for Huawei, all the better.”
Washington is watching Huawei’s progress warily. One current U.S. official said Washington is closely tracking Huawei’s efforts to make its own semiconductors, in case more actions are needed to block China from manufacturing artificial-intelligence-focused chips that can give Beijing a military edge.
Ascent interrupted
Huawei was founded in 1987 by Ren Zhengfei, now 79, as a maker of phone switches. It went on to become one of the world’s biggest producers of smartphones and telecom equipment, and one of the most profitable private companies in China. It also made inroads beyond China, with around 48% of its revenue from international clients in 2018.
As U.S.-China tensions ratcheted up, Western officials grew more concerned that Huawei could pose a security risk to countries that used its equipment. Foreign perceptions of the company worsened when Meng Wanzhou, a Huawei executive and Ren’s daughter, was detained in Canada in 2018 for alleged violations of U.S. sanctions on Iran.
The Trump administration, which had been lobbying allies to drop Huawei from their networks, added it to a Commerce Department trade blacklist that barred companies such as Intel, Qualcomm and Google from supplying technology from the U.S. to Huawei without a license.
Huawei denied that its products would ever be used to spy on Western nations, and played down any ties with the Chinese state. In the company’s early years, according to state media, Ren turned down help from China’s then-premier in getting a loan so that Huawei could maintain distance from authorities.
After the U.S. imposed restrictions, Huawei and China’s government grew closer. Soon, Huawei leaders declared that every product they made going forward should be able to rely entirely on components developed by Chinese companies.
In a public speech last year, Ren recalled that a Huawei executive told him: “America doesn’t understand that with this blow, they are turning the biggest supporter of the U.S. into its largest detractor.”
Ren compared the firm to a Soviet military plane that had crashed during World War II in a Kazakhstan lake, only to be recovered in recent years and restored. The Ilyushin Il-2, dubbed the Flying Tank, flew again. Huawei circulated a video about the plane to staff, with the slogan: “Heroes are forged, not born.”
For a while, though, it looked like Huawei would struggle to stay aloft. In 2021, its revenue dropped almost 30% from the year before. Its core telecom equipment business was suffering. Apple’s iPhone was taking over Huawei market share in smartphones.
Huawei focused on building out more of its own supply chain and expanding into new areas that could generate revenue to help keep the company going, including cloud computing and other services, according to Chris Peirera, a former Huawei senior director in public affairs. Ren was a motivational leader, he said.
“In the past, we chased the ideal of globalization, determined to serve mankind. What are our goals now? It’s to survive. We will make money wherever we can,” Ren later told staff in an internal letter.
China to the rescue
Government support began to amp up from Day One of the sanctions.
On May 16, 2019—the day the Commerce Department added Huawei to the trade blacklist—the local government in Shenzhen, where Huawei is based, registered an investment company. That entity, Shenzhen Major Industry Investment Group, or SMII, focused on semiconductors, investing in foundries, manufacturing equipment and materials that would help ensure Huawei was supplied with enough domestically made chips and other technologies.
Two companies established by SMII, including a chip foundry, employed former Huawei executives, according to people familiar with the matter. One received around a dozen patented technologies transferred from Huawei. Huawei human-resources managers had asked company researchers if they would work at that entity, promising them they could keep their benefits if they moved, according to people familiar with the matter.
Shenzhen’s imports of semiconductor manufacturing equipment surged after SMII’s inception, official data shows.
Shenzhen’s government and SMII didn’t respond to requests for comment. Huawei said not all of the Shenzhen government’s semiconductor-related activities are linked to Huawei.
A new company majority-owned by Shenzhen also bought Huawei’s Honor smartphone business, which was struggling because of the U.S. sanctions. The deal was worth several billions of dollars, a person familiar with the transaction said. The cash allowed Huawei to focus on other businesses, including its higher-end Mate series of phones.
Direct financial support increased as well. Huawei received over $1 billion in government grants in 2023, more than quadruple the amount it received in 2019, according to Huawei’s financial reports. In all, Huawei received nearly $3 billion in the past five years, accounting for 3% of its total R&D expenses.
The U.S. also is providing large subsidies to encourage domestic chip-making, though it has made the assistance available to foreign companies, including Taiwan Semiconductor Manufacturing Co.
Beijing directed state agencies to buy more of Huawei’s software, chips and mobile devices, a policy that boosted Huawei while reducing China’s reliance on American companies, including Apple, whose iPhones are no longer allowed in the workplace for many government employees. A government research unit named Huawei as one of four tech giants spearheading the nation’s push to wean itself off foreign technology, while another government body singled out Huawei as a preferred state supplier of AI chips, servers and other enterprise software.
The Wall Street Journal found more than 300 government procurement contracts worth around $5 billion specifically calling for the purchase of servers and other tech infrastructure powered by Huawei’s Kunpeng central processing units, or CPUs, in 2023. Other contracts listed Huawei CPUs among a handful of preferred local vendors.
All of this was a sharp contrast to five years ago, when government agencies specifically requested products from U.S. chip makers Intel or AMD.
China’s buy-local policy is even more pronounced in the telecom-equipment space, Huawei’s largest revenue source. State-owned Chinese wireless carriers have largely stopped buying equipment from Huawei’s foreign rivals, Sweden’s Ericsson and Finland’s Nokia, even when one of them priced their contracts more cheaply than Chinese companies. The shift came while Sweden and other European countries indicated that they would cut Huawei and another Chinese equipment maker, ZTE, from their networks.
Ericsson and Nokia held about 15% of China’s cellular equipment market before 5G began rolling out in 2019. Now, in the 5G cellular-equipment market, they hold about 4% to 5%, according to research firm Dell’Oro.
Fighting ‘foreign oppression’
Though Huawei is still seeking to sell its products abroad in places such as Southeast Asia and Africa, it is more reliant on China’s market than ever, with 67% of revenue last year coming from domestic clients. The company often portrays itself as a national champion that gives priority to serving China.
The Canadian arrest of Meng, Ren’s daughter, helped accelerate that transition. Beijing imprisoned two Canadian citizens in retaliation and negotiated her release. When Meng stepped off the plane in China in September 2021 after three years of detention, she expressed gratitude as she addressed a crowd gathered to greet her.
“Over the last three years, I’ve come to understand this better: An individual’s fate, a corporation’s fate, and the country’s fate are all intertwined. Our motherland is our strongest backing,” she said.
With so much government support, Huawei was able to avoid massive cuts that would have gutted its R&D or led to a talent exodus. Huawei boosted R&D spending to almost 165 billion yuan, or $23 billion, last year, up from 102 billion yuan in 2018. More than half of Huawei’s 207,000 employees are in R&D.
Huawei is now at the vanguard of China’s push to develop cutting-edge chips to wean reliance on Nvidia and Intel, as the Biden administration seeks to curb China’s ability to develop advanced chips and technology that could aid its warfare and surveillance. U.S. chip juggernaut Nvidia singled out Huawei as a top competitor in February.
Huawei is leading a government-funded project to develop memory units for advanced AI chips, people familiar with the matter said, with at least 11 national AI data centers now using Huawei chips.
Through various state-backed funds, the Chinese government has invested in more than two dozen chip-related startups alongside Huawei over the past five years, according to corporate database Tianyancha.
Last August, Huawei launched its Mate 60 Pro, a smartphone with 5G-like capability powered by a chip developed in-house. Many Chinese consumers have cited national pride as a reason for buying Huawei smartphones, whose success led to a sharp drop in Apple iPhone sales so far this year.
Barely a month after the phone’s launch, a group of Huawei researchers gathered at a barbecue restaurant on the outskirts of Beijing, and congratulated engineers who had worked on the project at HiSilicon, Huawei’s chip unit.
“You HiSilicon people kick ass,” one of the Huawei researchers said, according to a person who attended. “Managers tell us daily that our work helps the country fight against foreign oppression,” a HiSilicon engineer who was present responded.
“We’re becoming more and more like a state-owned company, aren’t we?” another researcher chimed in.
Write to Liza Lin at liza.lin@wsj.com, Stu Woo at Stu.Woo@wsj.com and Raffaele Huang at raffaele.huang@wsj.com
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