Cutting corners: Huawei may not be able to sell as many phones as it could if it wasn’t on the US Entity List, but the company does plan to profit from its extensive portfolio of 5G patents. The company is also open to cross-licensing agreements with American tech giants, although that option is looking increasingly unlikely.
Huawei was hit by US sanctions back in 2019 as a result of growing trade tensions with China, but that didn’t have an immediate effect on the company’s growth. A year later, Huawei managed to briefly surpass Samsung in the number of worldwide smartphone shipments, but only because of China’s relatively quick economic recovery after pandemic-related lockdowns.
The Chinese company mostly mitigated the initial blow dealt to its business right up until it lost access to several key hardware and software suppliers, most notably TSMC and Google.
But after burning through most of its stockpile of American chips and losing some lucrative 5G deployment contracts, it’s been forced to divest one of its sub-brands, create a makeshift clone of Google’s Android operating system, and even explore alternative revenue streams such as AI-enhanced pig farming.
According to a Bloomberg report, Huawei is looking to make up for all the lost revenue and then some. The Chinese company owns the world’s largest portfolio of 5G patents (3,007), which is why it has decided to start charging companies like Apple and Samsung for their use in mobile products.
Jason Ding, who leads Huawei’s IP Rights Department, explained during a conference at the company’s Shenzhen headquarters that Huawei will charge a reasonable royalty rate as a percentage of a handset’s selling price, but also capped at 16 yuan (around $2.5), which is lower than what other patent holders like Qualcomm, Nokia, and Ericsson charge per device.
Huawei estimates that revenue derived from patent licensing fees between 2019 and 2021 will be come to between $1.2 billion to $1.3 billion, although it didn’t offer a breakdown for what technologies are covered by those patents. This will go towards Huawei’s R&D efforts, some of which are focused on the next generation of mobile networks.
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At the same time, the company will pursue cross-licensing agreements with interested parties, but Ding didn’t go into any specifics. He did, however, explain that US sanctions shouldn’t impede any such negotiations, which is rather optimistic considering the recently amendments made by the Biden administration. Moreover, Ding believes the decision to charge relatively low royalty rates will lead to a win-win situation where 5G adoption accelerates thanks to a “more transparent cost structure” for companies that deploy the new networks.
In the meantime, Huawei isn’t sitting idle — the company is using strong government backing to build a chip manufacturing plant in Shanghai, which is key to ensuring its long-term survival. If Ericsson estimates are right, no less than 3.5 billion people will have 5G handsets by 2026, which means Huawei might just weather the storm after all.