Huawei's big comeback, explained

Despite facing more sanctions than any other major company, Huawei has not only survived but thrived. Their revenues and profits are back to 2020 peak levels, and they've launched innovative products like the Pur X phone with their new Harmony OS Next. Huawei has regained the top spot in the Chinese smartphone market and is expanding into new business segments like self-driving software and AI chips, signaling a significant comeback.

Before the 2020 bans, Huawei was a global giant in smartphones and networking equipment. US sanctions aimed to cripple their businesses by banning their telecom equipment and placing them on the entity list, restricting access to US technology and services like Google and chip manufacturing. However, the US's inconsistent 'all-out' implementation and lobbying efforts by American businesses allowed Huawei to continue operating, albeit with limitations like 4G-only phones. Huawei leveraged this window to strategize and rebuild.

Huawei urgently needed cash due to collapsing revenues and increased expenses from engineering around restrictions. They maintained profitability, partly by selling their sub-brand Honor for an estimated $15 billion cash injection. This spin-off allowed Honor to escape sanctions, though its ties to the Chinese state raise questions about the US double standard. Huawei also significantly increased its R&D spending to an impressive 25%, outspending competitors like Apple and Samsung, and diversified into smart accessories (watches, earbuds) and automotive solutions, capitalizing on niches less affected by sanctions.

To overcome the ban on Google services, Huawei developed Harmony OS as a unified operating system across all device form factors. The Pur X phone and new laptops now run a completely Android-free Harmony OS Next, marking a significant step towards software independence. Huawei used a gradual transition, replacing Android code bit by bit while making it easy for existing Android apps to run. The long-term challenge for Harmony OS is expanding its native app ecosystem outside of China.

US sanctions cut Huawei off from global chip manufacturing. In response, Huawei heavily invested in building a domestic Chinese chip industry. They, along with China's leading fabricator, produced the Kirin 9000S, China's first mass-produced 7nm chip (equivalent to 2020 flagship performance). While behind the bleeding edge, these chips are sufficient for daily use and competitive in AI. The Chinese government is heavily backing Huawei's chip efforts, with Huawei reportedly operating 20 fabs across China, leveraging government-owned facilities and securing equipment from state-funded companies.

Huawei's comeback is attributed to a combination of engineering prowess, government support, and strategic blunders by the US. The Chinese government's financial injections and backing of chip manufacturing initiatives have been critical. Huawei's devices are now high-end and adventurous, and their consumer business is showing significant growth again. The Huawei ecosystem is becoming more usable, especially for those in China, with the potential for future international expansion for Harmony OS.